update

Hi all...

Posted this on TMF. Just thought I'd post it here as well :) Note that some of the aliases may not sound familiar as they are TMFers. Hope everyone is well. Oh, the tables won't display here properly either. So you might want to pop across to the Hardman board on TMF. Can someone dump this across to AVDFN as well? I've lost my password. Rayrac/Zinc/xmagx/ poobear? Thanks :)

http://boards.fool.co.uk/Message.asp?mid=9329298

This edition is VERY long due to lots of good bits enclosed from Oriel's latest research note. Also, I have no doubt there will be some mistakes here and there. So don't be too picky :) Also, this is NOT a recommendation, but an informational article. Do your own research please.

Overview

Yes, it was another month of no newsflow and inactivity from the outside looking in. However, having spoken to my sources, it sounds as though there is anything but inactivity from within as the JV prepares to launch its next attack offshore Mauritania.

Since last update, the only formal announcement was that Scott Spencer offloaded 247,682 shares in an on-market trade at an average price of 1.645 (http://www.asx.com.au//asxpdf/20050524/pdf/3qzncgv8j91y3.pdf) while still holding over 3 million shares. However, I also found out from my sources that
* 2D seismic for Lake Albert was completed with data currently being analysed by internal technical team, with first well targeted for drilling end of 2005.

* Stena Tay will be off for re-servicing in the next week or two for one month, before returning to perform the 2005 exploration drilling campaign, which is now expected to start in July.

* The JV is meeting over the next two weeks to finalise the drilling targets. To answer your question, ee, the exact area offshoe Mauritania to which CSEM has been applied could not be disclosed. So we'll just have to wait for the actual announcement. From what I understand, CSEM may have also been used in Guyane.

* Chinguetti reserves upgrade will not take place till at least Q4 2005 when all production wells have been completed. However, it is highly likely that we may see a revised reserves in the order of 135-145 MBO, which would been consistent with Hardman's previous estimate. Improved quality of sand encountered after sidetracks at Chinguetti will not result in increase in daily production rate of 75000 BOPD. However, it will mean a higher average production rate over a longer sustained period of time.

The above is very much consistent with the latest research note published by Oriel Securities (17 pages – dated 25th May 2005). I haven't found the link for it.

No purchase since last update.


Update On My NAV Valuation

I have now adjusted my NAV model once again to incorporate the latest information received on the 2005 drilling targets, which according to Oriel, will be targeting over 1 billion barrels recoverables.


Average Sell Price / Barrel (USD) $35.00ForEx $ 0.70No Of HDR Shares On Issue (Millions) 655Prospect Net Rev / Net Rev / Net Rev / Size COS HDR% HDR Unrisked Risked Barrel % Bar(USD) Bar (AUD) (MBO) (MBO)Cash $0.37 $0.37Chinguetti 12.5% $4.38 $6.25 123 100.00% 19.00% 23.37 $0.22 $0.22Tiof 12.5% $4.38 $6.25 300 100.00% 21.60% 64.80 $0.62 $0.62Banda 12.5% $4.38 $6.25 300 20.00% 24.30% 72.90 $0.70 $0.14Pelican 12.5% $4.38 $6.25 120 0.00% 16.20% 19.44 $0.19 $0.00Tevet 25.0% $8.75 $12.50 50 100.00% 21.60% 10.80 $0.21 $0.217 new target 12.5% $4.38 $6.25 1175 10.00% 21.60% 253.80 $2.42 $0.24Total $4.73 $1.80

Note that Oriel has ”revised our mid cycle oil price assumption (from US$30/bbl to US$36/bbl) and raised our NAV for the company to 67p from 59p and updated the EMV of the next drilling programme to another 28p per share. Our Appraisal NAV and EMV now include a total of 55p for PSC B offshore Mauritania and we demonstrate within how this acreage alone could be worth over 72p per share. This takes no account of the substantial gas reserves already established at Banda in PSC A and Pelican on Block 7 or the prospectivity of the rest of the acreage.”

In deriving at their NAV of 1.86 (77.6p), they have factored in a long term oil price of US36, a net barrel figure of US8.5 for Chinguetti, US5.9 for Tiof, US9.7 for Tevet (higher because it's a tieback) and US9.7 for oil rim at Banda. There have not factored in any gas at Banda nor Pelican. Nor have they included the upcoming drilling programme into the NAV. Instead, they have created a new value call EMV (Expected Monetary Value).

