HDR - Takeover Questions, page-8

veejay,

HDR have enough money to get through this years drilling program but they will need to raise money for next year. They have several options.

1. They've already talked about an issue on the London Stock Market. Since this market is paying a premium for HDR this would make sense. It would also introduce the stock to a larger audience and be long run positive for the share price.

2. Make a share issue to WPL as they did last year. This would also be price positive.

3. They could sell WPL or Dana or another party a % of their farmin rights.

4. A local capital raising from existing HDR shareholders. Ouch.

5. Debt. I doubt they could do this at anything other than criminal rates of interest.

Personally I think this is a moot discussion. I believe HDR will be taken over by WPL before the years end. For once I have to disagree with the esteemed Zach whose carefullyl reasoned posts remind me of a QC going in for the kill, but even a QC will lose a case every few years.

Why WPL will take out HDR:

1. They have announced their intention to make strategic aquisitions and have a $2b warchest. HDR is a measly $350m. Small change to WPL. Given the threat of a Shell takeover WPL is keen to make itself less of a target by increasing its market cap and debt through takeovers.

2. WPL have 0% stake in blocks 1 & 8. HDR have 18%. Sailorgirl has quoted a geo involved with the 3d seismic acquisition process who said there were excellent leads in block 8. WPL needs to get a stake in these blocks so it can have a complete understanding of the full geology of the region. Taking out HDR will do this.

3. HDR is trading well below most brokers valuations. At these discount prices WPL is crazy not to take a shot. They paid 1.10 last year, yet HDR languishes in the 80s.

4. WPL only has a 35% stake in its exploration blocks. This means that they have to attend tedious meetings with HDR & FOG & ROC to vote on future drilling programs etc. If they take out HDR they will have >50% equity. A clear majority. They can act as the undisputed dictator of offshore Mauritania without worrying about tedious juniors.

5. If they don't take out WPL those tea ladies will never stop gossiping about HDR aroung the water cooler.