Highlands Natural Resources Regulatory News (HNR)

24 Mar 2006 07:00

Hardman Resources Limited23 March 2006 STOCK EXCHANGE / MEDIA RELEASE RELEASE DATE: 24 March 2006 AUSTRALIAN CONTACT: Simon PotterHardman Resources Ltd+61 8 9261 7600 Peter ThomasHardman Resources Ltd+61 8 9261 7600 Jim KellyThird Person Communications Pty Ltd+61 2 8298 6100 LONDON CONTACT: Patrick HandleyBrunswick Group+44 207 404 5959 RE: RESULTS ANNOUNCEMENT PAGES: 8 Hardman Resources Limited ("Hardman") today announced its results for the sixmonths ended 31 December 2005. The short reporting period reflects Hardman'srecent change in financial year end from 30 June to 31 December. Key features of the results announcement include: Operational • Chinguetti: project completion on schedule and below last costestimate; • Production: rapid Chinguetti build up with current rates alreadyaveraging around 70,000 bopd; • Reserves - no change to field reserves; • Tiof - on-track towards selection by end Q2 2006 of development conceptfor early production; • Exploration: two recent discoveries in Uganda with substantial upsideto appraise; • Mauritanian exploration: substantial extension of Cretaceous playfairway through Tevet Deep and Faucon discoveries; • New ventures - farm-in to highly prospective block onshore Tanzaniaannounced today; • The issues relating to the supplementary agreements ("Avenants") to ourPSCs in Mauritania, as previously announced, are yet to be resolved. ...Page 2... Financial• Net loss after tax of A$19.1 million (year to June 2005: A$10.1 millionloss), principally reflecting exploration expenses; • Cash balance at 31 December 2005 of A$120.8 million, and net cash ofA$35.9 million. Outlook• Production: Chinguetti production forecast to be maintained aroundcurrent rates through 2006 before planned infill drilling in late 2006 / early2007; • Active Mauritania exploration programme for second half 2006 followingthe arrival of Atwood Hunter rig, now scheduled in July; • Well tests and appraisal drilling being planned to follow up Ugandadiscoveries; • Seismic survey over new Tanzania acreage in 2006; • Further offshore African new venture opportunity well advanced. Hardman Chairman, Mr Alan Burns, commented: "I am delighted to report that ourventure in Mauritania has finally come to fruition and we are now in productionten years since we first ventured into Mauritania. "We have jointly pioneered the first commercial oil production in Mauritania - acountry which had previously seen sporadic exploration with no wells flowing oilor gas. During that time about US$1.4 billion has been spent by us and ourpartners in Mauritania on various ventures, of which our share is around US$300million. "Hardman is now poised to see the tangible benefits of this investment in itfinancial results via a long-term revenue stream." Simon Potter, CEO and Managing Director, said: "In only six months since ourlast report to shareholders, Hardman has developed a fundamentally differentprofile; we have moved into the production phase at Chinguetti and we have alsodiscovered oil in Uganda. Having begun with Mauritania, Hardman can now addUganda to the growing list of its successes as the architect and founder of apotential new oil province. We have an active exploration and appraisalprogramme for the remainder of 2006 and continue actively to review new acreageopportunities and business development options to create shareholder value." SIMON POTTERMANAGING DIRECTOR The full Financial Report, including Directors' Report (with remunerationdisclosures) and audited financial statements for the six months ended 31December 2005, has been lodged with the ASX today and will also be available onthe Company's website (www.hdr.com.au) by 11am (AEST). ...Page 3... CEO's Report First oil from the Chinguetti oil field, Mauritania, was achieved on 25 February2006; the field is now producing at around 70,000 bbls per day of oil. Thismarks a transition for Hardman from explorer to explorer-producer and securesexposure to prevailing strong oil prices. The resulting cashflows will develop aplatform for future growth and reduce the risk profile of the asset base. Currently all six Chinguetti production wells are on stream and, importantly forthe future sustainability of the field, the five water injection wells arecollectively injecting in excess of 100,000 bbls per day, providing positivereservoir voidage replacement. The Chinguetti operator, Woodside, has revised downwards the anticipated finalproject capital costs to US$722 million, though within this total there stillmaintains a contingency of US$22 million which