Highlands Natural Resources Regulatory News (HNR)

27 Jan 2006 07:00

Hardman Resources Limited27 January 2006 STOCK EXCHANGE / MEDIA RELEASE RELEASE DATE: 27 January 2006 AUSTRALIAN CONTACT: Simon Potter Hardman Resources Ltd +61 8 9261 7600 Peter Thomas Hardman Resources Ltd +61 8 9261 7600 LONDON CONTACT: Patrick Handley Brunswick Group +44 207 404 5959 RE: DECEMBER 2005 QUARTERLY REPORT PAGES: 13 Please find attached December 2005 Quarterly Activities and Cash Flow Report forHardman Resources Ltd. SIMON POTTERMANAGING DIRECTOR HARDMAN RESOURCES LTD ABN 98 009 210 235 REPORT TO SHAREHOLDERS FOR THE QUARTER ENDED 31 DECEMBER 2005 This report summarises the activities of Hardman Resources Ltd (the "Company")and its controlled entities (together, "Hardman" or "the group") during thequarter ended 31 December 2005. ACTIVITY HIGHLIGHTS • Chinguetti: project now 96% complete and on schedule for first oil during the second half of February 2006. The current operation comprises installation of the production risers and flowlines, the last major construction activity, and pre-commissioning ahead of production • Chinguetti: production build up anticipated through March, with peak rates estimated by Hardman to be reached in April. • Tiof: evaluation and concept selection studies continue, focusing on optimal schemes to obtain dynamic reservoir data through early production or an extended test • Mauritania exploration: - Tevet-2ST well demonstrated the oil potential of the deeper Cretaceous section in PSC-B for the first time. - Labeidna-1 oil discovery in PSC-B, 15 kilometres from Chinguetti; candidate for 2006 appraisal to determine commercial viability. - Faucon-1 well in Block-1 discovered hydrocarbons. While the discovery is probably sub-commercial, it demonstrates there is a working hydrocarbon source system and that good quality Cretaceous reservoirs exist over a wide area. • Uganda: Hardman-operated Mputa-1 wildcat an oil discovery, providing encouragement for appraisal and further exploration of the block. • Guyane: marine seismic survey completed under budget, recording approximately 1,621 kilometres of 2D seismic data and 350 square kilometres of 3D seismic data to mature deepwater channel-sand prospects in eastern portion of the licence, with encouraging preliminary results. • Exploration plans: Atwood Hunter rig secured for an active 2006 and 2007 Mauritanian drilling campaign, initially targeting shallower water prospect within PSC-A including the Colin/Colin Deep in second quarter 2006. Group-wide total of 8 firm plus at least 2 contingent exploration wells within ahigh impact 2006 budget of US$60-70 million • Funding and Risk Management: ended December 2005 with cash and undrawn facilities of A$178 million and net cash of A$41 million. Limited oil price hedging has been put in place through option collars to protect downside risk. OUTLOOK: Hardman's CEO and Managing Director Mr Simon Potter commented:"Chinguetti production, bringing strong revenues boosted by the high oil price,is close at hand. During 2006, we shall begin deploying these revenues toaccelerate development of the group. Across the Mauritanian acreage we have acontinued exploration programme, with the focus moving to prospects in shallowerwater. In Uganda, we have started the year well, as the operator of anexploration programme which has already produced a discovery. 2006 will be ayear of progress for Hardman with our emergence as a producer allowing us tomaintain and indeed step up our traditional exploration activities as well ascontinuing to develop our operating capacity." CORPORATE Evaluation studies on a number of potential new ventures continue, with a focuson the Atlantic Margin areas. The Company's Annual General Meeting was held on 24 November 2005 at whichMessrs Raven and Potter were re-elected and elected to the Board, respectively.The Company's Remuneration Report was adopted. On 1 December 2005 Woodside Mauritania Pty Ltd completed the sale of its 10.24%shareholding in the Company comprising 67.4 million shares. Following advicefrom Woodside of its intentions, the two companies worked together to ensurethat the divestment took place in an orderly fashion, with Hardman requesting atemporary trading halt for its shares on the ASX for that day. Woodside'sinitial investment in Hardman was made in July 2001 following the Chinguettidiscovery and provided funding for Hardman and stability for the joint venture.With Chinguetti nearly complete and Hardman now a more robust company withbroader international interests, the original reasons for the investment were nolonger relevant. FINANCE The net cash outflow before financing for the