agm summary posted at fool.co.uk

G'day all,

Following is a post by 61pt8 over at fool.co.uk. I'm sure most of you visit there and have already read this, but thought I would post it for the few that haven't. Great read IMO, hopefully 61pt8 doesn't mind me reproducing here!

Hi all,

The presentation today was a very informal session. The atmosphere amongst the 40-odd present was probably tenser than one would expect, especially given that Hardman has transformed itself from a penny dreadful wannabe to be on the verge of being inducted into the ASX100 index. No doubt three successive dry holes have played a major part in that. Nonetheless, I met three great blokes, and fellow Hardman shareholders, today in xmagx, abuman (Hot Copper) and another gentleman (who was one of only three present at the presentation back in 1997).

The presentation took a while to get started as it took Scott's laptop quite a while to bring up the graphic-intensive powerpoint presentation – the very same laptop that gave a “virtual memory is running low” warning later during the presentation. Once it got underway, Scott gave a very brief introductory overview of Hardman's corporate background and history, before moving onto the serious side of things.

Firstly, on the matter of finding a replacement CEO, it was confirmed that they are now at a very advanced stage of their executive search, with an announcement likely to be made some time towards the end of January 2005. In addition, it was also mentioned that Ted Ellyard is recovering well and making headway towards full recovery.

As one can expect, the presentation was based heavily on activities in Mauritania. It was clarified that approximately 6+ BCF of gas would be required for Banda to be commercial. Current estimate is between 1-4 BCF, final figure is to be confirmed after an appraisal well scheduled to be drilled east of Banda (closer to the shoreline) some time during Q1/2 2005. It would seem that they are expecting more gas-filled prospects as they head east towards the shallower waters. The question of commerciality of Banda is seemingly not a question of IF, but more of WHEN. This is because the existing reserves at Banda, coupled with the disposed gas to be re-injected into Banda from Tevet, Tiof and Chinguetti, should bring its reserves close to a commercial level in a few years time. This, together with Pelican, was being cited as one of the reasons why BG has bought into the region.

After the Tevet discovery, seismic is currently being done to study the channel between Banda and Tevet. It is envisaged that Tevet will be brought into production about the time when Chinguetti experiences a natural decline in its production output rate. In effect, Tevet will serve to extend the length of time in which the production rate of 75,000 bpd is maintained at Chinguetti.

As for Chinguetti, the FPSO to be used is an ex-tanker currently being converted in Singapore. This should be arriving at Chinguetti around the start of Q3 2005. Moving onto Capitaine. It was drilled some 30km west of Chinguetti. The question was put to Scott as to why a prospect so far from Chinguetti was chosen. The reason given was that they believed it was a genuine prospect that could have contained significant amount of oil, and provided significant extension to the existing Miocene fairway at Chinguetti. As it is, the fact that it is dry does not rule out the remaining channel between Chinguetti and Capitaine. In fact, several prospects have previously been identified and will be followed through, in time. A point that was repeatedly made by Scott and Dean, one of the technical personnel, was that there have identified many good prospects, but they can only drill based on what they believe to be the “best” prospects at a given point in time. Additionally, given it is a relatively new frontier, even dry holes are not totally wasted as the information collated can be used to refine their modeling, and hence, their understanding of the geographical structure in place.

While on the matter of rigs, it was said that one rig has been booked for 7 months (I presume is Stena Tay) and the other one for 10 months (West Navigator). See my earlier post for my estimated timelines for both rigs…

http://boards.fool.co.uk/Message.asp?mid=8906819

The JV does have the option over one of the rigs to extend its presence, if necessary. In fact, it is possible that one of the rigs could end up drilling continuously in Mauritania past 2005 and into 2006.

This brings us to Tiof. I approached Scott after the official presentation is over and asked him to clarify the “mechanical problems” they are experiencing with the Tiof-3 flow test. In response, it was explained that they are indeed experiencing similar sand control issues as at Chinguetti 4-2. Of course, being the idiot that I am, I stated that I would have thought they could have applied the same sand control technique as at Chinguetti 4-5 to overcome the problem. However, Scott was very kind and patient in explaining to me that although both Chinguetti and Tiof are on similar Miocene channel within the same PSC area, each location has its own subtle geographical structure differences and as such, the structure must be understood before they can derive at a solution. So while Tiof-3 ST2 may have encountered similar problems to Chinguetti 4-2, it is not unreasonable for us to expect that they can extrapolate the necessary technical data to come up with a sand control solution similar to Chinguetti 4-5. Although the commerciality of Tiof is heavily dependant on the full appraisal of the system, it was said that they were quietly confident that Tiof will be commercial, with a decision to be made some time in Q1/Q2 2005 with regards to an Early Development Plan. I asked Dean as to what their expectation were in terms of flow rate. He responded by saying that given that size of the entire Tiof structure (54 sq km), they are not expecting the flow rate to be as high as Chinguetti. A rough estimate of approx 5000bopd was given. It was also said that the number of production wells required to bring Tiof into full production would be significantly higher than Chinguetti.

