hardman seeks 1.3 bln barrels oil

Wednesday August 4, 12:44 PM
INTERVIEW: Australia's Hardman Seeks 1.3 Bln Barrels Oil

By Stephen Bell
Of DOW JONES NEWSWIRES

PERTH (Dow Jones)--Australia's Hardman Resources NL (HDR.AU) says its offshore Mauritania exploration program starting late this month will target more than 1 billion barrels of oil in six new prospects.


Operated by joint venture partner Woodside Petroleum Ltd. (WPL.AU), the deepwater drilling has the potential to uncover between 950 million and 1.3 billion barrels of oil, says Hardman Managing Director Ted Ellyard.

"That is the range of possible outcomes based on the size of the prospects," Ellyard told Dow Jones Newswires in an interview.

Regarded as the biggest exploration push in Woodside's 50-year history, the US$100 million-plus program involves 21 wells in areas containing the Chinguetti, Tiof and Banda oil and gas discoveries.

Helped by surging oil prices, shares in Hardman have more than doubled in four months as investors bet on success in Mauritania. The Perth-based company is now Australia's fourth-biggest petroleum group, based on its A$1.6 billion market value.

Hardman has captured the attention of several global funds, including Fidelity Investments, which boosted its stake in the company to 6% after recent purchases.

Ellyard expects some market volatility as the Mauritania campaign kicks off.

"We have a huge program coming up and there is a bit of speculation built into the share price," Ellyard said.

"If the first well isn't successful, our shares will probably go down - there will be a rollercoaster of sentiment," he said.

"But we certainly hope to have a fair amount of success. Of seven wells drilled in the past, four turned out to be discoveries."

Hardman owns between 21.6% and 28.8% of the Mauritanian venture. Woodside, which is also enjoying record high share prices, owns between 48% and 53.8%.

Two drill ships are due to arrive in Mauritanian waters in the "last week of August or the first week of September," Ellyard said.

The drill ships will work in tandem and operate in water depths ranging from 300 meters to 1,700 meters, he added.

The West Navigator will start drilling one of four planned appraisal wells on the Tiof field, discovered late last year, where Hardman estimates potential reserves of 375 million barrels.

Tiof is just north of the smaller Chinguetti field, where the joint venturers are developing a US$600 million project due to start production at a rate of 75,000 barrels a day in early 2006.

Depending on the appraisal work, Tiof could become a 150,000 bbl/d producer later this decade, Ellyard said

The other drill ship, Stena Day, will initially test the Dorade prospect, around 80 kilometers south of Chinguetti.

Dorade has potential for between 50 million and 100 million barrels of oil, Hardman said.

"It is a higher risk because it is not in a proven oil area," Ellyard said.

But Dorade is a "similar type of prospect" to Chinguetti and Tiof due to its location in Miocene "sand channels."

Drilling will then likely switch to the lower-risk Tevet prospect located between the Chinguetti and Banda fields. Testing of four other prospects - Capitaine, Merou, Sotto and Bogue - will follow.

The exploration and appraisal work will continue until November/December, when both drill ships will be needed for the Chinguetti development program, Hardman said.

Ellyard said that Hardman has enough funds to cover the exploration costs, following a A$167.8 million share placement earlier this year. It also recently booked a A$99 million pretax profit from selling a stake in the Mauritania venture to U.K.-based BG Group PLC (BRG).

"We have around A$340 million in cash at the moment," he said, adding that Hardman's 2004 exploration budget is around A$80 million.

"We expect to have more than A$200 million cash by the end of the year, which will be enough to take us to the start of production (at Chinguetti) in early 2006."

The company's share of the Chinguetti development is US$120 million.

Hardman is seeking an US$80 million to $100 million debt facility, arranged by ANZ International Bank, with the balance coming out of cash reserves.

Hardman's costs will decrease, however, if the Mauritania government decides to buy a 12% stake in Chinguetti's production license.

The government has six months from the time the license was granted, in May, to exercise its right, Ellyard said.

"They'd need to repay past exploration costs and contribute to the cost of the development," he said.

"We'd like to keep our existing equity, but we recognize their right to buy into the project," he added.