is now not expected to be fullyused. Chinguetti gross field reserves (on a proven and probable basis) remainunchanged. We will seek to reconfirm this through independent review. In parallel we have continued to invest in the organisation, our capabilitiesand supporting systems. In implementing our strategy we have passed a number of key milestones in theCompany's development: • Operatorship of first overseas oil discovery well in Uganda; • Successful appraisal of Tevet oil discovery in Mauritania; • Labeidna oil discovery in Mauritania; • Tevet deep oil and Faucon gas discoveries in Mauritania dramatically extending the Cretaceous playfairway; • Successful operatorship of 2D and 3D seismic acquisition programme in Guyane. On the commercial front: • Chinguetti oil sales agreement agreed with pooled marketing Group; first Hardman lifting expected early April; • Entered oil price hedging contracts to protect part of our revenue stream; • Amended terms of the US$100 million debt facility to improve its flexibility; • Woodside's 10% shareholding in the Company was placed with investors in Australia and internationally. The Uganda discoveries are particularly encouraging as they clearly demonstratethat the petroleum system is working and open the way for other exploration andappraisal programmes to establish a commercial project. The forward plan forboth Mputa and Waraga discoveries is to conduct a cased hole DST flow test wherewe 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 are also planning with our partners, Energy Africa, to drill a furtherappraisal well as soon as possible to test whether we have a single, connectedfield or separate discoveries and site ...Page 4... preparation is already underway. The identified reservoir horizons thickendeeper into the basin and that will be the target location. The critical pathon the forward programme is one of logistics in ensuring there is enough heavylifting and haulage vehicles available in Uganda to move two rigs and carry outtesting and appraisal efficiently and safely. If we can be assured this can bedone, we will spud in the next two months. Building on our existing East African position, we are today announcing afarm-in to Aminex's Ruvuma Basin production sharing contract in SouthernTanzania. Subject to Tanzanian Government consent to the assignment, we willearn a 50% interest in an area covering 12,360 Km2 over the onshore andnearshore Tanzanian portion of the Ruvuma Basin by funding a US$3 millionseismic survey. Further details are given in a separate announcement today. In completion of last year's programme to dispose of peripheral interests, wehave recently completed the sale of the AC/RL1 permit, including the Talbot oilfield, in the Timor Sea, Australia for a small cash sum. The next phase in Hardman's development comprises the following immediateobjectives:- • Maximising Chinguetti performance both operationally and commercially. Optimising offtake and realised prices to sustain a significant income stream. • Re-cycle investment in the Chinguetti area by optimising Chinguetti phase II drilling and continuing to appraise the adjacent existing satellite discoveries, including the potential of the Banda oil leg. • Commercialise the major discoveries at Tiof and Banda in Mauritania and at Mputa - Waraga in Uganda. Tiof is likely to be a phased development, starting with an early production system to appraise the production performance of the reservoir. • Test and appraise the Ugandan discoveries at Mputa and Waraga to establish commercially viable volumes. • Add additional and complementary income streams to the portfolio to de-risk and diversify the portfolio, though the prevailing industry climate constrains pace. • 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 mean potential of 170 million barrels. We will also drill the large (5 TCF) Flamant gas prospect in Block 8. • Leverage our enhanced operating capability and reputation as a strong venture partner to acccess new exploration opportunities in both frontier as well as lower risk areas, recognising that acreage in more proven areas may attract a modest premium but offer faster development times. We also hope to resolve, in the near term, the current dispute with theMauritanian Government, announced last month, over the validity of certainsupplementary agreements to production sharing contracts (PSCs) in that country.The Government's position is that the agreements are not valid because ofdeficiencies in the approval process by the former Government. The internationaloil companies believe that the agreements are valid and