The really interesting thing from their research note is their allocation of EMV for Guyane and Uganda citing ” We have also included Guyane and Uganda for the first time as wells seem likely within our time horizon and, until farm outs are concluded, assumed Hardman will retain a 40% interest in the wildcats.”

SirL, notice how they have also used the rough estimate of 150mboe for unknown targets? ;)



Country Exploration Net Estimated Estimated Pre-drill Unrisked Risked Risked well interest net cost spud target EMV EMV EMV (%) p/share date mmboe p/share p/share c/shareMauritania Area A - Sotto 24.3 0.2 3Q 05 150 9.1 3.0 7.3 Area A 24.3 0.2 3Q 05 150 9.1 3.0 7.3 Area B 21.6 0.2 3Q 05 150 8.1 2.7 6.5 Area B 21.6 0.2 3Q 05 150 8.1 2.7 6.5 Area B 21.6 0.2 3Q 05 150 8.1 2.7 6.5 Block 1 - Petrel 18.0 0.1 3Q 05 175 7.9 1.6 3.8 Block 6 22.4 0.2 4Q 05 250 14.1 2.8 6.8 1175 64.2 18.5 44.4Guyane Matamata 40.0 0.5 4Q 05 1000 81.9 8.2 19.7Uganda Lake Albert 50.0 0.4 1Q 06 100 9.9 1.6 4.0Total 2.2 2275 156.0 28.3 68.1

Source: Oriel Securities estimates

I will leave it up to each of you to decide whether to add the Uganda and Guyane component to the core NAV value. Personally, even though they are near the advanced stage of the life cycle where seismic has been performed and it's down to target selection/farmin process/etc, I would still prefer not to allocate any value to them just yet until such time drilling targets have been formed and a drilling schedule committed.

Having said that, I guess it is a good tool to provide a good overview of how much Hardman's asset is potentially worth (in tangible numbers). I will think about whether to include them between now and the next issue :)

In their valuation, what they also did was to take an alternative approach to value PSC B ” to see what it could be worth if production can be maintained through to 2020 in an orderly fashion at finding costs of US$1.00/bbl, development costs of US$5.00/bbl and operating costs of US$3/bbl.On this basis and our revised price deck PSC B alone could be worth over 72p per share.”

In addition, they have also provided a projected forecast for Earnings & Cashflow all the way out to 2008…

AssumptionsYear end June 2004A 2005E 2006E 2007E 2008EBrent oil price (US$/bbl) 35.00 41.00 42.00 38.00 36.00US$ / £ exchange rate 1.74 1.85 1.85 1.85 1.85A$/£ exchange rate 2.44 2.40 2.40 2.40 2.40Working interest production (mboe/d) 0.7 0.0 3.8 13.7 12.9Opex (US$/boe) 3.9 0.0 6.0 3.3 3.5DD&A (US$/boe) 0.2 0.0 3.7 5.2 5.3Profit and Loss AccountYear end JuneA$ millions 2004A 2005E 2006E 2007E 2008ERevenue 205.7 (9.0) 65.2 206.3 184.4- operating costs (4.4) (0.2) (9.3) (23.4) (21.6)- cost of disposals (47.2) (2.6) 0.0 0.0 0.0- depreciation (1.0) (0.3) (6.6) (34.0) (32.3)Total cost of sales (52.6) (3.1) (15.9) (57.4) (53.9)Gross profit 153.2 (12.0) 49.3 148.9 130.5Exploration expenditure written off (10.1) (12.0) (4.0) (4.0) (4.0)Administrative costs (4.1) (9.0) (9.0) (9.2) (9.4)Operating profit 139.0 (33.0) 36.3 135.7 117.1Interest charges (1.9) (2.9) (8.8) (10.5) (8.2)Profit before tax 137.1 (36.0) 27.5 125.2 108.9Tax rate (%) 34 25 30 30 30Taxation (46.0) 9.0 (8.3) (37.6) (32.7)Profit after tax 91.1 (27.0) 19.3 87.6 76.2Dividend 0.0 0.0 0.0 0.0 0.0Retained Profit 91.1 (27.0) 19.3 87.6 76.2EPS (p) 7.2 (1.7) 1.2 5.6 4.8EPS (Australian cents) 17.7 (4.1) 2.9 13.4 11.6CFPS (p) (0.2) (0.8) 1.9 8.0 7.1Div(p) 0.0 0.0 0.0 0.0 0.0Cash Flow StatementYear end JuneA$ millions 2004A 2005E 2006E 2007E 2008EProfit after tax 91.1 (27.0) 19.3 87.6 76.2Depreciation 1.0 0.3 6.6 34.0 32.3Other and provisions (136.5) 2.6 0.0 0.0 0.0Exploration write off (2.5) 12.0 4.0 4.0 4.0Working capital 44.1 0.0 0.0 0.0 0.0Cash inflow from operations (2.8) (12.1) 29.9 125.7 112.5Investing Activitiesdevelopment (21.6) (112.3) (69.1) (112.8) (133.3)exploration & appraisal (13.7) (48.2) (63.8) (54.8) (43.5)acquisition and disposals 140.2 6.0 9.1 2.6 0.0investments (21.8) 0.0 0.0 0.0 0.0Cash outflow 83.1 (154.6) (123.9) (165.0) (176.8)Dividends paid 0.0 0.0 0.0 0.0 0.0Cashflow before financing 80.3 (166.6) (94.0) (39.3) (64.3)Cashflow before financing 80.3 (166.6) (94.0) (39.3) (64.3)Equity Financing 208.6 9.9 0.0 0.0 0.0Debt Financing (0.2) 64.9 64.9 (26.0) (26.0)Net Cashflow 288.6 (91.8) (29.1) (65.3) (90.3)