quarter ended 31 December 2005 wasA$64.4 million. Cash expenditure included A$23.3 million spent on explorationand appraisal activities and A$35.3 million on development of the Chinguettifield. In aggregate, exploration, evaluation and development cash spend for thequarter (A$58.6 million) was below the amount forecast in the SeptemberQuarterly Report (A$76 million). This reduced cash spend of A$17.4 millionprincipally reflected timing differences from delayed exploration cash calls. The net cash outflow was financed from cash balances and the drawdown of loanfacilities. The group has drawn US$62 million out of the Chinguetti projectfinance facility of US$100 million. As at 31 December 2005, the group had available cash balances of A$125.6 millionand an undrawn facility for Chinguetti project costs of US$38 million. Net cashstood at A$41.2 million. Forecast cash expenditure for exploration and appraisal for the quarter ended 31March 2006 is approximately A$70 million, with A$32 million expected to be spenton development. Hedging contracts Hardman has recently entered into the oil price hedging contracts in order toprotect a portion (under half) of its expected cashflows against downside riskin the oil price over the initial period of production from the Chinguettifield. The hedging contracts underpin the funding of planned capitalexpenditures and satisfy the present requirements of the group's debtfacilities. The hedging has been carried out by the purchase of put options toprovide a floor for oil price realisations and the sale of call options atprices above currently prevailing levels, which defray the cost of the putoptions, while leaving further oil price upside with the Company. Thequantities, periods and strike prices for the hedging contracts aresummarised below. Period Hedged volume Put option strike price Call option strike price (barrels per range (Brent, US$ per range (Brent, US$ per day) bbl) bbl)April-June2006 1,800 $42.00- $46.00 Not applicableJuly-December 4,200 $42.00- $46.00 $70.99 - 76.252006January-June2007 3,400 $42.00- $46.00 $72.24 - 76.25July-December 3,400 $42.00- $46.00 $70.89 - 76.252007January-June2008 2,600 $42.00- $46.00 $68.84 - 76.25 REVIEW OF OPERATIONS MAURITANIA - WEST AFRICA Chinguetti Field Development (Hardman 19.008% equity, Woodside operated) Chinguetti first oil remains on track for the second half of February 2006 withthe project now 96% complete. Production will build up during March and Hardmanexpects the peak oil rates to be achieved during April. Thereafter the fieldshould produce at plateau rates until late 2006, with actual volumes dependingprincipally on facilities up-time. Recent key project milestones include: arrival of the Floating Production,Storage and Offloading (FPSO) unit, the Berge Helene, in Mauritanian waters on16 November 2005; mooring of the FPSO over the Chinguetti field; andinstallation of the water injection, gas lift and gas export risers andflowlines and associated subsea hardware. The oil production flowlines arecurrently being installed - these were originally delayed as a result ofmanufacturing QA/QC concerns, requiring the outer sheath to be replaced.Installation of the production flowlines and risers is expected to be completedbefore end-January; this is the last significant item of construction activityfor the project. The project focus has now moved to final commissioningactivities for the FPSO and the subsea systems. The early arrival of the FPSO inMauritania has allowed a significant level of pre-commissioning activity to becarried out. The project final cost forecast remains at US$705 million with a contingency ofUS$45 million. Tiof Appraisal (Hardman 21.6% equity, Woodside operated) The joint venture continues detailed geoscience, reservoir engineering andfacilities studies to narrow the range of development options and to focus onthe most cost effective methods of appraisal of this resource, particularly bygaining critical dynamic information in an early production or extended welltest operation. Decisions on concept selection are anticipated by end secondquarter 2006. Tevet Appraisal (Hardman 21.6% equity, Woodside operated) Following the earlier Tevet-2 Miocene appraisal well, which successfullyconfirmed the reservoir characteristics encountered in the original discoverywell, study work is ongoing to determine development options. The field remainsa tieback candidate to the Chinguetti FPSO. Mauritania Exploration PSC A and B (Hardman 24.3% and 21.6% equity respectively, Woodside operated) Two discoveries were made in PSC-B during the quarter; Labeidna-1 discovered oilin thin channel margin sands in two pressure regimes over a total 116 