fair value now over $2.60

What fantastic news.

HDR and its partners strike it again.

Being conservative I would expect at a minimum the value of todays confirmation to add at least considerable value to the NPV value of HDR.

Even usuing very conservative models as we have seen some stockbrokers use the implications of todays announcements seem to confirm to some extent the upgrading of reserves in Mauritania. Until we see the full records of the wire logs we really wont know how good.

Being as pessimistic as I can be the upgrade to me at a minimum would be of the order of 100 million barrels and we are just at the start. With 100 million in mind thats around a 240 million to the bottom line of HDR usuing even conservative NPV or in other words around 20% of value. Hoping todays results after wire logs lead to an increase of around 200 million barrels of reserves but being conservative here. That would bring my own fair value up to around $3.00. One has to remember this is just the first two drilled to depth out of a total of 21 exploration/appraisal and production wells.

Todays announcement seems to be pushing me towards the upper end of the estimates made back in January of recoverable reserves when all is said and done.

A few points to note when arriving at my ultra conservative estimate is whilst the price of spot oil has risen to around the USD $50- level forward oil has not moved at all. The discount has just got greater. Five year forward oil is trading at a discount of USD$14.52 to the spot price.

Personally I do not agree with this but one cannot argue with the market. Oil traders in NY feel the current spot price is a spike and thats it. Seeing the 5 year oil futures sitting below USD $35- seems like a bit of a gift given the increases in demad and changes in suppliers we shall see over the next 5 years. Suspect spot oil will average well over USD $40- for the next decade.

However having to use the implied forward oil price, todays announcement seems to bode well for the possibility of future large upgrades in recoverable reserves from Mauritania.

HDR at present not too excited and has hardly moved and possibly waiting for confirmation after logs are run.
To me without even seeing the logs this confirms the possible extent of the field and points towards a massive upgrade in recoverable reserves. With the price in reality barely moved think it is a decent buy on any pullback from here.

If as we all seem to suspect, the upgrade will be of the order of 1 billion plus barrels ... blue sky is the only way from here. Wild card for me is if they actually find something in the low probability drills they make ....

I am sure some broker will now come out and upgrade there estimate and NPV valuation but as normal it will be from around $1.60 up to maybe $2.00. Today and when the results come out of the wire logs, if they are as expected just point to the fields being as large as HDR's call of being over 1.25 billion recoverable. On that basis if they are correct one could expect HDR $4- plus ... but I am sure we will have brokers still calling it too low the whole way up.

Hats off to the broker calling HDR a sell at $1.60 ...