Source: Oriel Securities estimates



TA View On SP Movement

In my last issue, I said that “I have spit the dummy for this month and not say anything to curse the SP. (In other words, I have no idea!) ;)”. Well, what do yer know? It has since moved from 1.66 to 1.81 :) So my mouth will stay shut on this topic.


Shareholder Registry/Movement

According To Oriel, ”Australian and Asia Pacific institutional funds have built up holdings to some 40% of the Australian register but are still underweight compared to stakes in Oil Search, Santos and Woodside….Hardman has been listed on AIM since March 2002 and 20% of its equity is now held on the UK register predominantly by institutional funds.”

As per my comment earlier, Scott Spencer sold off some of his shares during the month for whatever reasons. Zinc's suggestion that it could simply be a case of him wanting to dispose of shares before the continuous stream of news-sensitive items coming through the pipeline starts has some merits. I do recall Ted doing similar things in the past.


Past Events

* Eritrean MOU declared null and void - No further development since this occurred in January.


* Appointment of new CEO - Since taken up his position as Hardman CEO during mid-Jan, Simon Potter has done a roadshow to various institutions around the Eastern states of Australia. Unfortunately, these sessions weren't open to the public. I am currently inquiring about the possibility of a more open session for the average retail shareholders.


* Project Finance For Chinguetti Finalised – This has been on the card for a while and for whatever reasons, has been delayed for while. The US$100 million deal, which will be used to fund about 80% of Chinguetti, is very much on par with market expectation.


* Dismissal Of Kathryn Davis – Given the unflattering nature of the RNS, I have inquired about it and it would appear that it was a case of a company outgrowing the current corporate structure, which is in need of a reshuffle in preparation for the transition to being a producer, and for the next phase of growth. As RG's concise post pointed out, When the breakthrough comes and the fledgling company starts to spread its wings and get involved in development projects, producing operations and perhaps larger scale exploration, then the game changes completely. You need a strong FD with strategic vision, tactical operating savvy and a lot of brawn and brain. It is common for this to trigger a new appointment. This was pretty much in line with what I was told from Hardman.

As we move closer to production, a full-time CFO is clearly needed to manage the expected influx of cashflow, and to establish the Forex hedging policy/strategy, etc.


* NZ permits surrendered – This was done for several reasons. The NZ blocks were high-risk frontier blocks, and with Hardman having their hands full on the Mauritania, Guyane, Uganda and Falklands front, they obviously felt that their technical resources could be better utilised trying to unlock the vast potentials in those blocks.