entirely proper. Theunderlying PSCs themselves, and ongoing production operations, are unaffected bythe dispute. The joint ventures' negotiations are being led by Woodside, asoperator. ...Page 5... Reserves and Production Profile As noted above, gross field reserves for Chinguetti on a proven plus probablebasis as at 31 December, 2005 remain unchanged at 123 million barrels. Hardman'snet economic share of those reserves is 19.7 million barrels - marginally lowerthan reported for the previous period simply due to the impact of higher oilprices, which means that fewer barrels are required for cost recovery under theproduction sharing contract. Hardman forecasts that production from Chinguetti will continue around currentlevels for the remainder of 2006, after which time planned infill wells will bedrilled to sustain plateau production levels. Allowing for maintenance downtime,this means that average daily production should be around 70,000bpd for theremainder of the year. Until conceptual development work is more advanced, it is not possible torecognise as proven and probable reserves any of the significant volumes ofcontingent resources held in fields such as Tiof and Tevet. Financial Results Summary The result after tax was a net loss of A$19.1 million compared with a loss forthe year to 30 June 2005 of A$10.0 million. The results are for a six monthperiod to the Group's new balance date of 31 December, which was adopted inplace of the previous 30 June year end in order to align with peer companieswithin the E & P industry. ...Page 6... Result for the Period As production had not commenced at the Chinguetti field prior to the year end,revenue from ordinary activities was nil for the period. Exploration expense forthe period of A$17.6 million (year to June 2005: A$17.1 million) represented 42%of exploration and appraisal expenditure (year to June 2005: 24%). The increasedwrite off principally reflected a disappointing campaign in Mauritania,including the unsuccessful exploration wells Sotto, Espadon, and Zoule and thesub commercial Faucon discovery. As at 31 December, the Group had capitalisedexploration costs carried on the balance sheet of A$120.7 million, relating todiscoveries pending a development decision or requiring further appraisal, pluscapitalised geological and geophysical costs. Other Income for the period, amounting to A$6.7 million (year to June 2005:A$11.4 million), comprised foreign exchange gains and interest income earned onpredominately US$-denominated cash balances. The comparative figure includedgains on the sale of oil and gas interests amounting to A$2.1 million. As theGroup incurs the majority of its costs, and has its debt denominated in USDollars, US Dollar cash balances represent a natural hedge against exchange rateexposures. However, since the Group reports in Australian Dollars, the weakerAustralian Dollar position in the period provided a gain on revaluation of thecash balances. In comparison the stronger Australian Dollar during the June 2005year provided a substantial foreign exchange loss in that period. Administrative expenses for the period amounted to A$6.9 million (year to June2005: A$14.7 million). These comprise the running costs of the business, net ofallocations of costs directly relating to projects. The June 2005 resultincluded a number of one-off charges amounting to A$5.9 million. The costs forthe current period reflected the new organisation structure to support the Groupas it moves to production. Other expenses principally comprise costs ofevaluating new business opportunities. The loss before tax for the six month period amounted to A$19.5 million (year toJune 2005: A$38.1 million). The tax credit for the period was A$0.4 million. Thecomparative result to June 2005 included A$20.8 million released from deferredtax provisions as a result of changes to Australian tax legislation, whichremoved any future liability to Australian tax on income arising in overseasbranches. Capital Expenditure Capital expenditure, on an accruals basis, comprised A$62.7 million ondevelopment of the Chinguetti field and A$41.6 million on exploration andappraisal, including 7 wells of which 6 were in Mauritania. The Groupanticipates expenditure of approximately US$60 million in 2006 on explorationand appraisal activities. Cash Flow and Financial Position The net cash outflow before financing for the period was A$105.3 million. Cashexpenditure on exploration activities in Guyane and Mauritania was lower than onan accruals basis due to some A$9 million of payments for 2005 work not beingrequired until January 2006. ...Page 