Please find attached June 2002 Quarterly Activities and Cash Flow Report for Hardman Resources Ltd.
Yours faithfully
HARDMAN RESOURCES LTD
TED ELLYARD
MANAGING DIRECTOR
HARDMAN RESOURCES LTD
ABN 98 009 210 235
REPORT TO SHAREHOLDERS
FOR THE QUARTER ENDED 30 JUNE 2002
This report summarises the activities of Hardman Resources Ltd and its controlled entities (“Hardman” or “the Company”) during the quarter ended 30 June 2002.
ACTIVITY HIGHLIGHTS
· ARC Energy NL ("ARC") Investment: During the quarter Hardman sold 8,350,000 shares in ARC realising a profit of $2.97 million on its original investment at 16 cents per share. Hardman still holds 7,475,000 shares in ARC being 4.91% of ARC’s issued capital.
· Falklands: Hardman was awarded a large offshore exploration permit covering approximately 57,000 square kilometres in the South Falklands Basin. The Company holds a 30% interest in the project.
· French Guyane: The Company has signed a contract to shoot 7,500 kilometres of 2D seismic across the large offshore permit, on very favourable financial terms.
· Gabon: Processing of 2,732 kilometres of 2D seismic data acquired in January and February was completed during the quarter and interpretation work has commenced.
· Mauritania: The drillship Deepwater Discovery has arrived in Mauritanian waters and is expected to commence drilling the first well of the programme, being the Chinguetti 4-2 well, on 30 July 2002.
· Mauritania: The 2002 drilling campaign is now expected to comprise up to four wells. The drilling of Chinguetti 4-2 and two exploration wells is considered firm, while a third well on the Chinguetti field is contingent at this stage.
· Mauritania: Five 3D seismic surveys comprising a total of in excess of 5,000 square kilometres are expected to be shot within the eight offshore blocks held by Hardman during 2002. To date, 3D surveys have been completed in PSC Areas A and B and in Block 7 and a large survey in Block 2 is nearing completion.
· New Zealand: The initial processing of 1,600 kilometres of 2D seismic data has been completed and mapping is in progress.
· North Perth Basin:
v EP 413: The drilling of the Jingamia-1 exploration well is planned to commence in August 2002.
v TP 15: Planning is continuing for the drilling programme comprising one firm and one contingent well to commence in the first quarter 2003.
· Uganda: Preparations continue for the acquisition of a 2D seismic survey over Lake Albert which is expected to commence in October 2002.
· Woodada Gas Field:
v During the quarter gas production was continuing at an average rate of approximately 3.3 million cubic feet per day.
v Woodada #19 was drilled to a total depth of 2,841 metres and was cased and suspended as a potential oil or gas producer, after encountering good gas shows in the Carynginia reservoir and oil indications in deeper sandstones between 2,722 and 2,793 metres depth. Testing operations on the well re-commenced on 19 July 2002.
v Logue Drilling Rig: Hardman has purchased the former Fairway drilling rig which had been stacked at the Woodada Field for a total consideration of $275,000. The rig will initially undertake testing and completion work on the Woodada #19 well.
CORPORATE ACTIVITY
Mr Peter Raven was appointed to the Board on 12 July 2002 as a non-executive Director and is based in the UK. Following Hardman’s recent listing on the London Stock Exchange, Mr Raven’s membership on the Board will help strengthen the Company’s profile and presence in the UK and Europe.
Mr Raven has had a long career at senior levels in the international petroleum industry. After qualification as a Chartered Accountant, he joined the Ultramar Group in 1964 (until its takeover by Lasmo in 1992, Ultramar was a leading UK independent petroleum company). He relocated to New York in 1980 as Senior Vice President – Finance, and was subsequently appointed Finance Director of Ultramar plc (1982), Executive Vice President (1984), and also President and Group CFO (1988), in which capacity he was responsible for the Ultramar Group’s corporate development and risk management.
GAS PRODUCTION
During the June quarter the Woodada Gas Field produced 305,372 Gj of natural gas and 256 bbls of condensate for sales to contracted customers. The average daily production of natural gas for the quarter was 3,355.7 Gj (3.3 million cubic feet per day).
Sales made to Hardman's industrial customers in the Perth region were 513,242 Gj of natural gas for the quarter. Additional gas was purchased under an agreement with ARC Energy NL to meet sales contract levels.