* Tiof-6 flow test – Flow test result at Tiof-6 peaked at some 12,400 bpod, and currently stabilising around 9,150 bopd in the main flow period constrained by a 72/64 inch choke. This was a good result, as it should help provide a level of comfort/confidence towards the inevitable declaration of commerciality for Tiof. I've since been led to believe this an Early Development Plan is no longer likely, with a full Field Production Plan now appears most likely and is expected to come onstream around 2009. As per explained in Simon's Open Briefing on the 01/03/2005 (see http://www.gtp.com.au/hardman/inewsfiles/1_March_-_Open_Briefing_MD_Potter_updates_Mauritania.pdf ), ”Tiof sits halfway up a paleo-continental shelf, with reservoirs comprised of fast moving sediments deposited in channels weaving backwards and forwards in a broader 2 kilometre wide channel. Chinguetti is actually set at the bottom of similar channels where the sands are actually emerging out into the less constrained and wider base of the continental shelf… The Tiof reservoir … is a much flatter, linear structure two kilometres wide by about eight kilometres long. The sediments are a much more silty, mixed sand composition and more complex. It is for these reasons we anticipated lower flow rates for Tiof.”

With the flow rate from Tiof-6 much greater than anticipated, they are now going back to the drawing board to review their understanding of the structure at Tiof – which is obviously more complex than first thought given the disparity between the expected and actual flow rate. Hence, it is almost inevitable that another 1 to 2 appraisal wells will be drilled at Tiof to ensure that they come up with the optimum development plan.

In the mean time, in their half yearly report, Woodside has assigned a “contingent resource” of 289mbo for Tiof. This figure was put together prior to the results of Tiof-5 and Tiof-6, so it is more than likely that this figure could be upgraded to somewhere between 350-400mbo.

Some of you may ask why is Tiof-5 (23m gross oil column) so important? Well, it was a step-out to the east of Tiof-1, and thus, the presence of oil there has extended the boundary of the entire field. To have a flat structure this wide and flowing like a compressed salt dome structure, one cannot help but feel confident that the recoverable reserves will eventually be upgraded to the order of 400mbo or greater. We have to remember that the only boundary that has been properly defined is to the west with the dry hole at Merou-1. However, there's still a lot of daylight between Merou-1 and Tiof-2 which could still potentially hold a significant amount of oil.


* Open Briefing With Simon Potter – see link http://boards.fool.co.uk/Message.asp?mid=9144972 for more info, or go directly to the http://www.gtp.com.au/hardman/inewsfiles/1_March_-_Open_Briefing_MD_Potter_updates_Mauritania.pdf


* Sales Of Gabon Interests - According to Hardman, this was divested as a result of the seismic not coming up to scratch. I believe they were looking at a minimum of around 20+ MBO for their prospects, but came up short. So it was sold to Ascent for an initial consideration of 12 million new ordinary shares of Ascent to Hardman. An additional US$515,765 will be reimbursed to Hardman upon completion of the sale to cover past costs. Further payments of A$500,000 will be paid if any successful recovery of hydrocarbons is made, and A$700,000 on issue of governmental approval for production (see link http://www.gtp.com.au/hardman/inewsfiles/2_March_-_Sale_of_Gabon_Interests.pdf ).


* Timor Sea – As per Peter's post, which correctly pointed out that Marloo was indeed down the loo :) I think Oriel's comment reflect my sentiment quite nicely on this one…” The project in the Timor Sea is more of an exploitation play designed to build organisational capacity after the sale of the onshore Woodada and Jingemia fields. Hardman acquired acreage around the sub-commercial Talbot field (circa 4 million barrels) at low cost by undertaking to remove old well heads and drill and operate an exploration well on AC/P26 (98.75%). The aim is to discover sufficient reserves within tie-back range to justify a development. The first exploration well, Marloo-1, was plugged and abandoned at a cost of A$3.5m.”


* Hardman takes Woodside to court – As per the announcement (http://imagesignal.comsec.com.au/asxdata/20050408/pdf/00512307.pdf ), ”Hardman's position is that the entitlement of all joint venture parties to recover costs should be calculated according to the participating interest share in the Joint Venture. Woodside asserts that it should be entitled to recover 100% of its share of the farmin costs for cost recovery purposes.

Other Area B joint venture parties have indicated support for Hardman's position. Hardman also has an opinion from a Queens Counsel which supports its position.”

Simply a case of both parties agreeing to seek third-party independent resolution after agreeing to disagree on the distribution of Government buyback funds.

No resolution yet, but this matter is not expected to be resolved in the next month or two.


* Falklands South Basin 2D Seismic – This has now been completed (see http://imagesignal.comsec.com.au/asxdata/20050503/pdf/00518442.pdf ). ”These initial results show a much larger and more diverse prospect inventory than originally anticipated and have identified numerous new leads, with indications that some could potentially be commercially significant in size. A full evaluation of these leads, supplemented by further investigations, will be necessary before technically sound and economically viable drillable
prospects can be defined.

