24th Mar 2006 07:00
Hardman Resources Limited24 March 2006 STOCK EXCHANGE / MEDIA RELEASE RELEASE DATE: 24 March 2006 AUSTRALIAN CONTACT: Simon Potter Hardman Resources Ltd +61 8 9261 7600 LONDON CONTACT: Patrick Handley Brunswick Group +44 207 404 5959 RE: OPEN BRIEFING Enclosed is an Open Briefing with Managing Director Simon Potter, which has beenprepared by Corporate File for immediate release. A copy of the briefing is nowavailable at www.hdr.com.au. PETER THOMASCHIEF FINANCIAL OFFICER Attention ASX Company Announcements Platform Lodgement of Open Briefing(R) Hardman Resources LtdLevel 150 Kings Park RdWest Perth WA 6005 Date of lodgement: 24-Mar-2006Title: Open Briefing(R). Hardman. Production, Financials & StrategyRecord of interview:corporatefile.com.au Hardman Resources Ltd has made the transition from explorer to explorer-producerafter Chinguetti produced its first oil last month. Can you firstly recapHardman's achievements over the last 6 months or so? MD Simon Potter The most recent period has been very exciting with the Chinguetti oil field inMauritania coming on stream. In many ways we can view the company as coming ofage in this period. • A new management team with clear strategic goals • Independence from Woodside clearly demonstrated • A production company in its own right • New areas of opportunity opening up outside of Mauritania Operationally in the past six months, we've appraised the Miocene discovery atTevet - the same horizon that is productive at Chinguetti. We have made afurther discovery at this same level in the Labeidna well. Both of thesediscoveries have the potential to be tied-back to Chinguetti. We've also madeCretaceous discoveries at Tevet and Faucon. These discoveries are important aswe have now extended this play fairway and charge system from the only previousdiscovery at Pelican in the north of our Mauritanian acreage some 250 kilometressouth into the Dana operated permits in the south. In Uganda we've established and enhanced our track record as a 'play-maker' bymaking two operated oil discoveries in the rift valley of Eastern Africa,adjacent to Lake Albert. In South America we've completed our operated 2D and 3Dseismic surveys in Guyane where the initial results have confirmedMauritanian-like Miocene channel systems as well as other prospective fairways.This has the potential to add considerable value to the licence. We've continued to look for new opportunities, mindful of the prevailing climateand have reviewed more than 30 new venture activities in the last 12 months.Today we have announced our farm-in to acreage in Tanzania and look forward tofurther announcements in the coming weeks. At the corporate level we've continued to revamp our systems, organisation andrisk mitigation processes to get ready for production and accompanying cashflow.In December 2005 Woodside disposed of its 10% shareholding in Hardman and thatclearly has had benefits for the liquidity of our stock. We have improved theterms of the existing US$100 million debt facility and entered into a Chinguettioil sales agreement with a pooled marketing group. Finally we have signed oilprice hedging contracts to protect part of our revenue stream. corporatefile.com.au Can you outline how Chinguetti is performing? What are the current expectationsof the project in terms of production and reserves? MD Simon Potter Production at Chinguetti started on 25 February and within two weeks hadachieved production through the plant of c. 75,000 barrels a day. Chinguetti iscurrently operating from all six production wells, but importantly we also havefive water injector wells currently injecting in excess of 100,000 barrels a dayof water. That is very important for the future sustainability of the reservoir.We also have a gas injector available to return gas to the Banda reservoir tosustain that asset for future exploitation. Looking forward with Chinguetti, we want to optimise performance including theup-time of the facility as well as realised prices from liftings and, when wehave a greater understanding of reservoir performance and pressures, we'll bere-examining the reserve estimate of 123 million barrels (2P) throughindependent review. corporatefile.com.au As at 31 December 2005, Hardman had cash of A$121 million and net cash of A$36million. How do you expect your financial profile to change now that you are aproducer, particularly in terms of cash flow, balance sheet and achieving growthobjectives? MD Simon Potter We had a very strong investment program during 2005, but we still ended the yearwith a positive net cash position. We are predicting cash earnings contributedby Chinguetti for 2006 of some US$140 million (at US$45 