Highlands Natural Resources Regulatory News (HNR)

22 Sep 2005 07:04

Hardman Resources Limited22 September 2005 STOCK EXCHANGE / MEDIA RELEASE RELEASE DATE: 22 September 2005 AUSTRALIAN CONTACT: Simon Potter Managing Director and CEO Hardman Resources Ltd +61 8 9261 7600 Peter Thomas Chief Financial Officer Hardman Resources Ltd +61 8 9261 7600 Jim Kelly Third Person Communications +61 2 8298 6100 LONDON CONTACT: Patrick Handley Brunswick Group +44 207 404 5959 RE: ANNUAL RESULTS FOR THE YEAR ENDED 30 JUNE 2005 PAGES: 8 Hardman Resources Ltd ("Hardman") today announced its annual results for theyear ended 30 June 2005. The Chairman, Mr Alan Burns, commented: "I am pleasedto report another successful year for Hardman as we progress towards significantoil production. The company is strongly placed to continue to grow shareholdervalue as it enters the most important phase in its history." Mr Burns highlighted a number of operational achievements in the financial year2004/2005, including the Tevet oil and gas discovery and the ongoing developmentof the Chinguetti field, which is scheduled to commence production in February2006. The company reported a modest loss for the year ended 30 June 2005, of A$10million, in line with expectation. This compares with an underlying loss of A$2million in 2003/2004, excluding A$93.1 million gains on asset sales. The 2005loss reflected higher exploration costs, foreign exchange losses and a number ofnon-recurring charges relating to employee costs, partly offset by one-off taxcredits. Mr Burns commented: "It is the Board's intention to grow the Companysubstantially over the next few years and we have significantly strengthened themanagement, notably with our new CEO Simon Potter, to bring a new dimension tothe development and expansion of the Company's operations. To date, we have invested nearly US$200 million in exploration and developmentin Mauritania. Hardman ended the year in sound financial shape with a cashbalance of A$147.5 million and an additional US$100 million available under theChinguetti project loan facility." Highlights for the year included: Operational achievements: • Successful drilling and completion of development wells on the Chinguetti field • Tevet, a new oil and gas discovery offshore Mauritania • A 4-well appraisal programme conducted on the Tiof field, including a test of Tiof-6 at a stabilised rate of 9,150 barrels per day • Management strengthened through new appointments, including CEO and CFO after international searches Financial results: • Net loss after tax of A$10.0 million (2004: profit of A$91.1 million including gains on asset sales) • Net cash resources of A$147.5 million as at 30 June 2005 • Successfully arranged US$100 million project finance facility to fund Chinguetti development expenditure Outlook: • Chinguetti project on track for first oil in February 2006 • Appraisal of the Tevet discovery in progress and upcoming Tiof field development decision • High impact international exploration campaign with 12 wells scheduled to be drilled by June 2006 • Financial reporting date to be changed to 31 December, subject to regulatory approvals Simon Potter, Hardman Managing Director and Chief Executive Officer commented:"While we have today reported a modest loss for the financial year, thisreflects our continued investment in a considerable exploration programme. Wehave turned our cash resources into long-term capital assets that have thecapability of generating significant future value. With the Chinguetti fielddue onstream shortly, our pending increased liquidity will itself create newopportunities. Hardman is set to continue its commitment to exploration with acontinuous drilling programme through the end of 2005 and into 2006.Going forward, our key strategic objective will be to create significantshareholder value by growing Hardman into a substantial international E&Pcompany with at least three to four key business areas which together will becapable of delivering sustainable growth and reinvestment opportunities. Theimmediate tasks before us are to:- • Bring on Chinguetti during Q1 2006 exposing us to oil price upside, providing a significant income stream and marking our successful transition from pure explorer to explorer-producer; • Continue to appraise the existing high-value satellite discoveries adjacent to Chinguetti and to enhance recovery factors at Tiof to add significantly to income and value; • Pursue the high-impact exploration within our Mauritanian acreage with a continuous drilling programme exploiting the strong prospect inventory; • Aggressively exploit our strong equity positions outside Mauritania by managing pace and accelerating options as we feel appropriate; and • Optimise the capital structure of the business. With the arrival of our new Chief Financial Officer, Peter Thomas, we