Gross revenue from gas sales for the quarter was $1,480,912 and Hardman's net profit (75% interest) after field and operating costs was $26,573.
REVIEW OF OPERATIONS
MAURITANIA – WEST AFRICA
Hardman holds interests in large offshore Production Sharing Contracts ("PSCs") over Blocks 2, 3, 4, 5 and 6 in the Senegal – Mauritania Coastal Basin, the first PSC having been signed in late 1996. These licences were divided into Joint Venture Areas A, B and C under the terms of Farmin Agreements with Woodside Mauritania Pty Ltd ("Woodside") and ENI-Agip ("Agip"), signed on 6 August 1998.
The drilling of the Chinguetti-1 and Courbine-1 wells by Woodside and Agip during 2001 completed the farmin obligations for Joint Venture Areas A and B with Hardman retaining an interest of 24.3% and 21.6% respectively. The Area C farmin well is to be drilled in the 2002 programme in PSC Block 6. Woodside committed to fund 50% of the well cost, while Agip has withdrawn from Area C resulting in Hardman increasing its equity to 28.8% and 35.5% in Blocks 2 and 6 respectively.
Hardman also holds three additional PSCs over Blocks 1, 7 and 8 which straddle the previous licences and increase Hardman’s total acreage in the offshore basin to approximately 74,000 square kilometres. These PSCs are in joint venture with Dana Petroleum plc ("Dana"), an oil production company listed on the London Stock Exchange.
Woodside Joint Venture Areas:
The drillship Deepwater Discovery arrived in Mauritania on 27 July 2002 and is expected to commence drilling the first well of the programme being the Chinguetti 4-2 well on 30 July 2002.
The 2002 Mauritania drilling campaign will comprise the drilling of three firm wells and one contingent well:
· Chinguetti 4-2 (PSC Area B) – FIRM;
· Banda Exploration Prospect (PSC Area A) – FIRM;
· Chinguetti appraisal well (PSC Area B) – CONTINGENT;
· Thon Exploration Prospect (PSC Block 6) – FIRM.
Further details of the proposed wells are as follows:
· Chinguetti Oil Field (Block 4, PSC Area B) – Hardman equity 21.6%: Chinguetti 4-2 well will be drilled on the northern (upthrown) flank of the Chinguetti salt structure, approximately 2.5 kilometres north of the Chinguetti-1 discovery well, which was located on the downthrown fault block. This first appraisal well is considered to be a significant step out from the discovery well and will evaluate a geologically separate portion of the prospect. Testing equipment will be onboard the drill ship to conduct an oil production flow test if warranted.
A contingent appraisal well is likely to be drilled as the third well in the field to fully delineate the oil volumes and scope for production in the Chinguetti field.
· Banda Exploration Prospect (PSC Area A) – Hardman equity 24.3%: This prospect is located approximately 21 kilometres to the west of the Chinguetti Field and is targeting Tertiary sand channel system that contains the oil in Chinguetti-1. Hardman will have a 2.7% free carry in the well by Fusion Oil & Gas NL, pursuant to an agreement reached prior to the 2001 drilling programme with respect to the first well drilled in PSC Area A.
· Thon Exploration Prospect (PSC Area C, Block 6) – Hardman equity 35.5%: A firm exploration well is to be drilled to test the Lead 4 structure in Block 6, to the north of Area B. The primary target at the Thon Prospect comprises a sand channel system of Cretaceous age interpreted from 3D seismic. The flank of this prospect was partially tested by Shell in the 1970s with small quantities of oil recovered from wireline testing.
Hardman will have a 12.25% free carry in the well by Woodside, resulting from the remaining farmin obligation for the Area C joint venture. The Company will therefore fund 24.25% of the well cost but hold 35.5% interest.
· 3D Seismic Surveys:
v PSC Area A: The Oudane 3D Seismic Survey (1,175 square kilometres) was completed on 11 May after encountering technical problems with the seismic streamer location system. The problems delayed the survey but the contractor has accepted the additional cost to re-shoot some of the lines. Fast track processing of the new 3D seismic over the Banda Exploration Prospect was completed with encouraging results lending to the inclusion of this prospect in the 2002 drilling programme.
v PSC Block 2: Recording of the Koumbi Saleh 3D Seismic Survey (1,000 square kilometres) is nearing completion. Under a farmin agreement signed with Energy Africa in January 2002, the bulk of the 3D survey in Block 2 is to be funded by Energy Africa which will earn 20% interest in that area. Hardman will retain a 28.8% interest in Block 2.
v PSC Area B: Waiting on completion of the Block 2 seismic before recording the Coppolani 3D Seismic Survey, a 300 square kilometres extension of the existing 3D coverage in Block 5.