per barrel) and remainfully funded in terms of our planned objectives although we have further growthambitions. corporatefile.com.au How would you describe the overall current status of Hardman as a businessrelative to your strategy? MD Simon Potter We have a firm growth strategy in place and we're moving forward consistentlyagainst those objectives. Hardman primarily remains a frontier explorationcompany and clearly our recent announcement of expanding our portfolio intoTanzania reinforces that. However, the start-up of Chinguetti will allow us toreinvest in nearby discoveries to further enhance cash flows in the near term.Equally, we're looking to add new opportunities to complement that high risk/high reward frontier acreage. This might mean paying modest premiums to get intolower risk, shorter cycle opportunities, but we're ready to do this based uponmerits. corporatefile.com.au You have announced that the Mauritanian Government is disputing the validity ofsome supplementary agreements to your PSCs. Can you provide an update on thesituation and how it affects your operations in Mauritania? MD Simon Potter Importantly, as we've seen with the start-up of Chinguetti and the rapid rise tocapacity offtake, the dialogue with the Mauritanian Government hasn't affectedoperations at all. Indeed, from Hardman's perspective, it hasn't impacted ourrelationship with the Mauritanian Government which remains good. As Operator ofthe Joint Venture, Woodside is handling the discussions on this issue and,whilst we agree a mandate, we don't have any direct involvement in thediscussions. We are hopeful that discussions will lead to a resolution in thenear term. corporatefile.com.au Although Tiof is a large structure with a considerable volume of oil in place,it has a very complex reservoir. What development concept is most likely? Whendo you expect a decision on the project? MD Simon Potter Tiof is progressing well, though I would prefer a faster pace as options areclear and well constrained. The project is proceeding along two separate pathsat the moment involving the subsurface (reservoir characteristics) and thetopside facilities options. These parallel evaluations are moving toward aconclusion scheduled for April where a decision will be made to integrate theproject onto a single concept basis, with further key decisions taking theconcept forward by end 2Q. My expectation is that Tiof will proceed on a phased development basis where wewill place a separate production facility into the field with a developmentcomprising either two or four producer-injector couplets producing to a separatefacility. Such a development is then expandable to incorporate further wellsonce we have dynamic reservoir data from the field. This approach has merits inensuring cashflow at the earliest opportunity whilst constraining exposure. corporatefile.com.au You've stated that a likely threshold for an LNG development in Mauritania wouldbe around 4 tcf. Banda is thought to contain up to 2.5 tcf of gas. The PSCsdon't currently include gas commercial terms. What's the status of negotiationson gas terms with the Mauritanian Government? MD Simon Potter These discussions have been temporarily stalled since the change of Governmentin Mauritania. However, given that the administration and the bureaucracyremains essentially unchanged we should be able to pick up discussionsrelatively quickly. With the introduction of Gaz de France into our Danaoperated blocks, the gas discovery at Faucon and the targeting of a considerablegas prospect (Flamant) in block 8 for drilling in 2H 2006 I think thesediscussions will pick up considerable impetus. corporatefile.com.au You expect to re-start the 2006 Mauritanian exploration program in June/July.Can you outline that program, including the play concepts and pre-drillestimates? MD Simon Potter Hardman's 2006 Mauritanian exploration programme will run continuously throughthe second half of the year once the new rig, the Atwood Hunter, arrives. Thisrig has a completely different capability than the Stena Tay, with the abilityto drill in shallower water and to intervene on Chinguetti wells should that benecessary. In the Woodside-operated joint venture, the Atwood Hunter will target initiallyshallower water prospects similar to the Miocene canyon head plays such asBanda. The first well in the programme will be Colin in PSC A which has a meanpre-drill estimate of 170 million barrels and this is likely to be followedlater in the programme by Kilbaro and Awatt. Hardman will also participate when the rig drills two commitment wells in theDana-operated joint ventures. The well in Block 7 has not been nominated yetthough is likely to