will be continually evaluating a range of financial instruments and strategies to manage the risks and returns of the business. These are the five key areas that will underpin material growth in the net assetvalue of the Company." A full copy of the Annual Results for the year ended 30 June 2005 are now available at www.hdr.com.au. SIMON POTTERMANAGING DIRECTOR AND CEO Notes to Editors: Hardman Resources Ltd is an oil and gas exploration andproduction (E&P) company listed on the Australian Stock Exchange Limited and onthe Alternative Investment Market (AIM) of the London Stock Exchange. Hardman's early growth was based on the strategy of acquiring acreage inunderexplored, but prospective regions, and seeking development partners.Currently its operational focus is its leading acreage position offshoreMauritania (West Africa). In addition, Hardman has a portfolio of projects that are currently at earlystages of exploration. These are its other Atlantic margin projects in offshoreFrench Guyane and the Southern Falklands Basin, and its acreage in the AlbertineGraben in Uganda. ...Page 1... CHIEF EXECUTIVE OFFICER'S REPORT This has been a year of change and rapid development for Hardman. The abilityand capacity of the organisation has also been expanded as we continue todevelop our asset base and pass a number of key milestones in the Company'sdevelopment. Recent successes include: • Continued strong growth in market capitalisation • Completed assets sales in the Perth Basin and Gabon • Tevet discovery in Mauritania • Chinguetti oil field development progressing: FPSO upgrade, development well drilling and flow tests • Secured US$100 million project finance for Chinguetti development • Tiof appraisal well test in Mauritania • Operatorship and drilling of our first offshore well in the Timor Sea, Australia • Being awarded AIM International Company of the Year Looking ahead, near term activities include: • Chinguetti: installation of flow lines, final FPSO commissioning and first oil • Development option decisions for existing discoveries in Mauritania • Commercial options for gas exploitation in Mauritania • Continuous exploration and appraisal drilling programme in Mauritania • Operated exploration wells onshore in Uganda • Operated exploration well offshore French Guyane, South America Over the last year we have focused our portfolio by completing sales of ourGabon and Perth Basin assets and relinquishing our New Zealand acreage. Thisfocus has allowed us to concentrate staff efforts on activities with criticalmass and consistent with strategy. We are now primarily focusing on the AtlanticMargin areas. In support of these operations we have opened a number of modest new offices.One is in London, to enable us to keep in touch with our investors there and tomaintain access to important companies and information that may underpin ourambitions to grow the acreage portfolio. Secondly, we have opened an office inTrinidad; with our large acreage holding in French Guyane and the plan to drilla well within the next year, this office gives us important access to theregional operating centre where contractors, service companies and rig operatorsreside. We have also opened an office for the first time in Mauritania. This isan important step and gives us our own corporate view of activities inMauritania and access to decision makers. At the operational level, the Chinguetti project is on track for first oil inFebruary 2006, within the Q1 2006 target. The project is 88% complete and manyof the key risks are behind us. The upgrade of the FPSO in Singapore isessentially complete and it should ...Page 2... arrive offshore Mauritania in November. Drilling and well completions arefinished and the flow-tests of four wells indicate they are individually capableof delivering 20,000 barrels a day. Thus already installed well capacity atChinguetti will deliver the nameplate capacity of the FPSO of 75,000 barrels aday. Remaining risks are associated with final FPSO commissioning, fabricationand installation of umbilicals and flowlines. The Chinguetti operator, Woodside, also announced recently that the projectcapital costs have increased from the previous US$625 million plus 10%contingency to US$705 million with a contingency of US$45 million. This increaseis due mainly to the increased costs of drilling the production wells andadditional costs in the fabrication of sub-sea flow lines and theirinstallation. Chinguetti field reserves (on a proven and probable basis) remainunchanged at 123 million barrels and with all the production wells in theground, our confidence about delivering to that level is increasing daily. The Tiof field in Area B offshore Mauritania, discovered in November 2003, wasthe subject of a 4-well appraisal programme carried out in late 2004-early 2005.The appraisal results, including