When talking about the dry hole at Merou, they expressed their clear disappointment, but at the same time, it was said that pending the result of Tiof flow test as an indication of field pressure gradient and field size, it is more probably than not that the Tiof-Merou channel will be further explored since Merou was hydrocarbon-charged - most likely gas charged.

I mentioned about Woodside's article on rethinking their target selection strategy, and whether this would affect any of the existing selected targets in Sotto/Bogue/Petrel. Scott said that he had not read the article, but added that the technical personnel at each of the JV parties are currently conducting detail analysis of the data obtained from the current drilling programme thus far. He also explained the process of how final drilling prospects are determined. Basically, each JV party has the right to nominate whatever prospects they would like to be drilled. However, final approval is given for a prospect only if more than one party agrees to the prospect, and the total votes equates to 65% or greater of the overall JV interests. In other words, Woodside identifies most of the drilling targets, but they require one of the other JV partner to agree before the prospect can be approved. That being said, Woodside does have the power to reject any prospect proposed by any of the other JV partners since the 65% approval cannot be obtained without their 50+% interest.

Fantar is a prospect that has been identified by the Woodside technical team, but is one that Scott and Dean did not want to comment too much on. I had the feeling that the straight-shooting days when Ted was around is fast disappearing and that Hardman has begun to become very tight-lipped. This point was made to Scott, who responded by saying that this is due to the confidentiality nature of their internal technical data, and the fact that many companies are trying to get a foot into Mauritania. So this is simply their way of protecting Hardman's assets.

Petrel will be drilled in 2005, there's no doubt about it since it is a commitment well. That was the message I received. It would appear that while Dana may not be too happy taking a backseat to Woodside's drilling programme, it is simply not financially feasible for them to bring their own rig in to drill one well especially given the current lack of rig availability.

When speaking about Lake Albert, one could almost sense the excitement in Scott's voice. During the official presentation, it was pointed out that given its remote location, it is quite a logistical challenge to get a rig there. Lake Albert is a rift basin that is 40m wide and 120 long– a type of structure that has been responsible for a disproportionately large amount of the global oil output in the past. At a recent conference in Cape Town, Scott met up with a representative of Energy Africa, who mentioned that the quality of source rock found in the drilling of Block-1 implies there are unrisked reserves in the billions of barrels. In addition, during one of their visits, it was observed that oil sip was found to rise to the surface of the lake, and could be found along the lakeside. At the same time as the current seismic being performed in Lake Albert (using a fishing yacht), Hardman technical personnel are frantically exploring the possibility of drilling Lake Albert using an onshore rig, with a “transition seismic from land to offshore” current being analysed. Again, this is due to the remoteness of the location, and the logistical difficulties in getting an offshore rig onto Lake Albert. This is the reason why Heritage Oil chose to use an under-powered rig to drill Turaco-1 and 2, with both encountering technical problems. Turaco-3 was successfully drilled to TD using a full-powered rig. On the political front, there had been some trouble along the borders up North and down South, however, there are seen as small pockets of troubles rather than a widespread one, with no threat to their Lake Albert operation whatsoever.

Last but not least – Guyane and the small matter of Matamata :) Guyane is French-controlled, and they recently abolished surface rental in order to stimulate offshore exploration. As a result, Hardman has not had to pay a single cent for its acreage offshore Guyane. They have until mid-2006 to drill a commitment well before the license lapses. Numerous past drillings to the south of Hardman's acreage had encountered non-commercial hydrocarbons. They believe that the source kitchen is, in fact, near the Tambaredjo Oil Field, and that the migration path is to the north east – which of course, runs right through Hardman's acreage. Currently, there are in discussions with up to 8 potential farmin partners and it was said that they are expecting to get a very favourable farmout agreement. It was said that an agreement may not be too far away. When asked as to why they wouldn't go at it alone, Dean simply said what I had posted the other day – it is simply too risky, and too resource-intensive. Not to mention it would go against the very strategy that they have adopted right from the beginning – buy under-explored acreage cheaply, farmouts while retain significant interests, and achieve production growth through discoveries. As with my expectation, it is Hardman's intention to retain approx 30-40% interests in Guyane post-farmouts.

Well, that was my first attempt at a very long post (for me anyway) and it has taken me 3 hours to make sense of my scribbles, collate the information and present it in some form of orderly fashion as best I can, not to mention a very pissed off girlfriend because I ignored her all night to write this article So be kind when you're rip it apart.