fair value now over $2.60, page-7

re: snoball I was nice last time.

In your previous post you bragged about being bagged on hot copper about HDR when you got in at 0.105 and 0.12 ... since HDR was there in 1999 and you have only been a member since 2001 on HC, I shall just put you on ignore rather than you explain that one.

Your last post was offensive to say the least. Being incorrect was only part of it ... accusing me of talking HDR down could not be further from the truth.
I almost lost faith once around $1.00 but many on HC helped me see the light. Thanks sailorgirl and Xmagx ....

I could be rude but I shall just share a post from sharescene ... I don't claim to have been a shareholder since 1999, however I have been an ardent fan for quite some time. I posted the following about 6 months ago usuing a conservative USD $25- per barrel ... now with my longer term oil price around USD $33 minimum valuations have obviously changed.

Anyhow its long and out of date but if you are going to accuse someone of talking something down just make sure you know what you are talking about

please note ... Buy On dips !!!
look at the date !!!
having long term oil rise by USD $8- from then and it being free and clear profit makes the valuations way too low for present day ... hence I updated my valuations.
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Saturday 15/05/04 10:10am


Scholar VIP

( 219 posts)

Hi guys ..

Again we see oil up and at recent highs in NY closing above the US $41 level.
In the longer term it is not really that important but more so the long term price over the life of these fields.

During the week investorwed came out with a sell recommendation for HDR based on the differance between WPL'S estimate of the size of the fields and HDR's call for the eventual size of the field. As a result I did some work with estimates cashflows and future directions regarding hardman.

Sorry it is quite long but this is how I see it from here ....
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Very short term HDR was a sell above $1.65 and conversly I would say it is a buy small around $1.53 and if we get there all the way down to $1.40. that is on a short term trading strategy. Maybe lower with the placement shares coming next week.

Now HDR has some estimates maybe of the field being as big as several billion barrels. WPL has been more conservative with its estimate of the possible upgrade.
Bottom line both agree the field is much much larger than the current confirmed amount.

Now why would WPL be more conservative ?? Well firstly WPL is a well estbalish producer with a much larger market cap than HDR and hence its focus is not so much on this one single prospect. HDR on the other hand has been made by this find and their enthusiasm shows. What the actual size will be is anybodys geusse.

Now if I may be unkind. WPL has just had a massive poison pill thrown at them with the massive HDR capital raisings. WPL has maintained a large holding in HDR and is the obvious choice of someone attempting a takeover of HDR or in this case a merger. Not really in WPL's interest to talk this one up too much if they are serious at some stage of looking at a merge or buyout.
Holding a stake of over 10% in HDR is certainly a large blocking stand on their part.

Now for some analyist to say it is a sell because HDR is talking it up more than WPL is fair enough, On proven reserves HDR is fully priced. However if as all the partners expect the full size of the fields to be of the order of 1.5 billion plus well HDR is cheap. Who knows what will come of the next 20 wells this year ??? Maybe they all come up dry, but that at best would seem to be well fatalistic. If that happened one would expect HDR to be worth around 75/80 cents. Likelyhood of this happening I would put around 5%. Doubling of reserves and justification of current price at around 80% and likelyhood of it been say 1.5 billion or more around the 35% mark. Chances of the very toppish 2.5 billion level realistially on the current infomation I would say 15/20 %. With those in mind I feel fairly confident after this years drilling we are at least justified at the current $1.50 level.

Now the other factor with Harman is the other interests it has in other countries Uganda, Guyanne,Eritrea and Falklands are my favourites. If one was to come off into a commercial field well the company will shine. Uganda looks good, not huge but good, Guyanne HMMM,Eritrea promising and Falklands a maybe. HDR now has the cash to go ahead and we shall see.

Bottom line WPL whilst maybe more conservative by nature has a vested interest to keep HDR's share value down if they are at all interested in a takeover at some stage in the future. Maybe WPL's call on estimates will be closer to the mark, wait till the end of the year and we shall see.

As to placing a sell recommendation on the stock at $1.56 one would expect at least a 20% move to justify this stance so they are calling this stock down to say around $1.25 level. Can't say I agree. I expect to be able to pick up HDR again maybe as low as say $1.40/1.45 but as the year goes on I expect excitement to mount yet again.

