some words of wisdom from kahuna

I have just read a post made yesterday on SS from Kahuna (Maurice Mauritania) which is a delightful ramble on the philosophy of Fundamentals trading and particularly as it applies to HDR's current situation.

I think it contains more common sense than any other post I have read on any of the investing chatsites I have ploughed through. See what you think, fellow Hardmanites.

"Hi,

Idribble ... I thought about morris .... I did ... but Maurice wow what a christian name.

Mookie no worries.

Been speaking with my favourite Kiwi ... after rambling on for some time and thinking about it overnight ... putting what I think into a shorter version.

Have said when trading the biggest enemy one has is yourself.
Best asset is the lump of meat sitting on your shoulders.

Now I feel I have a fair idea on the WPL and HDR story and fair grip on direction of the oil market both long and short term. So to the ASX200 index.

Biggest problem for most traders ... is the higher a stock goes the more enthused people seem to get about it. In reality when a stock goes higher .. no matter how much you love it the closer it is to its eventual peak and you should be selling as opposed to chasing or increasing.

Conversly when a stock goes lower the more enthused you should become about the stocks possible gains in the future. It is a matter of looking at something cold and hard and knowing the fundamentals and underlying business and little else. Sure in this case the price of the commodity "oil" is important as too is the tone of the overall index and other peers in the sector. But the lower a stock goes ... the more enthused and keen you should become !!

What in reality happens and how I try to operate is when a stock makes an all time high there normally is a spike in volume there ... in other words more peope are buying at the high when in reality the vast majority should be selling or reducing. Sure some are ... but for every buyer there is a seller ... and to see a spike in volume at the high its normally a big holder doing the selling and lots of little ones chasing. Sometimes human nature gets the better of me .... experience helps ... research more so.

With HDR right now, we are seeing human nature at its best. Fundamentally what has changed .... sure some things ... oil is off its peaks from a few weeks ago ... and probally going to go a bit lower. Market tone ASX200 up till yesterday sucked wind ... but beyond that ... not a hell of a lot in terms of valuation or underlying valuation for HDR. One hand some soveriegn risk removed vs possibly slightly lower returns on the back of oil ... but since it didn't reflect a price of US$60- for oil anyhow and about US$30- .... long term .. you adjust where you get serious. What we are seeing now is people questioning their own fundamental knowledge of the stock ... is Chinguettie on track for Jan/Feb ... yep .... does TIOF have 1 billion plus in ground yep ... Does the worlds most conservative oil company still think it can extract at least 285 mmboe from there .. yep ... is 28.5% recovery rate low for a deposit of Vegemtie yep .. is tiof vegemite or API 41 medium light sour crude ? ...
the latter ... does Banda post Banda 2 contain at least 2.4 trillion cubic foot of gas ... more than likely ... does Ching gas, Tevet GAS and Tiof gas cap with Banda more than likelyt contain 5.5 trillion cubic foot of gas ... yep. Add Pelican is the total over 6.5 trillion .. yep.
Have all the current drills and dry holes been on extreme fringes of the fields either south or west .. yes. Converting all the confirmed finds to oil ... I still come out with a total for Maurtiania of 1.7 billion barrels ... at 20% HDR ... 340 mmboe reserves ... a bit more in fact !! This I cant see dissapearing anytime soon. Is the gas in the region around Chinguettie over the level needed to contemplate building a LNG facility ... yep ... is it likely there is much more Gas than reported to date ? yes ... due to the lack of a formal PSA on gas with the Mauritanian govt is probally a very good reason for this. These are facts ... and the picture is much better October 2005 than January 2005 yet the price of HDR is barley moved .... why ? Does it make sense ?

Down here ... nothing has changed in reality other than perceptions. We are starting to see people question their own understanding of facts. Chiguettie is a fact, Banda , tevet and Tiof ... yet we all are, even myself to some extent question our beliefs ... what have we missed ? The market is going down we must not be privy to some secret information ....

