Hardman Resources: Flush With Success And Looking For The Next Exploration Buzz April 15, 2005 By Amy McLellan
As Hardman Resources is finding out, there’s nothing like success to breed success. The Perth-based company, which is listed on the Australian Stock Exchange and London’s Alternative Investment Market, has made something of a name for itself through a single investment made in 1996. That investment was, of course, the decision to sign up for production sharing contracts covering large tranches of the Mauritanian offshore acreage in northwest Africa, then a little known country with no history of offshore prospecting. Almost ten years on and the country is heading towards its first production, with first oil from the Chinguetti oilfield due onstream in the first quarter of 2006. And a series of interesting discoveries in the deep offshore will ensure that Chinguetti won’t be the country’s sole source of production.
With that success under its belt, Hardman is finding itself top of the list when other adventurers are on the look out for exploration-savvy partners. As Simon Potter, Hardman’s new boss, points out, it’s a case of the rich getting richer.
While the increased attention and the access to new opportunities are nice, Potter, a former BP high flyer, sees no reason to tinker with a strategy that has clearly worked so well in the past.
“Hardman is an exploration company,” he told oilbarrel.com recently, en route to Nouakchott, the Mauritanian capital. “The stock gets its buzz from frontier exploration and anything we do should be additive to that and not dilutive.”
Potter took the reins after longstanding chief executive Ted Ellyard stood down for personal and medical reasons at the end of last year, having steered the company from a market cap of A$5 million to more than A$1 billion. He certainly joins the company at an interesting time. In the next 12 months the company will no longer be a pure blue-sky exploration stock: it will have a 20 per cent stake in the Chinguetti oilfield, due to start pumping 75,000 bpd by this time next year. Potter, 47, a Brit with an Australian wife, has a 20-year career at oil giant BP under his belt, most recently working as head of TNK-BP, the joint venture between BP and Alfa Group in Russia.
As one industry observed on news of his appointment: “He’s gone from reporting to the board of a £113 billion market cap company to running a company with a market cap of £550 million. There are not that many jobs for someone of his level in Perth and this is a very important move and good news for him, good news for Hardman and good news for Australia.”
Potter, used to running major commercial and production operations for the British supermajor, adds a certain clout to Hardman’s board as the company makes its transition from explorer to producer, from oil junior to a billion dollar plus concern.
“It was a bit of a culture shock coming out of Moscow,” said Potter of his appointment. “It’s a very different culture and it’s pretty refreshing to be able to know everybody in the organisation and feel really in touch with the business and able to make decisions there and then.”
Even so, he does know something of life outside of the supermajor world: “I hadn’t actually worked in BP for the last six or seven years because I was working in BP joint ventures in Indonesia and then in Russia.”
With Mauritania progressing nicely, it’s time for Hardman to start pushing on some of its other projects - and Potter is keen to speed up the ten-year project cycle that has characterised the Mauritania development. There’s also a need to grow the inventory, which has been pared down over the past year: the company has withdrawn from New Zealand and one permit in the Timor Sea, sold its Gabon interests and it looks like its Eritrean project has fallen off the drawing board after the government there failed to grant the Massawa Block in the Red Sea.
New projects are needed to fill the gap and French Guyane could, perhaps, be the next buzz in the Hardman portfolio. The company holds a whopping 97.5 per cent of a 65,000 sq km licence that covers the entire offshore of the South American territory to a water depth of 3,000 metres.
According to Potter, the geology offshore Guyane is very similar to Mauritania. Encouragingly, it is also sandwiched between the known hydrocarbon plays of Trinidad and Venezuela to the north and Brazil to the south. The company has to drill here in the next 15 months or so, when it is likely to target the vast Matamata structure. A farm-down akin to the deal struck with Woodside ahead of drilling offshore Mauritania could also be on the cards although Potter is keen the company doesn’t shrink its exposure too far.
“We are now a billion dollar company and we have to grow into this skin a bit,” said Potter. “We now have a much greater capacity to bear risk so we’re not going to farm down to 20 per cent any more. We are more comfortable at 40 per cent and rather than farming out for money we would consider taking an asset swap instead.”
The company is keen to add to its portfolio, which also includes acreage in Uganda, the Falkland Islands and the Australian waters of the Timor Sea. This latter project is a bit of an anomaly amid all the blue-sky frontier exploration acreage but importantly it does represent Hardman’s first operated drilling project. Unfortunately the Marloo-1 well proved a duster and has been plugged and abandoned.
“The Timor Sea is rather a drilled out province,” admitted Potter, speaking ahead of the Marloo-1 spud date. “However, because we’re the operator it will allow me to see how mature our systems are and how effective we are at managing our own operations because it’s one thing to operate in your own backyard and quite another to operate in the deep offshore elsewhere.”
The result may have been a disappointment but operationally the well got a thumbs-up: it was scheduled to take 14 days and cost A$5 million but it was completed in 9 days and came in A$1.5 million ahead of budget.
The company’s remaining exploration activity involves seismic work in Uganda, where the company holds 50 per cent of Block 2 in the northwest of the country. This area is virtually untouched: there has been only one well, drilled in 1938 by Shell, which encountered oil shows.
To the south and east of the Falkland Islands in the south Atlantic, Hardman holds 22.5 per cent of a joint venture that holds 10 exploration blocks covering some 57,000 sq km of the South Falklands Basin. A seismic survey here has impressed: Potter said the raw data coming off the boat is “showing some great structures”.
Potter believes there’s still plenty of scope around the world to make an early entry into the next frontier play, particularly with the supermajors increasingly focused on the billion barrel elephant hunt.
“The scraps they leave behind are fields of between 100 and 300 million barrels, which creates great niche opportunities for independents that are capable of dealing with the risk of frontier countries, whether that’s technical or political risk,” said Potter.
Given the company’s track record to date, and Potter’s own impressive CV, there are few who would bet against Hardman’s ability to mine those opportunities...