7... The cash outflow before financing was funded from A$84.9 million drawn from theChinguetti loan facility as well as from cash resources. As a result, cash andcash equivalents as at 31 December 2005 were A$120.8 million (June 2005: A$136.2million). Net cash was A$35.9 million at the end of the period. The Groupexpects to move temporarily into a net debt position in the first half 2006before Chinguetti revenues commence. Cash earnings contributed by Chinguetti in 2006 are currently forecast to be inthe region of US$140 million, assuming realised oil prices of US$45 and thecurrent production forecast following the ramp up from first oil in February.Early cash flows from Chinguetti will largely be dedicated to the repayment ofdebt facilities until certain reserve balances are funded and the project passescompletion and performance tests under the facility documentation. Hedging and Risk Management As previously announced, the Group has entered into oil price hedgingarrangements through option collar contracts in order to protect a portion (lessthan half) of its expected cashflows against downside risk in the oil price overthe initial period of production from the Chinguetti field. The hedgingcontracts underpin the funding of planned capital expenditures and satisfy thepresent requirements of the Group's debt facilities by providing a floor priceon the hedged barrels of between US$42-46 per barrel, with a cap of betweenUS$71-76. IFRS This is the first accounting period in which the Group is reporting its resultsin compliance with International Financial Reporting Standards ('IFRS'). TheAustralian Accounting Standards Board has issued Australian equivalents to IFRS('AIFRS') which were adopted as at 1 July 2005. The main differences applicableto Hardman arise from the differing treatment of decommissioning and restorationprovisions and deferred tax balances, as well as classifications relatingprincipally to financial assets. There was no change in the overall value of netassets as a consequence of the adoption of AIFRS. As required under IFRS, theGroup continues to use its existing areas of interest accounting policy forexploration costs, subject to certain new guidance regarding impairment tests,pending the issue of a new international standard in this area. Outlook With oil prices, including the forward price curve, remaining at high levels,and also appearing more sustainable into the future, Hardman as a new oilproducer is well placed to benefit. Appraisal and development decisions on keydiscoveries are progressing. Our ongoing new ventures effort has produced ourfirst, albeit modest, announceable investment of this new growth phase. We havea continuous drilling programme in Mauritania through the second half of 2006,with the Atwood Hunter drilling rig now expected to arrive in country in July.In Uganda we are planning to accelerate the pace of our exploration andappraisal programme. Hardman is increasingly well placed as an internationalexploration and production company. ***** Hardman has adopted the definitions and guidelines of the Society of PetroleumEngineers and World Petroleum Congress ("SPE/WPC") for the categorisation ofpetroleum reserves and the SPE/WPC/AAPG (American Association of PetroleumGeologists) definitions and guidelines for petroleum resources. ...Page 8... The oil and gas reserve statements included in this report are based uponinformation compiled and reviewed by Hardman Resources Limited's DevelopmentManager, Andrew Patterson, BEng, SPE, a practising petroleum engineer with inexcess of five years' technical upstream petroleum experience. This report contains forward looking statements that may be affected by certainvariables and changes in underlying assumptions and are subject to risk factorsassociated with oil and gas business. It has been prepared to provide information to interested parties on theprojects in which the Company is involved. Although the technical data presentedis considered by management to be accurate, the Company does not acceptliability for errors or omissions in the data. Notes to Editors Hardman Resources Limited is an oil and gas exploration and production companylisted on the Australian Stock Exchange (and included in the ASX 200 index) andon the Alternative Investment Market (AIM) of the London Stock Exchange. Hardman has a portfolio of production, development candidate and explorationinterests principally offshore Mauritania, West Africa and also in Uganda,Tanzania, offshore Guyane, and the Falkland Islands. This information is provided by RNS The company news service from the London Stock Exchange