Dont know if this has already been posted. Article in todays Fin...

Dont know if this has already been posted. Article in todays Fin Review.




Hardman girds for cash and oil flows
Author: Henry Byrne
Date: 06/05/2005
Words: 950
Source: AFR
Publication: The Financial Review
Section: Corporate Focus
Page: 66


Managing momentum is likely to be one of the biggest challenges at Hardman Resources, writes Henry Byrne.
Hardman Resources has come a long way in a short period. Riding the crest of exploration success off the coast of the African republic of Mauritania, this one-time small-cap oil company has more than quadrupled in size over the past three years.

At its market capitalisation of $1.2 billion, Hardman is the fourth-largest oil company in Australia and its stake in Mauritania seems to have the potential to fuel more growth.

First oil is set to flow in the Chinguetti field in Mauritania by the first quarter of 2006. Hardman, which has a 19 per cent interest in the field, is on the verge of becoming an oil producer in its own right for the first time.

The man who has the task of leading Hardman through this next chapter in its development is Simon Potter, a British national with 20 years' experience at BP.

Potter, whose achievements include representing Zambia in rugby and the United Kingdom in rowing, brings strong global experience to the job, including the management of offshore operations with BP in the North Sea, Alaska, Indonesia and, most recently, Russia.

With global contacts and experience, the new chief executive has clearly been brought in to fulfil Hardman's growth and expansion ambitions.

Potter appears to be well aware of his brief. He would like to see the company's market capitalisation double over the next 12 to 18 months, he says.

Paterson Securities resources analyst Simon Oaten believes Potter is an appropriate appointment for Hardman, given this phase of development.

He notes that Potter's experience in Russia, Canada and Indonesia has been in managing and bringing operations to cash flow.

Already Potter is looking to change the way Hardman does business.

Hardman's business model to date employed with success in Mauritania has been to target high equity stakes in a prospective area and, after initial testing, farm the interest down to about 20 per cent and bring other companies in to drill the wells and fund the works.

In the Chinguetti and Tiof fields in Mauritania, for example, Woodside holds the largest interests 47 per cent and 40 per cent respectively.

Potter highlights the fact that Hardman is able to take a different approach.

In light of the company's greater financial capacity and ability to take on greater risk, the model will be to target higher equity stakes of about 40 per cent through the exploration and development stages.

"We don't necessarily need people to bring money to the party," he says. "We can consider swaps so that we can start to leverage the value of the assets."

But it is the transition to oil producer that is most critical to Hardman's continued success.

The company's main focus is to demonstrate the organisational capacity to drill wells, Potter acknowledges.

It is vital that Chinguetti produce oil on time and at the anticipated rate.

At that point Hardman will be an oil producer and will start to generate free cash flow, he says.

Potter acknowledges that one factor holding back Hardman's growth is the fact that it doesn't produce any oil.

He believes that this, combined with a general lack of understanding of Mauritanian issues and risks, has led to a considerable discount in Hardman stocks.

"As we move towards first oil and the actual project becomes more tangible and people realise that the Mauritanian risk is manageable, I think you'll see the stock appreciate markedly," he says.

Oaten agrees that Hardman should be rewarded on a per share basis once Chinguetti is developed. However, with the Tiof development set to occur within two years, he believes Potter's desire to double the company's market capitalisation will require one more exploration success in Mauritania or elsewhere.

He acknowledges that volumes chased in Mauritania are probably modest and Hardman's 21 per cent to 24 per cent stake in the region will provide a lot of opportunities.

Hardman's Mauritanian activities are clearly critical to its plans for expansion, and this is something that is not lost on the new chief executive.

"We have a major new hydrocarbon province there that we will be exploring for many years to come to assess the full potential of that basin," Potter says.

While Hardman has other acreage opportunities at various stages of the exploration cycle elsewhere around the globe, including the Falkland Islands, offshore Guyana and in Uganda, it is clear the company's future is staked to its performance in Mauritania.

Potter describes the key theme for the company as the way it is building momentum, particularly with its Mauritanian activity.

By this time next year, he says, first oil will have flowed from Chinguetti, Hardman will be an oil producer, it will have made a development decision on Tiof, and it will have had the benefit of another six months of exploration in the area.

But as Hardman's momentum builds and it consolidates its growth of the past three years, one of the greatest challenges facing Potter and his management team may be developing the organisational capabilities required of a $1.2 billion company, given its rapid growth.

It is something Potter acknowledges will be a focus.

"In a year's time, 2006-07, we'll be generating hundreds of millions of dollars of free cash flow," he says. "We've got a responsibility to ensure that this is managed indeed forecast and managed correctly. . . . The time to do it is now."