metregross pay; and Tevet-2ST confirmed the presence of a Cretaceous sand play,encountering a good quality 8 metre gross oil bearing sand. Consideration is presently being given to an appraisal well on Labeidna in 2006;follow up potential at the nearby Ndor prospect is likely to be dependent onthis. Similarly, the Tevet area appraisal study is now including the Cretaceousintervals within a possible development scenario. The final well of the current Stena Tay deep-water drilling campaign will beDore-1. This well was spudded on 17 January, and will target the updip extensionof the Tiof Miocene canyon system, as well as a deeper Oligocene channel system.The prospect is 24 kilometre updip of the main Tiof field, sufficiently closefor joint development to be contemplated in the event of a discovery. Looking forward, the PSC-A/B joint venturers have concluded arrangements tosecure the Atwood Hunter rig for operations in Mauritanian for a considerablepart of 2006/2007. The rig is a moored semi-submersible unit capable ofoperating in water depths between 100 to 1,500 metres and is due to arriveduring late April. The shallow water depth capability means that for the firsttime the Joint Venturers will be able to explore the prospective eastern marginsof the PSC-A/B blocks, where some exciting, potentially high impact, prospectshave been mapped. Amongst these is a dual Miocene-Cretaceous target well, Colin/Colin Deep. Block 1 (Hardman 18% equity, Dana operated) The Faucon-1 well in the Block-1 PSC was spudded on 23 November and reachedtotal depth of 4,170 metres on the 19 December 2005. The well satisfied theremaining work commitments for the initial exploration period of the Block-1PSC. It encountered a total of 96 metres of potential Cretaceous reservoir sands.Wireline logs and pressure data indicated that the upper 10 metres of one ofthose reservoir sands contained a hydrocarbon column and hence pressurised fluidsamples were taken from the reservoir. These have now arrived in the UK and willbe assayed to determine the fluid composition, a critical factor in theexploration of this and neighbouring blocks as it allows extrapolation of sourcerock type and maturity. Faucon-1 has demonstrated the presence of a working petroleum system in thesouthernmost block of offshore Mauritania and has proven the existence ofCretaceous reservoir-quality sandstones acreage, both crucial elements to theprospectivity of the region.Given the results of the Faucon-1 well, the Joint Venture has decided tocontinue into the second exploration period and, accordingly, has notified theGovernment of the required 25% relinquishment area. PSC C 2 (Hardman 28.8% equity, Woodside operated) Studies continue on this block, with work ongoing to incorporate the results ofthe Faucon-1 well in Block 1 to the South. The Faucon result and enhancement ofregional prospectivity provide encouragement for this block. PSC C 6 (Hardman 22.422% equity, Woodside operated) The second exploration period work commitment on this block has been satisfiedby the drilling of the Zoule-1 well, which was spudded on 25 December 2005, butwhich was abandoned as a dry hole after failing to encounter any reservoirsands. The Joint Venture has since committed to entering the third explorationphase, as the block contains other leads and prospects which are independent ofZoule. Block 7 (Hardman 16.2% equity, Dana operated) A 3D seismic survey conducted inboard of the 2003 Pelican gas discovery during2005 has now been processed and provisional data seen by the Joint Venture isvery encouraging. Several Cretaceous channel systems have been identified and itappears likely that both structural and potentially large stratigraphic trappingsystems exist. Prospectivity for either oil or gas is considered high in thisblock, with an exploration well scheduled for late 2006 using the Atwood Hunterrig. Block 8 (Hardman 18% equity, Dana operated) The Joint Venture has now entered the 2nd exploration phase and a 25%relinquishment area has been submitted. An exploration well is planned in late2006 on the Flamant Prospect and the underlying Flamant Deep prospect. These prospects are two of a number of large carbonate platform/reef plays inBlock 8 and are different to the channel sands targeted in the rest of theoffshore Mauritanian basin. The Flamant prospect has the potential to containabout 5 TCF of gas or 1 billion barrels of oil recoverable. Success here wouldlikely lead to follow-up drilling of smaller look-alike prospects in the block Commercial The first oil cargo from Chinguetti is expected to be lifted in mid-March.Hardman is at an advanced stage of discussions concerning the lifting andmarketing