…. Full details of the exploration programme are still to be finalised by the joint venture but, given the increased number of identified leads, Hardman expects the scope of the exploration programme to increase significantly. The operator is targeting drilling of the first well in 2007.”

From the 130 potential leads identified from the seismic, their main goal is to narrow it down to 20 drilling targets by 2007. Until such time the targets are identified, I still think it is too risky to assign any significant value to their core NAV at present time.

Oriel's view on Falklands ” The 2D seismic survey offshore the Falklands proved to be encouraging and highlighted a number of interesting structures. The permit covers most of the south Falklands basin (analogous to the nearby Malvinas basin) and should not be confused with the north Falklands. Hardman holds a 22.6% interest the rest by the operator, newly formed and AIM listed Falkland Oil & Gas. 3D seismic may be shot this year and the first exploration well is expected within two years.”


* 2005 Q3 Quarterly Update – (http://imagesignal.comsec.com.au/asxdata/20050429/pdf/00517583.pdf ) Key points made included:

- > 9 out of 10 producing wells drilled at Chinguetti, with sand control applied to 4 of them to date. Conversion work on the FPSO Berge Helene is slightly ahead of schedule and due to move on-site in August. Key to first oil is the FPSO. Therefore, it is anticipated first oil will arrive early Q1 2006. In addition, a few sidetrack had to be drilled, with improved sand/reservoir quality as well as flow rate – with strong possibilities of upward revision in reserves.

- > Re-stated what I have previously discussed on Tiof (see above).

- >On the exploration front, it was said that ”The focus of exploration activities during the quarter was the acquisition of seismic and electromagnetic surveys and the continuing processing and interpretation of the seismic data acquired in 2004. This data will be used to select the drilling targets for the 2005 exploration drilling program, which is expected to include 7-9 wells across PSCs A, B, 6 & 1. The Block 6 3D seismic survey was completed on 7 February 2005 after acquiring 3,096 square kilometres of data. The recording vessel then moved to Block 7 where a 1,536 square kilometres survey was completed on 15 March 2005. Electromagnetic surveys were undertaken in a number of PSCs to determine the effectiveness and potential application of this method.


* Safety milestone for FPSO Berge Helene - ”Keppel Shipyard recently clocked 500,000 manhours without loss time incident on the conversion of FPSO Berge Helene… The 28-year old tanker sailed into Keppel Shipyard (Tuas) last December for conversion and upgrading, and is expected to be redelivered in August 2005.” (Courtesy of djalan http://boards.fool.co.uk/Message.asp?mid=9270039)


Current Events
* Nothing this month.


Future Events

* Announcement of newly identified targets – From Oriel's latest research note… ” The West Navigator should complete the Chinguetti development during the third quarter while the Stena Tay will go to the Canary Islands for a one month refit shortly and return in July to commence the next exploration and appraisal drilling programme. The rigs are under a rolling contract and currently held until this November. The West Navigator is due to be released but the contract for the Stena Tay can be extended until September next year at the same rate….

The next exploration phase is due to start after the Stena Tay returns from a one month re-fit in the Canaries once released from Chinguetti drilling. The initial programme should start in July and see Hardman participate in 7 or 8 exploration wells offshore Mauritania by year end targeting over 250 million barrels net to the company.”

This is consistent with what Hardman has informed me in that ST will be off for refitting/reservicing in the next week or two for a month. In the mean time, the JV are meeting over the next two weeks to discuss/finalise drilling targets – which is expected to be announced mid-June.


* Drilling of exploration wells –

The 2005 exploration programme is currently scheduled to start in May/June. With 3D seismic being shot over PSC A, PSC B, and Block 6, and same has been performed over Block 7, I tend to think that most targets will be in those Blocks. SirL pointed out that ”on page 21 a slide with seven potential "2005 drilling candidates" marked, named as Espadon, Baudroie, Tapandar, Assetat, Fantar, Sotto and Kibaro.”. I have tried to dig some info on Tapandar, Assetat and Kibaro, but with no success. So any info on them would be most welcome!

Oriel stated that “The forward drilling schedule has yet to be finalised and liable to change in the light of events. It is likely to incorporate 5 or 6 exploration wells on PSC Areas A&B, an exploration well on Block 6 and another on Block 1. Rig contracts should be able to accommodate this number by the end of November assuming the Stena Tay is back on station by July.