those of Tiof 6 which was flow tested at astabilised rate of 9,150 barrels per day, have confirmed estimates of over abillion barrels of oil in place. However, the ultimate recovery factor for thereservoir system remains uncertain and requires further study. Further Tiofappraisal and field development options are currently under consideration by thejoint venture. Options include developing Tiof using a phased approach tominimise risk, rather than proceeding directly to full field development. Thismay be preceded by a long term production test targeting a part of the reservoirlikely to yield the highest recovery factor. Hardman has a continuous appraisal and exploration drilling programme throughthe end of 2005 and into 2006. In Mauritania, we will drill wells both insideand outside the core Woodside-operated PSC areas. We have so far identified atotal inventory of some 140 prospects across all eight blocks in Mauritania,with over 40 of these potentially each containing over 100 million barrels ofoil in the success case. Through our involvement in Mauritania the organisation has developed a number ofstrengths; particularly in Atlantic margin deepwater operations, stratigraphictrapping mechanisms and complex geological systems. These skills are now beingleveraged throughout the organisation into our existing portfolio and businessdevelopment opportunities which share similar technical challenges. These areaswill yield the discoveries of the future. With an eye to the future, we haveestablished new skills in the key areas of oil marketing, to yield the highestmargins for our oil; gas commercialisation, to ensure timely development ofresources; facilities engineering, to promote options and optimise projectevaluation; and drilling/completions, a core capability in managing the pace ofdrilling and optimising the point at which the Company farms down interests. ...Page 3... The maturing of our organisation has been reflected in an expansion of thePerth-based team. Whilst the effect of our dynamic situation has clearly beenfelt internally, the organisation's increased maturity has been recognisedexternally through the quality of our share register, the assumption of jointbrokerage by Cazenove and Oriel Securities in London and the continued supportof our Australian and international shareholder base. Hardman remains a frontier exploration company with a track record ofsuccessfully accessing hydrocarbon opportunities in technically and politicallynew or difficult areas. Our success in Mauritania creates a strong platform forre-investment to deliver further growth in shareholder value. We aim to developa complementary asset base (i.e. similar geological, technical or commercialsettings) in at least two or three further areas. Such a diversified asset basewill enhance our ability to deliver sustainable re-investment options and valuegrowth opportunities. Oil prices remain at unprecedentedly high levels and we are a few short monthsaway from significant oil production and the income stream that will generate.All obligations are fully funded. Development decisions on key discoveries areclose. We have a continuous drilling programme in Mauritania and the capacityand ambition to accelerate the pace of our exploration programmes elsewhere. Weare focusing on geography, geology and environments we understand and with thiscomes an ability to mitigate certain risks and thus maintain higher equityinterests. We are developing the capability to drill our own wells which allowsus far more flexibility in maintaining control of our asset base. These areexciting times for the Company. OIL AND GAS RESERVES DISCLOSURES The group's reported proven plus probable (P50) reserves stand at 20.7 millionbarrels of oil on an economic interest basis (2004: 22.1 million barrels).Reserves under production sharing contracts include entitlement to cost recoveryoil, which has been estimated based on US$ 25 Brent oil prices. The smalldecease in net reserves from 2004 principally reflects the exercise by theMauritanian Government of its right to participate in the Chinguettidevelopment. There is no change to estimated P50 reserves for the full field,which remain at 123 million barrels on a gross basis. The company will report relevant reserve volumes for the Tiof discovery onceappraisal and development concept work are further advanced. FINANCIAL REVIEW Result for the year: the result after tax was a net loss of A$10.0 millioncompared with a profit in 2004 of A$91.1 million. The 2004 result included apost tax gain of A$93.1 ...Page 4... million on the sale of interests in Mauritania acquired earlier that year.Revenue from ordinary activities in 2005 principally comprised interest incomeplus production revenue and disposal proceeds deriving from interests inAustralia. Exploration and appraisal ('E&A') expense written