Hi Acamas, Apologies for taking some time to get back to...

Hi Acamas,

Apologies for taking some time to get back to you...

Again i'm not certain of your logic in presenting Point a) in this way. If I could take a different tack, let us say that 26,000 bopd is the current flow rate for Ching. You correctly state that the proposed redrill is expected to add another 10,000 bopd. You then only attribute 6,000 bopd to your extra income. I understand how you got to the 6,000 but why not base your caluclations on their anticipated flow rates? Using 36,000 bopd (total) the gross cash flow using your assumptions of 20% to HDR and $60 a barrel would be $432k per day OR $158m per year!! Of course this needs to be discounted for the net cash flow which using 50% (as you have in your original post) means NET cash of $79m per year using fairly pessimistic assumptions...

I also believe there are many on this board who could offer different assumptions to ones you've taken, the most important being the 50% Gross to Net figure. Obviously, should that rise then the figures look even better. I would very much dispute that when Ching was proposed the cost per barrel would be anywhere near $30, I seem to recall figures of $6-$10? Therefore within our 50% assumption we have to take account of Head Office costs, etc, but again this seems very high...

Regarding Point b), I agree that develop costs for new projects have to be taken into account when looking at cash flow but if you recall the situation with Ching, HDR arranged Project Financing with a 3rd Party Financier (ANZ). This is for a number of reasons, the best being that a full Project Finance document was prepared by the Joint Venture in order to measure the investment decision by the partners. A similar situation would apply to Tiof or Banda and although the risk would be greater due to the current Ching problems, why would HDR not be able to find finance for another project?

Therefore, the cash flow requirements of the company going forward should be limited to their exploration programs. I'm certainly not saying those are negligible but I do believe the company had plenty of scope to finance themselves for a significant period of time. For example, as part of the Guyane drilling HDR were negotiating to be free-carried as part of any deal with a 3rd party. Mauritania and Uganda would be significant undertakings but that is why HDR have so much cash on hand at present... Plus a cash generating field (albeit less than anticipated) in Ching!!

This is my take on the situation, I certainly appreciate your point of view as I think you have raised some important points but I do believe that cash flow is HDR's biggest problem at the moment. If Tullow are so certain of HDR's value why not the HDR Board and therefore why put themsleves up for sale?

Cheers

Merkin