My call buy on dips !!!
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Some were calling for an upgrade of reserves in the order of 10 or 20 times so I again got out my calculator and this is what I came up with !!!
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As to the valuation. I agree current proven estimate valued HDR share at around the 80 cent mark. Everything else is blue sky. Calling them to be upgraded by 10 or 20 times is what the analyist is talking about.
My call is somewhere well above the WPL number but below the top of HDR call so a tripling of reserves at a minimum and maybe as much as 5 times. Anything above that and I hope I am very very long. Not bothering to look at the numbers but current proven reserves for the whole lot are 450 mio barrels I think. HDR's call of up to 2.5 billion barrels is what the analyist is questioning when WPL is around half this estimate. Calling for an increase of 10 or 20 fold in actual reserves whilst it would be nice at a rough call 4.5 billion barrels and say $10 out of ground net to HDR with a 25% stake would make it worth $12.00 per HDR share and for your top end of 20 times would make it $24.00 per HDR share. Not that optomistic. Once we get up around here the shares will be trading a big discount to that value.

Lets say we get 1.5 billion as I would favour at present.
At $10- net profit out of ground and HDR with say a rough 25% stake it would make it worth around $4.0 a HDR share. At that level I would expect it to be trading at a fraction of the value of the assets in the ground say 60% due to the volatility of oil prices I would make it say $2.40. Anything more say to the 2.5 billion mark and the target would move to say the $4.00/$4.50 mark. If they get carried away in a rush of blood and value it at say 80 %, which they probally will $3.00 for the 1.5 billion and $5.00 for the top end.

Now, I know its not what you want to hear but as close as I can read them, thats it.

In perspective for me the asset sales and massive dilution were needed but one doesn't like seeing a company sell off what is viewed as their best prospect.
Having said that the company has gone in a few short years from a minnow to now what looks like a fully fledged producer with income streams coming on line late next year and also being cash positive and very strongly so with value somewhere around 75 million at current prices per annum. That is a lot of money to play with for a company and if the reserves go up by my estimate conservativly the cashflow will be around the 200 million dollar mark by around 2006/2007.

The real question for me is if HDR finds oil somewhere else say even a smaller set of fields. This time it won't need to farm it out and dilute its interest. It will be able to self fund itself within 18 months. If one field was to come in with a HDR stake of 50% or even some it nearly holds the lot well the results will be spectacular to say the least.

Not to worried about the downside longer term for this one. Feel very good prospect of substantial gains over the next 12/18 months depending on the final size it turns out to be.

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Bottom line of all this.

Current finds value HDR around 80 cents if nothing at all else is found.

Current finds will put HDR with a positive cash flow of 70 million a year by the end of 2005.

Obviously if HDR comes up dry the current share price will fall.

Current finance for HDR is enough till end of 2005 when it will become cash flow positive.

Estimates of the upgrade of the fields size range from 1.2 billion barrels recoverable to an enthusiastic 2.5 billion barrels recoverable.

Even at a conservative 1 billion upgrade of the field which is just over twice the proven current recoverable reserves would justify HDR's current price of around $1.50 even if oil was to fall to USD $25- a barrel.

All partners in the fields even the conservative ones expect reserves to be upgraded substantially. That comes from all the partners.

Agressive 20 well program this coming year will tell the whole story.

Expect oil to come off from here. We cannot expect oil to remain up here without slowing the whole world economy down and having a two fold effect of decreasing demand and overproduction which could see the oil price whip saw back down.

I would expect HDR to come under some pressure as the new placement shares come on next week and we may see weakness down to around the $1.40 mark.

Some wild cards for the HDR price.

If recoverable reserves come in above 1.5 billion and small chance they even exceed the top end number could see the price fly.

Average oil prices remain higher say around the USD $32- mark over time

Lastly if one or more of HDR's othe projects becomes commercial in Uganda, Eritrea, Falklans or Guyanne. I would say sign's are encouraging for one or two of these at this stage.



In the end looking at HDR's current price their is certainly a big premium in the current share price to what they actually have confimed recoverable reserves. For this fact and the massive amount of the $1.10 shares from the placement coming next week I expect it to at least come under some pressure. Longer term I shall watch with a lot of interest the drilling program to kick off late this year and the upgrades expected in the fields.
Maybe we see the price drift off before results start coming in and lets say worst case the oil price drops from $40- to $30- since I have used a valuation of USD$25= not really a worry but the shares will get crunched. Worst case for me $1.10/$1.15 if oil was to drop by this much. Realistically for me would love to see the price slip a bit to $1.30/$1.35 but not too sure about that one even.

Only time will tell the real size of the field but having recently squared my position I am looking to re establish sub $1.45 and hoping for some in the $1.30/$1.35.

All the best