sydney presentation comments

HDR followers

There were about 50 people + at the presentation - looked mostly like investors/traders and some brokers/institutions perhaps. Ted's presentation was extracted from the AGM presenation that is on HDR's website (he shortened it significantly). So, no surprises or tit bits there. There were however some interesting questions and the answers produced a few "new" bits of information that may be of general interest. I have summarised these below:

1) Chinguetti: The 180 mmbl pre-drill estimate included the higher B sands which were found to be gas. Ted nevertheless expects that the JV upgrade should come in at around 150 mmbl after further studies in the next few months. He hopes that the JV partners will come out with the same figure (although WPL are more likely to run with the more conservative probability estimate). There is a 100 metres of gas cap in Chinguetti above the oil.

2) Chinguetti development: A team supervised by WPL has been working on a development plan in Milan for several months. The plan will be finalised in April/May with a commercial decision by mid-year. One of the major development decisions is whether to buy/build or lease the FPSO (floating production platform). If they are tying in other satellite fields and production is estimated at up to 20 years then it may be more sensible to buy. If they lease it will however cut the time to production. Hence the current uncertainty about start of production (2005/06). Banda can be tied in with Chinguetti production.

3) Chinguetti funding: The ANZ London Energy Group is doing a phase 1 feasibility study for Chinguetti funding.

4) Banda oil: Ted is very confident that the 2 appraisal wells on Banda will be drilled although they are contingent pending further study. Banda oil column could be larger because there was a significant section between the bottom of the oil and the top of the water which could be oil bearing (but it was too "tight" to tell on this hole whether it was oil or water bearing).

5) Banda gas: There will be a long lead time to development so it is questionable whether it should be included in estimated reserves for 2003 (as in presentation graph). In a takeover situation it may well be given some value.

6) Implications of 2002 drilling: Banda showed that the whole of the sands are HC charged and not just the salt domes. This was quite significant. There are some very large plays in deeper water further out than Chinguetti (sand fairways).

7) PSC's expire so thay have to drill exploration wells: The PSC licenses are for 9 years and this is the window for exploration. So they are likely to have to drill a number of pure exploration wells each year. Each oil field once established has a 40 year license.

8) Block 6: They only had a little 3D over Thon and had to drill it. Some 2D will be shot in 2003 which will determine future exploration in block 6.

9) Dana JV areas: Ted expects one well to be drilled 2003, but this is yet to be decided. There are good leads and one very large one that they are particularly looking at although it is in fairly deep water.

10) WPL takeover?: He is confident that WPL is unlikely to do a hostile take over, but it would respond to an offer from elsewhere.

11) WPL is doing a broker/insto promotion of Mauritania in Sydney this week.

12) Perth Basin: Twin Lions' in-place estimates need to be divided by at least 3 to give recoverable. Once again it depends on what probability estimate you use, and reserves could be much higher (those in TP15).

13) Uganda: Heritage Oil & Gas (not sure where it is listed) is currently drilling a well on an ajoining lease over Lake Albert. If they are successful that will increase POS and it will attract companies interested in farming-in. Results imminent - maybe someone could post a link to a source for announcments on this drilling?

14) Chinguetti production: By 2005/06 HDR production is estimated at over 17,000 boe per day. This would make it the 3rd largest in Australia and 5th largest in the UK.

15) Gulf War 2 implications: Ted said Mauritanians don't want to get involved in global politics. They are and wish to continue to co-operate with the US (read the west) and World bank for development. They have an Israeli embassy !

16) Oil source: WPL is now convinced that the Cretaceous is the oil source. They are keen to drill the Cretaceous again and the drilling of Tevet could be extended lower than the target sands to test the Cretaceous.

17) Institutional involvement: Ted agreed that it will be 2003-5 before institutions get seriously involved (as production gets nearer and reserves are better defined).

18) Valuation: Ted considered that a figure of A$10 per barrel was fair (ARQ have used A$15 and WPL prefer A$5). Assuming 65- 100mbbl by late 2003 then share price has a long way to go ! It is undervalued as are many shares at present. He has a big shareholding so he is disappointed too.

19) There were a number of questions about share price volatility, the MBL warrants, the placement and market perceptions (and how to improve HDR's immage). Ted avoided the difficult questions, in particular the conflict of interest that MBL had with the placement and warrants. He answered but I was none the wiser after his response (perhaps there were MBL people in the audience so he was being diplomatic). He agreed that HDR needs more institutional shareholders and to convince the market that HDR is not a once a year stock, and these presentations are the start of a wider promotional effort.

Cheers

H