seek up-dip oil potential from the Pelican discovery andtarget a potential 5 tcf structure Flamant in Block 8. corporatefile.com.au In Uganda, Hardman as operator has drilled two wells for two discoveries (Mputaand Waraga). The oil appears to be of good quality. What is the forward plan? MD Simon Potter Hardman has considerably enhanced its track record as a frontier explorer andplay-maker through success in Uganda. Having established its credentials inMauritania, Uganda now represents the second time Hardman has opened up apotentially new hydrocarbon province. Uganda is very exciting and we have two successes from two wells. Our licencecommitment did not require us to drill our single well obligation until 4Q 2007so we have considerably accelerated as well as exceeded our commitments and planto appraise the region as soon as possible. The most recent discovery, Waraga, is similar to the original discovery wellMputa, in that it has essentially three zones of oil bearing sands. At Waragathe upper zone is better constrained by logging and pressure measurements wherewe have a reservoir some 32 metres thick with an oil column height extendingover some 45 metres with a net to gross in excess of 50%. A middle oil zone ofapproximately 27m and a lower oil zone of 5m have also been encountered, in fairto excellent quality reservoir rock. The Waraga oil in all zones is believed tobe of good quality (c. 30- 40 API). This is an encouraging sign from both areservoir flowing point of view as well as commercial standpoint where the crudemay need minimal refining. The lower zone at both Waraga and Mputa is less well constrained though hasconsiderable potential both at these locations and laterally. This zone extendsvertically from 50-200 metres and consists of interbedded sands and shales, withan overall net to gross of c. 10-20% at this location, sitting immediately abovethe Miocene basal unconformity on basement. These reworked basement lithologiescontain a high proportion of resistive minerals which can be confused withhydrocarbons and mean conventional logging suites could produce equivocalresults. Interpretation of pressure measurements and grab samples collected insuch a mixed lithological sequence is difficult and can be misleading but wewould appear to have multiple columns in evidence. We have preferred to adopt acautious approach in our interpretation pending flow testing. Both wells havebeen cased ahead of such testing. The forward plan for both discoveries is to conduct a cased hole DST flow testwhere we will flow various horizons and measure pressure build-up. The obviousconstraint will be one of storage and thus disposal/sale of oil from the test.The necessary equipment, including a second smaller rig, is already beingmobilsed to site for the testing operation anticipated in the next 6 weeks. We're also planning with our partners, Energy Africa, to drill a furtherappraisal well as soon as possible, at a downdip location extension of Mputa/Waraga to discriminate if we have a single or multiple structures - sitepreparation is already underway. The identified reservoir intervals thickendeeper into the basin where stratigraphic trapping potential has also beenidentified. The critical path on the forward programme is one of logistics inensuring there is enough heavy lifting and haulage vehicles available in Ugandato move two rigs and carry out testing and appraisal efficiently and safely. Ifwe can be assured this can be done we will spud in the next two months. corporatefile.com.au Clearly the two Ugandan discoveries confirm the potential of the region. Whatother targets have you identified for near term drilling? Are these all similargeological targets to the discoveries or are you chasing other play concepts? MD Simon Potter This is actually a single play concept within the rift valley system and asnoted above considerable upside potential extends even further into the riftbasin. However, that takes the potential drilling locations out under LakeAlbert and will consequently take considerably more planning and thus greaterlead time to exploit. As and when we complete a testing and appraisal programmeit will be time to pause, assess the results and determine the forwardprogramme. Such considerations will include 3D seismic as well as rig conceptand availability. corporatefile.com.au What are the immediate objectives for Hardman in Guyane? What has the recentpre-drill exploration work revealed? MD Simon Potter During the second half of 2005 we shot a 2D seismic survey to prove our'Mauritanian' Miocene channel play concept in the Eastern basin and then shot apostage stamp 3D survey over one of the identified channels. This has