· Chinguetti Development: The Joint Venture has approved the Chinguetti Appraisal Studies budget which provides funding for the establishment of a joint Woodside/Agip team to undertake early development studies and some additional metocean data collection. The objective of this work is to allow development to proceed rapidly if warranted, following the drilling of the Chinguetti appraisal wells in August/September 2002. The team will include members of the Agip team responsible for a similar sized development in offshore Nigeria which was recently approved for construction.
Dana Joint Venture Blocks 1, 7 & 8:
The Dana Joint Venture comprises three PSC areas which are situated immediately to the north and south of the Woodside/Agip acreage. Under the terms of the Joint Venture, Dana Petroleum plc ("Dana") holds an 80% interest and is operator, while Hardman has an 18% interest in Blocks 1 & 8 and 11.57% interest in Block 7.
· Block 1: Interpretation of the 2D seismic survey data acquired earlier in the year has identified a number of prospective leads and three prospective deepwater sand systems. The joint venture is now considering the shooting of a large 3D seismic survey in the latter part of 2002 to delineate drilling prospects for 2003.
· Block 7: A 1,360 square kilometre 3D seismic survey was acquired over a number of deep water leads during the quarter. Under the farmin agreement, Woodside funded 50% of the survey cost, leaving Hardman to fund 8.8% of the survey whilst retaining its 11.57% equity. Interpretation of this data is now in progress with a decision required by end of 2002 on whether to drill the first deep water well in the Block during 2003.
· Block 8: Block 8 is different from the rest of the Mauritanian offshore acreage as it includes carbonate platforms and reefs of Late Cretaceous to Paleocene age. The joint venture approved 250 kilometres of 2D data over the largest lead which is associated with a shallow gas chimney. More interpretation is required to understand the carbonates and to identify potential reservoir and seal facies necessary to establish a drillable prospect prior to a drill or drop decision in June 2003.
GABON – WEST AFRICA
Hardman holds a 12.86% working interest in two PSCs offshore Gabon awarded in November 1999 and referred to as Iris Marin and Themis Marin. The PSCs have a combined area of approximately 2,000 square kilometres and are located in a proven and well established petroleum province.
A 2D seismic survey of 2,732 line kilometres acquired across both permits during the previous quarter has now been processed and interpretation work has commenced. The new 2D seismic data will provide the first detailed seismic coverage across the permit areas available to the Joint Venture partners. Detailed depth conversion processing will be undertaken on the seismic data and is expected to delineate one or more prospects for drilling in 2003.
UGANDA – EAST AFRICA
Hardman is the Operator with a 50% interest in a Production Sharing Agreement (“PSA”) over Block 2, Uganda. The Block covers an area of approximately 4,700 square kilometres over the northern part of Lake Albert in north-western Uganda. The area is under-explored with only one well having been drilled on the shores of Lake Albert in Block 2 by Shell in 1938, which encountered oil shows. The presence of a thick sedimentary sequence in the graben, well-documented oil seeps along the edge of the lake and information from gravity and magnetic surveys provide encouraging indications of the area's petroleum potential.
Preparations are continuing for the acquisition of a 2D seismic survey over Lake Albert. The survey is expected to comprise approximately 1,500 kilometres with about 70% to be shot in the Hardman PSA area. Both the joint venture partners and the government authorities have approved the survey programme which is expected to commence in October 2002.
GUYANE (FRENCH) – SOUTH AMERICA
Hardman is operator and holds a 95% equity in the Exclusive Exploration Licence ("EEL") offshore Guyane, which was awarded on 1 June 2001. The licence covers the major part of the offshore basin of Guyane and extends from the twelve-mile coastal limit to the 3,000 metre water depth contour with a total area of approximately 65,000 square kilometres.
Hardman has now signed a contract to shoot 7,500 kilometres of 2D seismic across the large offshore permit on very favourable financial terms. The survey will commence in the next quarter. It is expected that the new 2D seismic data will considerably upgrade the permit area and enable Hardman to attract larger oil companies to farmin and fund the drilling phase of exploration.