All one does .. well all I do is adjust the target price I want to buy at accordingly ... buying in the face of a bear market is never wise until it becomes painful not to do so. My own I wish levels were $2.10-1.90 .... unfortunalty with Tevet2 problems and ASX 200 bear mode and inflation fears its become a reality and the I wish levels for me dropped a bit but not much .... hard to pass up a stock with an implied P/E of 8 ....

If something key changes to the picture ... sure re work your assumptions ... but for me nothing has really changed long term... even if HDR was to find zero more in Mauritania the gas and oil already between the 5 finds suggests to me the real valuation on HDR is around AUD $3.42 per barrel of reserves and if they were to extract the oil and then gas at the rate of Chinguettie it would last around 80 years and oil at US$50- I expect it implies a P/E of around 8 for HDR. AUD/OIL $80.49 vs valuation at $3.42 NPV or 4.2% ... yeah right !! But we are there ... either oil goes to AUD $55- or USD$40- or the other side gives.

WPL can play all it likes ... Chinguettie comes on line in 2 months .... HDR for 11 months production will earn around AUD$150 mio in 2006. Time for WPL messing with things is drawing to an end ... cant argue with a P/E below 10 for long let alone 8.

WPL .... My views on their objective is changing ... ... they cannot be so childish.
Upped my chances of them moving ... still hard to call but their over the top reporting on Mauritania is having the desired effect on HDR's share price.

Then again could be totally wrong on everything and the market is correct in hitting HDR harder than the rest.

Dont we all wish we had the forsight to buy HDR when it went below $1.50 last year ? and conversly to sell when it went over $2.50 not so long ago ? Hardest thing with trading is letting a loved one go on the top ... and standing slowly in the face of a storm and buying.
I don't enjoy either but its part of trading. You will rarely ever hit the high or the low of a move and shouldn't really try. Lower it goes ... slowly increase ... and the opposite when it gets to overdone. Suck it up .... and act accordingly if the picture changes. I certainly have been bearish on the overall market till it hit the 4,300 mark last Friday ... oil as well ... its like a red flag the close below USD$60- is so tempting to the drones in the US oil futures market. One winter storm .... 25 million US households rush to buy heating oil ... hahahha


I sound like a cracked record .... no positing on HDR for a while from me.

Nothing I say will change the reality of what is going to happen in the market. I expect lower before higher. Lower it goes more enthused I am. Fairly sure on those estimates of in ground reserves .... releases by WPL and HDR are fairly clear. Should the market wish to take it lower ... fine ...

Tevet 2 today ... if its hydrocarbons in the deeper geological structures around Mauritania .... well I know what this means to me .... Saudi Arabia nearly ran out of oil till it drilled deep .... funny that ... but like so many other things it will be passed over especially if its gas .... hillarious thing is if its gas its, besides making a lot of the deeper targets seen on 3d seismic more likely ... Tevet 2 is about the size of Banda which even now is said to contain 2.4 trillion cubic feet of gas or more ... add the two together and Chinguettie gas cap plut tiof gas cap and its a deposit bugger than the Sunrise gas deposit in the Timor sea .....

Seriously I am valuing HDR on known finds nothing else ... not a thing. How likely do you think with 5 large confirmed finds in the area it is they find zero more ? Remember they have been drilling the fringes .... way West of Tiof or way way south of Chinguettie .... WPl has failed to mention this little ditty and until we looked at maps with targets identified in 2001 and the actual drills did we see they are ... well ... 125 KM south of Chinguettie ... Way west of Tiof in deep deep water .... I am not counting anything ... but the share price shows less than zero for some of the confirmed finds let alone ... some sort of maybe.
Today should be fun :}



Enough .... sorry .... like the rest nervous .... questioning my sanity but like so many times before experience tells me to ignore it. Facts alone are my best friends at times like this ... but an eye to changing realites and the only one there is oil price but markets focuss on the correction and the big picture of US$40- to US$60- seems to have escaped the short term memory barrier for the market.

When I say I hope they send HDR lower ... despite having to endure more pain short term ... the facts well are pretty clear on the finds to date ... so happy to endure some short term pain. Will come back in a few weeks to the thread ..... and 12 months and see where we stand.

Best of luck to all

Maurice Mauritania