arrangements for its own production entitlements and expects its firstlifting to take place in either late March or early April. Woodside Mauritania Pty Ltd, as operator of certain of the Company's Mauritanianjoint ventures, is presently engaged in ongoing discussions with the MauritanianGovernment concerning elements of agreements which are supplementary to someproduction sharing contracts (PSCs). The supplementary agreements includeclarifications as to how provisions of the PSCs should be applied - for thebenefit of both the joint venturers and the Government. UGANDA (Hardman 50% equity and Operator) The Mputa-1 well in Block 2 was spudded on 22 December and, after some lost timefor rig repairs, was drilled to a total depth of 1,186 metres in early January2006. Whilst drilling, increased gas readings and oil shows were seen over agross interval from 965 metres to total depth of 1,186 metres. Wireline logsindicated potential hydrocarbon bearing sands within that interval. Wirelinesamples of black, though potentially waxy, oil were recovered from a gross sandinterval of 965 to 975 metres but no samples could be recovered from the deeperintervals with the available wireline equipment. The well was cased andsuspended which will allow for re-entering the well at a later date, potentiallyto: • test and flow individual zones; • obtain better fluid property information; and/or • use the well in any future appraisal or development operations. Although individual sands encountered in Mputa-1 were thinner than anticipated,this result provides encouragement for appraisal of this discovery and furtherexploration of the block. However, it is not possible to comment on potentialvolumes or commerciality of the discovery until further data including oil flowrates and column heights can be determined, either from re-entry of Mputa-1 orfurther drilling. The discovery at Mputa-1 significantly reduces the risk for Waraga-1, which willbe drilled during the first quarter of 2006. The Mputa-1 result proves that therequired elements of mature source rock, good quality reservoir, valid trap andsealing shale formations all exist within the basin. The critical pre-drill riskat Mputa-1 was seen as seal integrity, and the fact that a series of thickshales exist and are able to seal a faulted trap. This is very encouraging forother prospects in the basin. The Joint Venture committed to the Second Exploration Period for the LicenceArea, commencing 1 November 2005 and continuing for a period of two years. Entryto the second exploration period required the Joint Venture to drill at leastone exploration well during the period, which obligation was satisfied by theMputa-1 well. GUYANE (Hardman 97.5% equity and Operator) During the fourth quarter the key activity was the acquisition of the FG05marine seismic survey which commenced on 25 October 2005 and was completed on 20December. The programme recorded 1,621 kilometres of 2D seismic data, followedby 350 square kilometres of 3D seismic survey. The final location of the 3Dsurvey was selected on the basis of the 2D data acquired, processed on board andtransmitted to Perth for interpretation. This new seismic data covers a number of deepwater channel sand leads in theunder-explored eastern portion of the licence. Preliminary results from the 3Dvolume are highly encouraging, with geomorphology and fill similar to that ofthe Mauritanian incised channel systems. The fully processed version that willallow a full appreciation of the eastern basin prospectivity is expected to beavailable by 31 March 2006.Preparation continued during the quarter for the first exploration well inGuyane, scheduled for later in 2006. Rig availability remains a key issue, witha number of options being pursued. FALKLANDS (Hardman 22.5% equity, FOGL operated) During the quarter, acquisition of the approximately 6,125 kilometres 2D seismicsurvey continued. This survey is being acquired in conjunction with the seismicsurvey underway in negotiating permits. Approximately half of the data had beenacquired by 31 December 2005. The data from the current survey, along with the existing data acquired in 2004/2005, will be used to define prospects and select the location for additionalseismic, including a planned 3D seismic survey to define drillable prospects bymid 2007. OTHER AREAS Hardman continues the process of withdrawal from its interests in New Zealandand the Timor Sea. SIMON POTTERMANAGING DIRECTOR Note: In accordance with Australian Stock Exchange Limited listing requirements,the geological information supplied in this report has been based on informationprovided by geologists who have had in excess of five years experience