Highlands Natural Resources Regulatory News (HNR)

7 Feb 2006 07:00

Hardman Resources Limited07 February 2006 STOCK EXCHANGE / MEDIA RELEASE RELEASE DATE: 7 February 2006 AUSTRALIAN CONTACT: Simon Potter Hardman Resources Ltd +61 8 9261 7600 LONDON CONTACT: Patrick Handley Brunswick Group +44 207 404 5959 RE: MAURITANIAN DISPUTE PAGES: 2 On 3 February 2006 Hardman announced that it had been advised by Woodside, asJoint Venture operator, that the Mauritanian Government was disputing thevalidity of agreements which are supplementary to Production Sharing Contracts("PSCs") for Area A, Area B, Area C Block 2 and Area C Block 6 offshoreMauritania (see note 1 below). Since that announcement there has been some media speculation concerning thescope and content of these supplementary agreements, termed Avenants. Hardman believes that it is worth noting the following in respect of thesupplementary agreements: •the initial estimate of the potential impact of the disputed issues over the life of the Chinguetti field is in the range US$ 0-20 million for Hardman's 19.008% share. This should be viewed in the context of the company's substantial Mauritanian asset value. •The PSC Area B supplementary agreement does not cover the production sharing percentages for profit oil and cost oil nor the tax rates on operations. •The Joint Ventures have considerably exceeded the minimum work obligations and expenditure commitments for the PSCs. •The Mauritanian Government has reaffirmed the validity of the PSCs and also indicated that the extensions to the exploration periods are not themselves contentious. •The Mauritanian Government, both directly and through media reports, and Woodside have both reported to Hardman that the dispute will not be an impediment to Chinguetti first oil. The Chinguetti project remains on schedule for first oil in the coming days. The supplementary agreements in dispute were the result of a co-operativeprocess undertaken with the Mauritanian Government. They contain clarificationsand amendments to the PSCs agreed over a period of years and documented in thesupplementary agreements for the purpose of the Mauritanian Parliamentaryratification procedure. The supplementary agreements were adopted by theMauritanian National Assembly and the Senate and promulgated by the Presidentunder Law No. 2005-028 dated 1 February 2005. The Joint Venturers therefore haveno reason to believe that they are not entirely valid and proper agreements. TheMauritania Government is asserting that the supplementary agreements are notvalid, based on alleged deficiencies in the administrative procedures of theMauritanian Government. The supplementary agreement to PSC Area B deals with the following principalissues:- (a) confirmation that the costs of Chinguetti-1 exploration well are recoverable under PSC Area B; (b) extension of the second exploration period by twelve months following additional 3D seismic being undertaken by the Joint Venture; (c) clarification of the Joint Venture's decommissioning and abandonment obligations and the eligibility of related costs for cost recovery; (d) establishing the Joint Venture's level of responsibility for environmental costs and rehabilitation of sites that are subject to acceptance by the Mauritanian Government of the Joint Venture's environmental and decommissioning plans; (e) provision for the Joint Venture to sole-source certain contracts subject to Government approval; (f) clarification that previous years' tax losses may be carried forward without limitation and that the 5 year carry forward limit under Mauritanian general law does not apply; (g) confirmation that certain finance costs are tax deductible; and (h) increase in the Joint Venture's Mauritanian training obligations. The supplementary agreements in respect of the other PSCs also include certainof the above items and in the case of PSC Area A incorporates the deepwaterproduction sharing and tax terms consistent with all other Mauritanian deepwaterPSCs, although this will have no impact until production commences in therelevant deepwater area. Hardman is hopeful that this matter will be resolved in discussions between theGovernment and the operator. However, if the dispute is not resolved within thenext three months, it may be referred to arbitration under the InternationalChamber of Commerce rules. The dispute would then be arbitrated in Parisaccording to the laws of Mauritania as well as the rules and practices ofinternational law. SIMON POTTERMANAGING DIRECTOR Note 1: The Chinguetti and Tevet fields and part of the Banda gas field are within theChinguetti Exclusive Exploitation Authorisation (EEA) area which has a term of25 years. The EEA is within the boundaries of PSC Area B, as is the Tiof field.The majority part of the Banda gas field lies within PSC Area A. This information is provided by RNS The company news service from the London Stock Exchange