FALKLANDS – SOUTH AMERICA
Hardman holds a 30% interest in a joint venture that was awarded a large offshore exploration permit covering ten licence blocks, with a total area of approximately 57,000 square kilometres, in the South Falklands Basin. The licences are situated to the south and east of the Falkland Islands and have been granted by the Government of the Falklands in accordance with “open-door” legislation introduced in 2001.
The South Falklands Basin, where Hardman’s licences are located, is distinct geographically and geologically from the northern basin which was the focus of exploration activity during 1996-98. The southern basin is under-explored and is covered by a grid of seismic dating from 1993 and totalling almost 8,000 kilometres. This basin has analogies with the Malvinas and Magallanes Basins in Argentine waters to the west of the Falklands, where a well drilled by Exxon in the early 1980s flowed 3,200 barrels of oil per day, demonstrating the existence of a nearby working petroleum system.
The permit has been awarded for an initial three-year period during which the Joint Venture will reprocess existing seismic data, followed by acquisition of a new seismic survey to further delineate leads identified. At the end of this period, all or part of the permit area may be renewed for a further three-year period during which drilling of one or more wells will be required.
MALTA
Hardman holds an 87.6% interest in Blocks 4 and 5 offshore Malta. The licence area is held as an Exploration Study Agreement ("ESA") which must be converted into a full PSC on 5 October 2002. At that time the joint venture will be required to commit to drilling an offshore well or surrender the ESA. The ESA area is located 60 kilometres east of the island of Malta and southeast of several oil fields offshore Sicily in Italian waters.
During the quarter, the Italian major ENI/Agip completed drilling an offshore well (Lampuko-1) located approximately 80 kilometres to the west of Hardman’s permit area. Unfortunately the well was dry and although the Agip well tested a play system that was geologically distinct, the failure of this well has not helped Hardman’s chances of finding a farmin partner for drilling before the October deadline.
ITALY
The Company has decided to withdraw from its onshore permits, south of Rome in Italy. Although the Colombo-1 well drilled during 2000 recovered minor amounts of gas, the remaining potential in the Fiume Tevere permit is small and does not justify further drilling. As a result, Hardman has notified the joint venture of its intention to withdraw from the permit by 20 August 2002.
The adjacent Fiume Arrone permit application is now expected to be granted in the near future. Hardman will try to sell its 40% interest in this area or withdraw from the Joint Venture in due course.
NEW ZEALAND
Hardman was awarded Petroleum Exploration Permit ("PEP") 38215 in the Great South Basin, New Zealand in August 2001 and holds a 53.75% working interest.
During the quarter the reprocessing of 1,600 kilometres of seismic data was completed and detailed mapping is in progress. Initial results of this work have confirmed the presence of large structural leads with potential for oil and/or gas.
AUSTRALIA
Woodada Gas Field:
Hardman purchased the Woodada Gas Field from the Griffin Group in June 2001 and holds a 75% interest. The purchase included the two production licences (PL4 and PL5), the gas treatment plant and the existing sales contracts. The Woodada Field is located 280 kilometres north of Perth, Western Australia and is connected via the Parmelia Pipeline to customers in the Perth area.
The Woodada Gas Field has produced about 44 billion cubic feet (BCF) of gas since 1982 at rates up to 20 million cubic feet per day (MCFD). Current production is about 3.5 MCFD from seven partially depleted wells. The drilling of new wells is a priority to increase gas production from the field.
The Woodada #19 well was drilled as a gas appraisal well to access additional gas reserves from producing zones within the Carynginia Limestone at about 2,200 metres depth. However, a decision was made to also drill a further 600 metres to basement to investigate prospective deeper targets below the gas producing zone. This decision was strongly influenced by the Cliff Head -1 oil discovery in WA-286P, offshore from the Woodada field.
Woodada #19 was spudded on 11 April 2002 and suspended on 6 June 2002 at a total depth of 2,841 metres. The well encountered good gas shows in the producing Carynginia gas zone at about 2,200 metres depth and deeper oil indications within sandstones between 2,722 to 2,793 metres. Considerable volumes of drilling mud (over 1,000 barrels) were lost into these sandstones whilst drilling, indicating good reservoir permeability. The well was cased and the potential lower oil zones perforated, however initial well testing only recovered some drilling mud with traces of oil.