in theirfield of activity. FOR FURTHER INFORMATION PLEASE CONTACT HARDMAN RESOURCES LTD Level 1, 50 Kings Park Road West Perth Western Australia 6005 TELEPHONE FACSIMILE +61 (0) 8 9261 7600 EMAIL +61 (0) 8 9321 2375 WEB SITE office@hdr.com.au www.hdr.com.au Rule 5.3 Appendix 5B Mining exploration entity quarterly report Introduced 1/7/96. Origin: Appendix 8. Amended 1/7/97, 1/7/98, 30/9/2001. Name of entityHARDMAN RESOURCES LTD ABN Quarter ended ("current quarter")------------------- ------------------98 009 210 235 31 DECEMBER 2005------------------- ------------------ Consolidated statement of cash flows ------------ ------------Cash flows related to operating activities Current Year to quarter date $A'000 (6 months) $A'000 ------------ ------------ 1.1 Receipts from product sales and related - 2 debtors 1.2 Payments for (a) exploration and evaluation (23,276) (31,915) (b) development (35,346) (68,625) (c) production - - (d) administration (5,791) (10,626) 1.3 Dividends received - - 1.4 Interest and other items of a similar nature 1,301 2,394 received 1.5 Interest and other costs of finance paid - - 1.6 Income taxes paid - - 1.7 Other (provide details if material) - - ------------ ------------ Net Operating Cash Flows (63,112) (108,770) ----- ----------------------- ------------ ------------ Cash flows related to investing activities 1.8 Payment for purchases of: (a) prospects - - (b) equity investments (500) (500) (c) other fixed assets (556) (927) 1.9 Proceeds from sale of: (a) prospects - - (b) equity investments - - (c) other fixed assets - -1.10 Loans to other entities - -1.11 Loans repaid by other entities - -1.12 Other (provide details if material) (215) (382) ------------ ------------ Net investing cash flows (1,271) (1,809) ----- ----------------------- ------------ ------------1.13 Total operating and investing cash flows (64,383) (110,579) (carried forward) ----- ----------------------- ------------ ------------ ----- ----------------------- ------------ ------------1.13 Total operating and investing cash flows (64,383) (110,579) (brought forward) ----- ----------------------- ------------ ------------ Cash flows related to financing activities1.14 Proceeds from issues of shares, options, etc. 184 2,524 (Net)1.15 Proceeds from sale of forfeited shares - -1.16 Proceeds from borrowings 84,378 84,3781.17 Repayment of borrowings - -1.18 Dividends paid - -1.19 Other (provide details if material) (1,548) (1,677) ------------ ------------ Net financing cash flows 83,014 85,225 ----- ----------------------- ------------ ------------ Net increase (decrease) in cash held 18,631 (25,354)1.20 Cash at beginning of quarter/year to date 103,793 147,5481.21 Exchange rate adjustments to item 1.20 3,162 3,392 ------------ ------------1.22 Cash at end of quarter 125,586 125,586 ----- ----------------------- ------------ ------------ Payments to directors of the entity and associates of the directors Payments to related entities of the entity and associates of the relatedentities ------------- Current quarter $A'000 ------------- -------------1.23 Aggregate amount of payments to the parties included in 1,428 item 1.2 -------------1.24 Aggregate amount of loans to the parties included in item ------- 1.10 ------------- --------------------------------1.25 Explanation necessary for an understanding of the transactions ------------------------------------------- Payments in item 1.23 are consulting and related costs (excluding GST) paid during the quarter to directors of the entity and their associates. ------------------------------------------- Non-cash financing and investing activities 2.1 Details of financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flows -------------------------------------------- Nil -------------------------------------------- 2.2 Details of outlays made by other entities to establish or increase their share in projects in which the reporting entity has an interest -------------------------------------------- Nil -------------------------------------------- Financing facilities available Add notes as necessary for an understanding of the position. ------------- ------------- Amount available Amount used $A'000 $A'000 ------------- -------------3.1 Loan facilities 136,968 84,920 ------------- -------------3.2 Credit standby arrangements - ------ ----------------------- ------------- ------------- Estimated cash outflows for next quarter $A'000 ------------------4.1 Exploration and evaluation 39,310 ------------------4.2 Development 31,780----- ----------------------------- ------------------ Total 71,090----- ----------------------------- ------------------ Reconciliation of