Fresh 3D seismic has been shot on Area A & B and recently acquired on Block 6 to help define targets. The joint venture has also been applying the latest resistivity survey technology as has Dana on adjoining blocks. Hardman will enjoy access to the data of both sets of surveys.

The joint venture aims to have at least 10 drillable prospects ready for the restart of exploration out of over 60 prospects and leads already identified within PSC Area A & B. An exploration well on Sotto appears to be a front runner. Petrel is the favourite in Block 1 and a large prospect is being firmed up in Block 6. Overall, the next programme will target well over a billion barrels of recoverable resources. We expect further wells to be added to the programme with continuous drilling through next year.”


The following breakdown highlights the lead prospect in each of the blocks (based on information released thus far, and some rough gut-feeling)…


Exploration:

Block 1: Commitment Well. Petrel or Faucon. According to Oriel, ” Petrel-1 is favoured over Faucon on Block 1 and will test a rollover structure within an Upper Campanian channel at similar depth to the Miocene discoveries to the north. Hardman assesses prospective resources at between 100-250 million barrels.”

PSC A/B (Block 3,4,5) – Oriel commented that ” Interpretation of Merou-1 points to another potential oil migration path into the large structure abutting the Tiof channel system in deeper waters of PSC Area B that warrants drilling. Woodside has highlighted other exploration prospects in PSC Area A (Fantar, Kibaro, Bogue) and Area B close to existing discoveries (N'Dor, Baudroie, Espadon, Assatat, Espadon), ironically, looking for barrels in prospects named after fish.”. I just love how we discovered this first :) Maybe they source some of their information from TMF!

Block 3: According to Oriel, Sotto (see Hardman March Info Brochure) ”lies in shallower water in PSC Area A within an untested Miocene channel system to the south of Chinguetti nearer the coast. Hardman assesses prospective resources of the deeper primary target zone at between 150 to 250 million barrels.”

Block 3: Fantar (Identified after the following Kiffa #D Seismic was done over PSC A, Woodside described it as "Existing 2D seismic suggests flat spot... Kiffa 3D seismic to confirm Fantar for late 2004/early 2005 drilling."

Block 4: N'Dor (Located between Chinguetti and Capitaine, this prospect will explore the western boundary of the existing Banda-Tevet-Chinguetti Miocene channel).

Block 4/5: Espadon (Located right on top (North) of Merou-1, this prospect is to explore possible oil deposits downdip from the crest-drilled Merou-1, which was hydrocarbon-charged although non-commercial).

Block 6: Commitment Well. 3D seismic currently underway with one exploration well towards the end of 2005. According to Oriel, ”Block 6 is closer to the source kitchen and thought to contain larger prospects.”

Block 7: See pelican appraisal below.

Block 8: 12 month extension approved with 3D seismic completed late last year. No defined prospect.


Appraisal:

According to Oriel, “It is not clear how many appraisal wells will also be drilled. Tiof will take precedence (and may need two more) but Banda and Tevet could be revisited. The development well to re-inject associated gas from Chinguetti will be sited on Banda and at least two more production tests are likely at Tiof.”

PSC A/B: East of Banda (gas zones believed to extend close to the shorelines. Detail 3D Seismic completed)

PSC A/B: Tiof-7 (possibly west of Tiof-2 since Tiof-2 wasn't crest-drilled. Complex structure which requires further appraisal prior to the commitment of $2 bn in development costs)

Block-7: East Of Pelican (as per Dana's recent announcement - ” In Block 7, the next well will be pursuing oil and gas believed to lie up-dip and inshore of the Pelican discovery made at the end of 2003, which is now calculated to
contain up to one and a half trillion cubic feet of gas.”)

Commenting on the PSC and exploration contracts offshore Mauritania, it was said by Oriel that ”The acreage is held under exploration contracts other than the portion around Chinguetti. Since the declaration of commerciality this has been converted into a production contract lasting 25 years and renewable twice for 10 more years each time. The joint venture is incentivised to establish more production licences through active drilling. The exploration portion of PSC Area A & B has been extended until August 2009 but 25% of PSC B acreage is due to be relinquished in June 2006. PSC A's relinquishment has already occurred. The other PSC's were signed up in 1999. Drilling commitments are coming up ahead of a 25% relinquishment this year and expiry in June 2008.”