More extensive testing and swabbing of the well is necessary to determine if commercial volumes of oil could be recovered from the lower zones. This work can be undertaken more cost effectively with a smaller drilling rig and a decision was made to suspend the well and release the Century Rig #24. The Company then purchased the former Fairway drilling rig which had been stacked at the Woodada field, for a total consideration of A$275,000 (excluding GST). This rig has now been re-commissioned in order to undertake the testing programme on Woodada #19 which commenced on 19 July 2002.
If the testing shows the lower zones contain commercial oil, Woodada #19 will be completed for production as a new field oil discovery well, otherwise they will be cemented and the well will be completed for production and testing over the Carynginia gas zone.
· Logue Rig: The purchase of the Fairway rig (now renamed the “Logue rig”) will provide cost-effective support for Hardman’s forward work programme in the Woodada Field and its broader exploration interests in the Perth Basin. It is ideally suited for workover, completion and testing at Woodada and can also be used for drilling wells to the gas reservoir depth of about 2,300 metres.
North Perth Basin Exploration Permits:
As part of on the Woodada purchase agreement with the Griffin Group, Hardman also purchased interests in three exploration permits located in the North Perth Basin, close to the Woodada Field. Hardman currently holds the following equity in the permits:
EP368 - 22.5% EP413 - 22.376% TP15 - 30.0%
· EP368: The permit is located approximately 50 kilometres north of Woodada. The Joint Venture is currently reviewing the well and seismic data and considering the future exploration programme.
· EP413: The permit adjoins the Woodada production licences to the north and TP15 to the west and covers the prospective area between the Woodada and Dongara fields. Following the completion of a small 2D seismic survey in the previous quarter, the Joint Venture has agreed to drill the Jingamia #1 well in August 2002.
· TP15: The permit covers the narrow 5 kilometre wide State Territorial Water zone along the coastline opposite the Dongara Gas/Oil Field. The permit adjoins offshore permit WA-286P where ROC Oil drilled the Cliff Head oil discovery in December 2001.
Roc Oil reported that Cliff Head-1 had intersected a 5 metre oil column with excellent reservoir quality below 1,278 metres depth. A sidetrack well was then drilled (Cliff Head-2) and encountered a gross oil column of 28.5 metres at a location approximately 4 kilometres from the TP15 boundary. Preliminary calculations suggest that the Cliff Head Oil Field has the capacity to contain between 80 and 100 million barrels of oil in place.
Following the Cliff Head discovery, Hardman entered into a farmin agreement with Norwest Energy NL (“Norwest”). The agreement requires Norwest to fund 20% of the cost of drilling for the first two wells (to a limit of A$2 million per well) and the cost of cased hole testing of one well to earn a 10% interest in TP 15. Upon completion of Norwest’s farmin obligations, Hardman will hold a 30% interest in the permit. The TP 15 Joint Venture has now agreed to drill up to two offshore wells (one firm, one contingent). These wells would be drilled at the same time as further appraisal wells are drilled in WA-286P and will probably commence in January 2003 with the exact timing being determined by rig availability and weather conditions.
INVESTMENTS
CARNEGIE CORPORATION LTD
Hardman has retained an interest in Carnegie Corporation Limited ("Carnegie") since first spinning off Carnegie as an ASX listed company in 1993. Hardman currently holds 4,366,784 shares which are considered a medium term investment. Carnegie is involved in mineral exploration in West Africa and in the development of new engineering technology.
ARC ENERGY NL
At the start of the current quarter, Hardman had converted the $2,500,000 loan advanced to ARC Energy NL (“ARC”) to shares in ARC. As announced in September 2001, the convertible loan note between Hardman and ARC gave Hardman the right, at any time before 30 June 2006, to convert to ARC shares at 16 cents per share. Hardman therefore was issued with 15,625,000 ARC shares, representing approximately 10% of ARC’s currently issued share capital. An additional 200,000 shares were also purchased on-market.
During the quarter ARC shares continued to appreciate in value in the lead up to drilling the Hovea-2 well. Hardman decided to sell part of its shareholding and has now sold 8,350,000 shares in ARC at an average price of 52 cents, realising a profit of A$2.97 million. Hardman still retains 7,475,000 shares being 4.91% of ARC’s issued capital.
HARDMAN RESOURCES LTD
TED ELLYARD
MANAGING DIRECTOR
30 July 2002
HDR Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
