Angers
Thanks for your prompt reply – I would have thanked you sooner but I am presently holidaying interstate and am dependent on internet cafes for computer access.
Given your comments about the timing and nature of planned Ching repair works as well as your earlier advice about your positive discussions with HDR about a range of matters, I am having real difficulties understanding what caused Friday’s apparent panic attack about HDR.
However, I have noted that there is a difference between what you have just reported re the timing of repair works and what SP put out in late July (he attributed seismic resolution works to “subsequent” well locations, implying that the 3 planned repair holes were not seismic dependent).
However, something seemingly spooked one or more shareholder last Friday.
Therefore, given a view that WPL/ HDR/ Simon P do not always reveal all that shareholders expect of them in a timely manner (or don’t fully disclose the picture), the residual concern is that the information you have gleaned from your discussions with HDR may not be the complete picture, and some missing bit/s (of an adverse nature) may be known to last Friday’s seller/s but not us.
Nevertheless, the HDR current situation needs some further consideration because we shareholders constantly need to reassess our willingness to stay with HDR in face of its chronic underperformance over more than 2 years and seemingly endless share price volatility.
As I understand the situation, the positives are that:
• Ching field is underperforming, BUT underperformance has stabilized (and might even have improved on HDR’s last report), Ching is producing below original budget volumes but better than expected revenues from its reduced production volumes, the Ching repair works are on schedule with first hole due to be commenced (as previously advised by HDR) in October, with balance of 2 holes are set for completion by early 2007. Thus, all in all the Ching problems seem to be one-off and (relatively) of a short-term nature, are capable of substantial rectification, and in the meantime Ching is producing a good cash flow for HDR
• Mauritanian exploration program is underway, albeit that Colin disappointed, but the next well has just spudded, so result cannot yet be known or suspected
• Uganda is positive so far, and we are awaiting results of latest tests, and a full appraisal of the 2 finds by end August, BUT ABN Amro have raised some questions as to HDR’s market for any oil produced from the Ugandan field (and HDR has allowed related doubts to fester, because it has chosen not to comment on the issues raised in a thoroughly professional analysis made by a firm of ABN’s standing)
• The Guyane farm-out negotiations are apparently proceeding satisfactorily (but are running far behind the timeframe nominated by SP, and HDR has apparently decided not to commented in any meaningful manner on what is happening or what the new timetable for an announcement might be, completely missing the point that failure to inform the shareholders unnecessarily allows concerns to grow that HDR has a developing problem in this area, thus turning a potential positive into a negative)
• HDR has good amount of cash on hand and has good cash flow
• HDR seems to have adopted the right strategy to diversify its portfolio and reduce its risk exposure, and seems to be competently progressing same, albeit that action is much slower than I would prefer
• An extension of this point is that SP seems to be doing at least an adequate job, in fact, probably a good job, albeit there are some aspects of his performance which are of concern.
The down side appears to be that:
• Too many accidents/ stuff ups re Ching, at significant cost to HDR, not only in lost (delayed) revenues, repair costs, but significantly in confidence in WPL/ HDR competence and integrity
• Tiof’s proposed development and related timetables for a final decision (which are constantly put back) are beyond a joke and are sapping confidence in WPL/ HDR and are additionally undermining confidence in the Mauritanian oil province
• Mauritanian exploration program has disappointed in the past 2 years and Colin’s failure is adding to concerns that the Mauritanian prospects are less than had been hoped for
• Too much is taking too long to confirm/ advance. The gas prospects up north were found 2 or 3 years ago and it is taking eons to evaluate what the true nature of the prospects are (fortunately the Flamant well will help advance the gas outlook), Labeidna has been drilled on the fringe, but there seem to be no early plan to test whether it is commercial (so market is reluctant to accept it as a proven positive, even if HDR is spruking as if it is an accepted positive), there seems to be no clear timetable to bring Tevet into production, the endlessly drawn out status of Tiof is disturbing to say the least, the gas contract negotiations with the Government are still not finalized, the Guyane farm-out and exploration timetable is sapping confidence in the reliability of statements re timetable emerging from HDR and its ability to deliver on its plans
• Trust in WPL/ HDR is eroding, not the least by the way in which news about Tiof came to the market’s knowledge (obviously inside info. far proceeded formal advice to the market) and the way in which info.about the problem with the Ching field emerged (Tiof history repeated?) – at issue here is the integrity of WPL/ HDR, with the consequence that the market is very vulnerable to speculation of further emerging problems, and the inability of WPL/ HDR to keep the market properly informed (and I mean here more than technical correctness of company releases) allows concerns to fester
• I have reluctantly come to the view that HDR is neigh on hopeless in keeping the market sensibly and responsibly informed in a timely manner, and in trying to ensure that unreasonable fears and concerns do not fester and then erupt
• For too long there has been too much inconsistency in announcements put out by WPL/ HDR and rank disregard by both of them for the user usefulness and clarity of their respective releases
• SP seems to be developing a habit of throwing promising hints to his audiences at briefings, about the future but not delivering, which is starting to suggest that we need to treat his statements with some caution. His apparent habit is thus damaging his integrity (hints about imminent new exploration agreements, then prolonged silence), hints in November 2005 that Ching my come on in January 2006, then actual achievement in February, comment in November that Guyane drilling expected mid- 2006, then inability to even get out farm-out agreement in place by mid 2006 as later promised)
• SP seems to be developing habit of commenting correctly (technically) but not necessarily fully, so I have an emerging concern that at times his replies are more political than complete, and this SP trait is compounded by SP’s apparent unwillingness to release useful information to help abate growing and festering concerns ( for example, my sense is that John DORAN of ROC has much more market credibility than our SP and SP should be concerned about his credibility)
• SP and HDR may have alienated, or might be in the process of alienating, institutional investors (I cannot believe that London investors and Merrill Lynch are not seriously cheesed off by HDR related events and share price performance)
• From my narrow range of contacts, a number of stock brokers are increasingly inclined to suspect that WPL/ HDR are holding back or slanting information, hence they are inclined to listen more to damaging market speculation about matters HDR than if they had complete trust in WPL/ HDR/ SP.
So where does all this leave me?
In the final analysis I remain positive about HDR’s medium term prospects, but I am gravely concerned about the instability around HDR’s share price over the past 2 years and what I see as growing and festering concerns about HDR’s (and WPL’s) credibility, and perhaps even their individual or collective integrity.
I am dismayed and concerned about HDR’s and SP’s apparent inability or reluctance to responsibly and meaningfully put out positive news about matters affecting HDR or to step in, in a timely manner, to deal with damaging speculation or damaging misinformation.
In the short term I am resigned to HDR price volatility, with a probability that the HDR share price will weaken further, most probably until the Ching repairs are materially underway.
I would like to hope that HDR and SP will get the finger out and better progress works, and at the very least I hope that they will act in a timely and positive manner to ensure that unreasonable silence on their part, and unchallenged damaging speculation by others, do not further damage HDR’s standing in the market.
Thoughts from others?
HDR
hardman resources limited
