just my two cents worth !

Just a few thoughts,

Was away for a couple of weeks and look where HDR has fallen to.

Just to add my two cents worth.

Why the fall ??

A lot have been discussing and sharing their view on why HDR has had such a fall.

My opinion for the fall differs from most.

In hindsight it is logical and my view from here being bullish also will differ from most.

So why the fall ?

Lets look at some of the announcements/events over the last 6 weeks.

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Success and probable upgrades of Tevet and tiof, my call if for reserves to go up 150/200 million recoverable.

Spot oil fell sharply from its highs of around USD 55- to below USD 48- .

Dorade a duster

Capitaine a duster

Fidelity selling shares

MD of HDR stepping down.

China raising rates and resource stocks being hit.
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Now lots of information to digest. Some is relevant, some is not and some the market I feel has reacted wrongly as usual to some of the news.

How do I rank these major factors

1\ Fidelity selling
2\ Capitanne a duster
3\ Dorade a buster
4\ Possible upgrades of recoverable reserves

The rest, honestly market I feel has it wrong again.

Why have I ranked Fidelity number one ? Look at a chart and then when the announcement came out on the 8/10/2004. HDR was at its high around 243. Since then all one way. Fidelity buying in was a major driving force on the way up and if you see the actual announcement on the 8/10 Fidelity has sold a large chunk and no longer remains a substantial holder. Clearly they were selling in a big way not just trimming back but drastically reducing.

Number 2 and three ... Dorade was always a high risk play and honestly didn't expect it to come off. Capitaine on the other hand was hoped to be a winner. This I feel was what caused us to see the recent weakness along with oil hitting recent lows at the same time.

Number 4 is the probable upgrade in reserves from what we have seen so far. My call is a minimum of 150 to 200 mio recoverable reserves upgrades on what we have seen so far. This of course will take some time and probably a few months away from the announcement. Market to a great extent has ignored this!! It appears to me market has fixated on the spot oil price fall as well as the China news.

Now the other factors which whilst I feel the market has been driven by them, I feel they should really have been ignored.

Spot oil from a month ago has come well off and sitting just above the USD $48- level. Now whilst all the oilers have been hit by this, HDR it shouldn't really be relevant as production has not started and will mainly fall in the 2006/2010 period. Now one may ask what has forward oil done? Well ... All that's happened with the spot oil coming down is he forward oil has not moved down at all !! In fact the DEC 2009 oil futures have moved slightly up and sit at USD $38.79. HDR has been hit along with most oilers because it has been perceived the oil price has been falling but in fact the forward oil price has in fact been stable to rising ! Of course some could point out the spot Aud/USD has risen by around 5% but when one looks at the rise in forward oil the move in AUD terms is less than 2%.

Now another major hit the resource market has taken was from the Chinese decision to raise rates. I tend to view this as a mute point. In reality China has had negative real rates for some time. Putting it simply the rate of inflation has been above the actual money market rate for some time. Raising rates may slow the Chinese economy down somewhat but being realistic even the most bearish call is for a slowdown to a positive rate of 5% plus. In other words demand for everything will grow at 5% each and every year if not more.

As to the MD of HDR stepping down, well HDR is the junior partner here and whilst the perception may be it mean something, the reality is the drilling will continue as well as assessment of the size.

Now as to the current value of HDR ??

I have been using a model getting a NPV for HDR and came out with a number of $2.60 as a fair value around 6 weeks ago. With Capitaine and Dorade it didn't help but with Dorade rated as a 5% chance and the old Cap at 25% still only brought it back to $2.50 as a mid value. Looking at another model that values nothing on possible discoveries and upgrades it still comes out at $1.84.
And another model from a well know broker but using a stupid forward oil price 30% below where it actually is still comes with a fair value of $2.00. All these numbers are wildly conservative allowing for sovereign risk and valuing the rest in the HDR portfolio at near zero for the Falklands and Uganda ect ect.

Bottom line being super ultra conservative with current proven and announced reserves I still come up with $1.84. With the very very likely upgrades I still have a number of $2.50. All this is being so conservative it is silly.

So why are we sitting here. Market sentiment, cant argue. Number one with the second largest holder selling down it was always going to hit. Dorade and the unexpectedly Capitaine. China and spot oil going down are all there.

Maybe we have not seen the low but I feel down here maybe we have. Bottom was the old low or technical low of $1.77.

Nothing else has changed other than HDR becoming cheap in terms of valuation. Mauritania may not be as large as the extremely bullish calls but really appears to me that it will come in at least above WPL'S conservative call which means at least an official upgrade of recoverable reserves of 100% plus.

Down here with all HDR's other acreage I wouldn't be surprised to see another large shareholder step in. Bottom line high oil prices are here to stay. If the spot price falling nearly USD$8- and the five year forward actually moving up at the same time doesn't convince you not much will.

For myself I believe HDR represents good medium term value down here below $2.00.

The negative factors from China and the fall in the spot price will soon disappear. As to further success in Mauritania, well who knows but for myself I am satisfied we shall see substantial upgrades from just the results we have seen to date let alone anything more that surely will come out.

Good Luck