hdr without mauritiania ?

Howdy,

This is not the theory I am going to release either Monday or Tuesday which will explain or at least offer an alternative to what has been going on.

The following is a look at what HDR is worth without Mauritania.

This is just background information, it's long.

It is only an opinion. I am not a financial advisor. I am not offering either advice to buy or sell HDR. I hold a financial interest in HDR. Read my disclaimer and the red stuff on HC.

WHAT IS HDR'S VALUE WITHOUT MAURITANIA ?

CASH

According to the presentation at the AGM on the 25/11/2004 HDR had 328.7 mio in cash.

Furthermore it has invested roughly 120 mio in Chiguetti to date. The field has been declared commercial and with accelerated depreciation and repayments in the first 4 years of production it will receive all this money back.

This fact seems to have escaped most retail analysts.

I shall not include the estimated money spent on Tiof since this has not officially been declared I shall not include it. But between it and others the numbers are aroud 50 mio.

328.7+120.0= 448.7 mio

With 652.3 million shares this comes to 68.7 cents.

OTHER OIL ASSETS

At present the market has placed a zero value on these. However with some research I would beg to differ.

UGANDA

HDR holds a 50% interest with Energy Africa holding the other 50% interest in PSA2
Initial indications are very encouraging.

The adjoining block held 50% by Heritage Oil and 50% Energy Africa is currently drilling. Drilling commenced on 26 Sept. and is scheduled to finish around now. With the previous well they reported a gross hydrocarbon column of 300 meters. This is huge !
Now the area in question is very remote but results are expected out before Christmas.
In effect HDR is having the groundwork done by someone else for no cost. Of course they hold the adjoining block it must be pointed out.

How to place a value ?
Heritage is listed on the Toronto stock exchange.
Shares under the code HOC.
This is its main prospect. Shares have risen from CAD $2.70 to CAD $8.14 at last, mainly on Uganda.Market capitalization is CAD 174.49 mio or AUD 189.6 mio.
The future for Heritage would seem to rest on results in Uganda but a 300m Hydrocarbon interval ....

HDR has the adjoining block of course. However going on this one would at this stage place a fair price on HDR's holding on this basis of say $50- mio. If Heritage comes out with success one would have to look at it in a different light. Conversely if its a dud, the opposite.
Since the first well already encountered such a large gross column, well. But I would think 50 mio at this stage would be fair.

50 mio / 652.3 mio shares = 7.7 cents

FALKLANDS

HDR owns 22.5% along with Falklands Oil and gas with 77.5% over a massive area.
Currently doing 3D seismic in the area. Indications of oil flows seen also in the area.

Now the majority partner Falklands Oil and gas is listed in London. It has 80 million shares, see the change in substantial holdings and annual report for this. Current market cap is GBP 62.4 mio or AUD 156 mio. Note before you come back to me the actual number of shares is 80 mio !! Not all are listed some in escrow. Check the very latest change in substantial holdings change to confirm.

Anyhow 22.5/77.5 times 156 mio = 45.29 mio
45.29 mio divided by 652.3 mio shares = 6.9 cents

GABON

HDR owns 12.86% with partners Premier oil and Fusion.
Harder to place a value on this.
Fusion which owns 38.57 % was taken over late 2003 for 38 mio GBP.
Now this was before oil rose to the USD 40- plus level so the price now would certainly be more. Looking at Premier maybe gives a better picture.

Bottom line having a stab off the Fusion value minimum would appear to be at least
Somewhere around GBP 2.4 mio. Or around AUD 6 mio.

So 6 mio divided by 652.3 mio shares = 0.9 cents

ERITREA

HDR has a 30% interest in this with Pancontinental Oil 30% and Afrex 40%
This is a highly prospective area however with numerous oil seeps in the area. However with the political situation its a tuff call.