* Lake Albert Seismic Result – As per Hardman's clarification, ”a fill in segment of 2D seismic is currently being carried out and Hardman continues to plan towards drilling a well their by the end of 2005”. This seismic is expected to be completed and analysed mid 2005. As per my previous update, Turaco-3 was found to contain hydrocarbon, but a high level of CO2 has all but eliminated any chance of its commerciality. I asked about the CO2 issue at Turaco-3 and how it affected the prospectivity of the Lake Albert Area 2 acreage. It was said that they are still confident that the CO2 issue may not exist north of Area 1. He also mentioned that with Energy Africa (Tullow) having 50% interests in all three area, Hardman has some access to the Heritage/Energy Africa data, which is fed back into their modelling for a better understanding of the structure in play there. However, this acreage has since been downplayed, as illustrated in their latest Info Brochure as well as Simon Potter's open briefing.

I've been led to believe that 2D seismic has been completed and is currently being analysed by in-house technical team, with a large structure earmarked for drilling end of this year. This is consistent with Oriel's comment ”2D seismic has been completed with a view to drilling a large structure under Lake Albert from the shoreline.”


* Appointment of CFO – I have been led to believe that a CFO may be appointed some time in Q2.


* Farm-in partners for Guyane – Yap, still going. It would appear from various comments made by SP that Hardman is looking to farm-out 50-ish % (keeping 40%) in return for acreage rather than money via some kind of asset swap deal. Oriel's view on Guyane….” Offshore Guyane looks particularly interesting. Hardman starts with a 97% working interest in a licence covering some 65,000 sq kms of practically virgin acreage sandwiched between the offshore provinces of Trinidad, Venezuela and Brazil. The huge undrilled Matamata structure in deep water has attracted most comment but seismic has also thrown up multiple smaller structures in channel features nearer shore. These have similarities to discoveries offshore Mauritania and are easier and cheaper to drill. Licence terms require an exploration well by June 2006 and Hardman is actively farming out with a view to drilling the first exploration well late this year.”


* Completion of Chinguetti wells and arrival of FPSO – Completion of Chinguetti wells and arrival of FPSO – Berge Helene is expected to arrive at Chinguetti by August/September (see link http://boards.fool.co.uk/Message.asp?mid=9043037 - kindly provided by SuperHard). Speaking of the FPSO, most of you would read about my little visit to Singapore, I have now received official authorization to publish the photos that I took. I hope they don't disappoint! Anyway, here's the link to the yahoo photo album…

http://au.pg.photos.yahoo.com/ph/mr61pt8/album?.dir=/a170&.src=ph&.tok=phTRnyCB8gI44aXb


* Declaration of commerciality for Tiof – My previous expectation had been end of year. However, as per Peter's update from the Roc's presentation at the OilBarrel conference, At the Oilbarrel conference today Kevin Hird from ROC showed a slide showing appraisal on Tiof going on until at least 2007 (the slide only went up that far). When asked (by PhilElder I think?) why the appraisal period went on so long, he emphasised the complex geology, in comparison to Chinguetti as you have done (so he is in good company). As you say, this is clearly going to take some time, though a useful side effect will be that, hopefully, the development when it happens may be largely funded from Chinguetti cash flow.

Of course, the complexity of the Tiof geology may also mean that we shouldn't read too much into the excellent flow rate achieved from Tiof 6, conditions in the reservoir may vary across it. (see post http://boards.fool.co.uk/Message.asp?mid=9220818 ). Therefore, it is possible that Tiof may not be declared commercial until some time mid-2007. As a shareholder, I would much rather the JV take their time in gaining a better understanding of the geological structure and implement the best development plan (with higher recovery factor), then to spend $2 billion and screw up a 1 billion barrel oil field (in place reserves that is).


* Chinguetti goes into production – As per Hardman's Q3 Quarterly Update, this has now been brought forward to early Q1 2006 with likely upward revision in reserves. Initial daily production rate of 75000bpd (net of about 14250 bpd to Hardman).


Perhaps the statement that caught my attention the most from the Oriel research note was that ” Hardman is actively pursuing further frontier exploration ventures broadening its network with representatives in London and Houston, increasing the budget for new opportunities and looking to do swap deals. The existing portfolio is beginning to mature with high impact wells to be drilled offshore French Guyane, onshore Uganda and offshore the south Falklands within the next two years.”

With the foundation laid out for next 5-years of growth, this demonstrates that the management is already looking beyond its current assets to plan the next phase of growth.

Good luck and happy investing to all :)

Cheers,
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