off or providedagainst for the year ended 30 June 2005 was A$17.1 million (2004:A$5.5 million)which represents 24% of E&A expenditure (2004: 13%). The increased write offreflects the unsuccessful exploration wells Dorade-1, Capitaine-1 and Merou-1drilled in Mauritania and the Marloo-1 well in the Timor Sea, Australia. Thegroup has adopted the conservative approach of expensing unsuccessful wellswithin areas of interest in Mauritania, in which other discoveries have beenmade, where costs relate to a specific prospect which has not proved viable. Employee related expenses show an increase to A$10.4 million in 2005 (2004:A$2.0 million) which includes staff costs of A$3.1 million and a number ofnon-recurring charges. These include retirement benefits of A$1.9 million,termination payments of A$1.5 million and a one off bonus payment to staff inrespect of the company's exceptional results in 2004 of A$2.5 million. Theretirement benefits reflect the decision to provide fully for certain paymentswhich would be due to specified directors on retirement, the qualifyingconditions having all been met. The loss before tax for the year ended 30 June 2005 was A$38.1 million (2004:A$137.1 million profit) and included a foreign exchange loss commented on belowof A$16.1 million. A tax credit for the year of A$28.1 million reflects thedeferred tax benefit of the current year operating loss and A$20.8 millionreleased from deferred tax provisions as a result of changes to Australian taxlegislation, which remove any future liability to Australian tax on incomearising in overseas branches. Cash flow and financial position: net cash resources as at 30 June 2005 stood atA$147.5 million, the change from 2004 (A$328.7 million) reflecting the majorcapital expenditure programme, principally in Mauritania. During the year thegroup spent, on an accruals basis, A$94.1 million on development of theChinguetti field and A$69.9 million on exploration and appraisal, including ninewells of which eight were in Mauritania. A significant proportion of the costsincurred in Mauritania are eligible for cost recovery under the terms of the PSCcovering the Chinguetti field. Tax payments of A$13.5 million relate to the gainon asset sales in 2004 referred to above. In 2005, Hardman successfully arranged a US$100 million secured project financefacility which is available to fund Chinguetti project development expenditureor to re-finance project costs already incurred. The facility, led by ANZ, hasbeen successfully syndicated to a group of international banks. The facility isnon-recourse to the assets and activities of the group outside the MauritaniaPSC Area B after satisfaction of a project ...Page 5... completion test. An additional US$20 million facility is in place on similarterms to meet any hedging costs, if required. Hedging and risk management: no hedges are in place for future oil pricerealisations. The group may from time to time enter into hedging arrangements,through purchase of put options and / or entering into option collars or swaps,to protect post tax cashflow. Hedging activities would be arranged only whenattractive price levels or floors are achievable which allow the group tominimise the potential business impact of price volatility or in connection withdebt facilities. There are currently no interest rate or forward currencyhedging arrangements in place. The group's cash deposits are held principally inUS dollars to match expenditure commitments also denominated mainly in USdollars. As reported in the half year results for the period ended 31 December2004, the group incurred foreign exchange losses (A$16.1 million for the fullyear) on re-translation of these dollar deposits to the Australian dollarreporting currency. Financial reporting date: the Company has applied to the relevant authorities tochange its financial year end to 31 December, from 30 June. This will bring theannual reporting cycle into line with most of its international peer group andalso align with the budget cycle of most of the joint ventures in which itparticipates. Assuming the application is granted, the next audited financialreport will therefore be for the six months ended 31 December 2005. IFRS: Hardman will report its results for future reporting periods underInternational Financial Reporting Standards ('IFRS') as adopted by theAustralian Accounting Standards Board, which has issued Australian equivalentsto IFRS ('AIFRS'). The financial statements for 2005 include a Note analysingthe differences between existing Australian accounting standards and AIFRS asapplicable to the group. The change is not expected to result in any materialrestatements of the results for 2005 or the financial position as at 30 June2005 and comparative periods. This information is provided by RNS The company news service from the London Stock Exchange