cash------------------------- ------------- -------------Reconciliation of cash at the end of the quarter (as Current Previousshown in the consolidated statement of cash flows) quarter quarterto the related items in the accounts is asfollows. $A'000 $A'000------------------------- ------------- ------------- 5.1 Cash on hand and at bank 38,262 6,252 ------------- -------------5.2 Deposits at call - - ------------- -------------5.3 Bank overdraft - - ------------- -------------5.4 Other (provide details) 87,324 97,541----- ---------------------- ------------- ------------- Total: cash at end of quarter (item 1.22) 125,586 103,793----- ---------------------- ------------- ------------- Other cash balances comprise amounts held on 30 day deposit. Changes in interests in mining tenements ------------- ---------- -------- -------- Tenement Nature of Interest at Interest reference interest beginning of at end of quarter quarter (note (2)) ------------- ---------- -------- -------- 6.1 Interests in mining - - - - tenements relinquished, reduced or lapsed ------------- ---------- -------- --------6.2 Interests in mining - - - - tenements acquired or ------------- ---------- -------- -------- increased Issued and quoted securities at end of current quarter Description includes rate of interest and any redemption or conversion rightstogether with prices and dates. ---------- ----------- Total Number Issue price per Amount paid -------------- number quoted security (see up per ---------- ---------- note 3) (cents) security (see note 3) ----------- (cents) ----------- 7.1 +Preference - - securities (description) ---------- ---------- ----------- ----------- 7.2 Changes during - - quarter (a) Increases - - through issues (b) Decreases through returns ---------- ---------- ----------- ----------- of capital, buy-backs, redemptions 7.3 +Ordinary 658,778,095 658,778,095 - - securities ----- ----------- ---------- ---------- ----------- ----------- 7.4 Changes during 167,450 167,450 $1.10 $1.10 quarter (a) Increases through issues (b) Decreases ----- through returns ---------- ---------- ----------- ----------- of capital, buy-backs ----------- 7.5 +Convertible - - debt securities (description) ---------- ---------- ----------- ----------- 7.6 Changes during quarter (a) Increases through issues (b) Decreases ----- through ---------- ---------- ----------- ----------- securities matured, converted ----------- 7.7 Options 2,805,000 - Exercise price Expiry date (description and conversion factor) $1.10 31/12/06 ---------- ---------- ----------- ----------- 7.8 Issued during - - - - quarter ---------- ---------- ----------- ----------- 7.9 Exercised during 167,450 - $1.10 31/12/06 quarter - ---------- ---------- ----------- -----------7.10 Cancelled during - - - - ----- quarter ---------- ---------- ----------- ----------- -----------7.11 Debentures - - (totals only) ----- ----------- ---------- ----------7.12 Unsecured - - notes (totals only) ---------- ---------- Compliance statement 1 This statement has been prepared under accounting policies which comply withaccounting standards as defined in the Corporations Act or other standardsacceptable to ASX (see note 4). 2 This statement does give a true and fair view of the matters disclosed. Sign here: Date:Managing Director and Chief Executive Officer Print name: SIMON POTTER Notes 1 The quarterly report provides a basis for informing the market how theentity's activities have been financed for the past quarter and the effect onits cash position. An entity wanting to disclose additional information isencouraged to do so, in a note or notes attached to this report. 2 The "Nature of interest" (items 6.1 and 6.2) includes options in respect ofinterests in mining tenements acquired, exercised or lapsed during the reportingperiod. If the entity is involved in a joint venture agreement and there areconditions precedent which will change its percentage interest in a miningtenement, it should disclose the change of percentage interest and conditionsprecedent in the list required for items 6.1 and 6.2. 3 Issued and quoted securities The issue price and amount paid up is notrequired in items 7.1 and 7.3 for fully paid securities. 4 The definitions in, and provisions of, AASB 1022: Accounting for ExtractiveIndustries and AASB 1026: Statement of Cash Flows apply to this report. 5 Accounting Standards ASX will accept, for example, the use of InternationalAccounting Standards for foreign entities. If the standards used do not addressa topic, the Australian standard on that topic (if any) must be complied with. == == == == == This information is provided by RNS The company news service from the London Stock Exchange