producedsome very exciting results and will be available to potential farminees on awork station in Trinidad from the beginning of May. Simply viewing the brutestacks from the vessel shows prospectivity, structuration and anomalies from theCretaceous through to the Pleistocene. Following a recent trip to Houston anumber of companies have booked into the data room enthusiastic about theseinitial results. corporatefile.com.au FOGL, the operator of your licences in Falklands, is known to be seeking apartner. What is your attitude to these licences? MD Simon Potter We're currently shooting 2D seismic and we're two thirds through a 15,000 kmsurvey. We have a 22.5% equity position and we're comfortable with that. FOGL isseeking a farminee into its 77.5% equity and we're very encouraged by theresults they have reported so far and the potential partners they are indiscussion with. A strong partner and potential operator is needed to ensurethese licences are fully exploited. A 3D survey will follow on in 2007 with thepotential to drill thereafter. corporatefile.com.au Hardman has increased its credentials as an operator over the last year. How hasthis impacted the organization and how are you now viewed as a partner? MD Simon Potter It has been an important transition for Hardman to be able to operate andtherefore be able to manage pace and exposure consistent with its strategicobjectives. This is clearly seen in Uganda where we have proceeded well inadvance of our obligations but consistent with our desire to open up 2 - 3 newbusiness areas over and above Mauritania. One consequence of course is thatHardman is now a very busy organisation as with the assumption of operatorshipcomes many requirements, risks and obligations that require mature processes andsystems to effectively manage. These include many commercial/financial, safety,environment and community issues, all of which we've been managing effectivelyin Uganda and Guyane. From extending roads and drilling water wells in Uganda,to sea state, bathymetric and turtle habitat studies in Guyane. We will beleveraging this experience as we assume operatorship in our recently acquiredacreage in Tanzania. corporatefile.com.au In summary, how would you describe Hardman's risk profile and growth prospectsnow that you are a producer? MD Simon Potter Having established Chinguetti on line we are looking to:- • Maximise Chinguetti performance through 2006 both operationally and commercially, optimising offtake and realised prices to sustain a significant income stream. • Extend the production profile of that infrastructure by re-cycling investment in the Chinguetti area by optimising Chinguetti phase II and continuing to appraise the adjacent existing high-value satellite discoveries at Tevet, Labeidna and the Banda oil-leg. • Refocus of the Mauritanian drilling programme in the second half of 2006 to the strong prospect inventory in shallower waters - starting with the Colin Miocene prospect with a mean potential of 170 million barrels and including Flamant (5tcf.) in Block 8. • Press ahead with the commercialisation of the major discoveries at Tiof and Banda in Mauritania and fully appraise the discoveries at Mputa - Waraga in Uganda directed at achieving additional and complementary income streams to de-risk and diversify the portfolio. • Accelerate options by aggressively exploiting our high equity position, our enhanced operating capability and reputation as a strong venture partner. • Access new exploration opportunities in both frontier as well as lower risk areas - recognising that these assets may attract a modest premium but offer faster development times. corporatefile.com.au Thank you Simon. For further information on Hardman Resources visit www.hdr.com.au or call SimonPotter (Australian contact) on 08 9261 7600 or Patrick Handley, Brunswick Group(UK contact) on +44 207 404 5959. For previous Open Briefings by Hardman Resources visit www.corporatefile.com.au DISCLAIMER: Corporate File Pty Ltd has taken reasonable care in publishing theinformation contained in this Open Briefing(R). It is information given in asummary form and does not purport to be complete. The information contained isnot intended to be used as the basis for making any investment decision and youare solely responsible for any use you choose to make of the information. Westrongly advise that you seek independent professional advice before making anyinvestment decisions. Corporate File Pty Ltd is not responsible for anyconsequences of the use you make of the information, including any loss ordamage you or a third party might suffer as a result of that use. 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