An easy valuation can be made for this. Pancontinental just took over Afrex's holding for 73.1 mio PCL shares at 12 cents plus other considerations if and when they find oil. Basically valuing HDR's value at a minimum when taking into account the other provisions on the sale at the AUD 8.77 mio sale price. This is minimum lots of clauses to protect Afrex interests in the deal.

So 8.77 mio divided by 652.3 mio share = 1.3 cents

AUSTRALIA

Its getting harder.
HDR owns three assets here and holds large percentages.
AC/P26 in the Timor Sea it owns 96.75 %
AC/R11 in the Timor sea it owns 100%
There is another area as well.
Now according to page 31 of the drilling report in the first quarter 2005 a production well is planned for AC/R11 and an exploration well for AC/P26.

Now I can't find anything at all about these areas. I find it interesting they have two wells planned for the start of 2005. One being a production well and they own the area 100%.

How does one place a value on these assets.
Maybe someone could help with more knowledge.

However if a small mining company owned three leases in the area, the Timor Sea well the market cap would be more than what I shall use.

Lets say 7 mio.
So 7 mio divided by 652.3 mio shares = 1.1 cents

GUYANNE

HDR owns 97.5 % interest over a massive 65,000 sq. KM.
This is being waved as the next big Mauritania with HDR talking 2,500 mbbl.
Who knows. One well is expected to be drilled early 2005 from p 31 of the AGM presentation. Also a farm in Partner is expected and HDR hopes to retain a much bigger share than it did in Mauritania. From various meetings WPL has passed on the interest and in response to direct questions at both Sydney and Melbourne HDR have indicated they are speaking to several large oil companies regarding a farm in and expect an announcement. Seismic looks apparently very very good for the area but until they drill ...

How to estimate a value, the small buy in transaction for the 2.5% recently I shall not use. Not a good enough indication.

Being very very conservative considering the size 65,000 sq km and the preliminary indications, well 15 mio bottom line. Some have bandied the 50 mio mark, until we see a farm in and drilling, again thinking of what a company with this sort of asset owned on the ASX would be valued at .... My call would be a lot more than 15 mio even without drilling.

But 15 mio divided by 652.3 mio shares = 2.3 cents.


SUMMARY

Cash 68.7 cents

Uganda 7.7 cents
Falklands 6.9 cents
Gabon 0.9 cents
Eritrea 1.3 cents
Australia 1.1 cents
Guyanne 2.3 cents

TOTAL 88.9 cents Total other prospects 20.2 cents

Remember this is without Mauritania !!

Uganda I have used and extreme low case of only 50 mio. If Heritage has success in its drill I would expect its share to possibly double. Since I have only used 1/3 of the current value of the company, success would lead me to increase value minimum 15 cents bringing the total to 103.9 value without Mauritania.

Furthermore other money spent by HDR to date I believe surely will be returned and is in the order of 50 mio which should be added to the bottom line to be fair . Bringing the real total without Mauritania up to 96.5 cents.

I have been conservative just using the listed values of other entities to come up with some sort of valuation. Guyanne at 15 mio considering the size and apparent interest is a very low call. Australia as well, I don't know enough about them to even make a call, but when they are going to drill an exploration well on one and a production well on another 7 mill seems very low.

It cannot be stress strongly enough most current valuations I have seen have accounted for a zero value for the other assets in HDR's portfolio. Of the 20.2 cent value I have shown well over half is made up by listed other entities either on AIM or the TSE. Results regarding Uganda are pending in the next few weeks and could completely change the picture. Since the market is currently allowing zero for them anyhow, if Heritage in Uganda was to confirm its first 300 m gross Hydrocarbon intersection with another, well just watch HOC on the Toronto stock exchange tse.com.

Hope this has been some interesting background.

It is not anything to do with the theory and explanation I shall post early next week either Monday or Tuesday.
Quite frankly it will surprise you and you may just go derrr, the answer has been sitting in front of us all the time.

Good luck


It is only an opinion. I am not a financial advisor. I am not offering either advice to buy or sell HDR. I hold a financial interest in HDR. Read my disclaimer and the red stuff on HC