HDR hardman resources limited

March 2002 Quarterly Report

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    From Hardmans web, 24/4/2002, so grab a glass of wine and have a read.........................


    This report summarises the activities of Hardman Resources Ltd and its controlled entities ("Hardman" or "the Company") during the quarter ended 31 March 2002.


    ACTIVITY HIGHLIGHTS

    ARC Energy NL ("ARC") Investment: Hardman has converted the $2,500,000 loan advanced to ARC in September 2001, to ARC shares at 16 cents per share, representing 10% of ARC’s issued capital. On 6 March 2002 Tap Oil announced a takeover offer for ARC consisting of one Tap Oil share for every four ARC shares. Hardman has advised the market that it does not intend to accept the Tap Oil offer.

    French Guyane: Planning is underway for a 2D seismic survey in excess of 8,000 line kilometres to be shot in mid 2002.

    Gabon: A 2D shallow water seismic survey comprising of 2,732 kilometres was completed during the quarter. This data will provide the first comprehensive seismic coverage available to the Joint Venture across the two permit areas.

    Malta: The Government authority has agreed to extend the exploration permit to 5 October 2002, at which time the Joint Venture is required to convert the permit to a Production Sharing Contract.

    Mauritania: Negotiations to award the rig contract for the drilling of up to four wells in offshore Mauritania is in final stages of completion and should be signed during the next 2-3 weeks. Drilling is expected to commence in third quarter 2002.

    Mauritania: The 2002 drilling programme is to comprise two appraisal wells on the Chinguetti field, one firm exploration well in PSC Block 6 and one contingent exploration well in the vicinity of the Chinguetti field in PSC Area B.

    Mauritania: A large 3D seismic survey commenced in PSC Areas A and B during the quarter. Additional 3D seismic is to be acquired over one of the prospects being considered for the 2002 PSC Area B exploration well, thereby delaying a decision on this fourth well in the programme until the third quarter.

    Mauritania: Field development studies on the Chinguetti oil discovery are progressing and initial results indicate that less that 100 million barrels of recoverable reserves is required for a “stand alone” economic development. Studies by Hardman have indicated that the Most Likely (P50) recoverable oil for the primary reservoir only (A sand) is in excess of 100 million barrels.

    Mauritania: South African company Energy Africa have signed a farmin agreement to earn 20% interest in PSC Block 2 by funding the bulk of a large 3D seismic survey in 2002. Hardman’s interest in Block 2 will reduce from 36.0% to 28.8% once completed.

    New Zealand: An application to extend the permit area by an additional 1,973 square kilometres was approved by government authorities. The additional area covers several leads which were found in Hardman’s preliminary technical assessment to extend beyond the permit boundary.

    North Perth Basin:

    EP 413: The drilling of an exploration well is planned for June/July 2002. This permit adjoins TP 15 and the Woodada production licences.

    TP 15: The discovery of significant oil reserves in the Cliff Head 1 and 2 wells has considerably upgraded the prospectivity of Hardman’s adjoining acreage at TP 15. The Joint Venture has agreed to drill up to two offshore wells (one firm, one contingent) in the first quarter 2003.

    Uganda: Preparations are in progress to shoot a 2D seismic survey on Lake Albert in the third quarter 2002.

    Woodada Gas Field:

    During the quarter gas production has been maintained at a rate of approximately 3.5 million cubic feet per day.

    Drilling of the Woodada #19 gas well commenced on 12 April 2002. The well will be drilled to a total depth of about 2,900 metres and will test deeper objectives below the Carynginia Limestone gas producing zone. If successful, the well can potentially be completed as a gas production well or a multiple zone producer.

    CORPORATE ACTIVITY

    Hardman Resources Ltd successfully listed on the Alternative Investment Market (AIM) of the London Stock Exchange and trading in the Company’s shares commenced on 19 March 2002. This is a dual listing of the Company’s securities and the Hardman shares listed on AIM are denoted by the trading code “HNR”. Trading in the Company’s shares on the Australian Stock Exchange will continue unchanged(trading code “HDR”).

    Hardman is the first Australian oil company to secure an AIM listing in London and the twelfth Australian company overall to have a listing on AIM. The directors believe the London listing is a logical step in view of Hardman’s range of international projects and provides the Company with exposure to the larger London financial market.

    GAS PRODUCTION

    During the March quarter the Woodada Gas Field produced 317,327 Gj of natural gas and 225 bbls of condensate for sales to contracted customers. The average daily production of natural gas for the quarter was 3,525 Gj (3.5 million cubic feet per day).

    Sales made to Hardman's industrial customers in the Perth region were 485,045 Gj of natural gas for the quarter. Additional gas was purchased under an agreement with ARC Energy NL to meet sales contract levels.

    Gross revenue from gas sales for the quarter was $1,430,041 and Hardman's net profit after field operating costs was $97,299.

    REVIEW OF OPERATIONS

    MAURITANIA – WEST AFRICA
    Hardman holds interests in large offshore Production Sharing Contracts (PSCs) over Blocks 2, 3, 4, 5 and 6 in the Senegal – Mauritania Coastal Basin, the first PSC having been signed in late 1996. These licences were divided into Joint Venture Areas A, B and C under the terms of Farmin Agreements with Woodside Mauritania Pty Ltd ("Woodside") and ENI-Agip ("Agip"), signed on 6 August 1998. At the completion of drilling three (3) farmin wells and at no cost to the Company, Hardman was to retain interests in Joint Venture Areas A, B and C of 24.3%, 21.6% and 22.5% respectively.

    Hardman also holds three additional PSCs over Blocks 1, 7 and 8 which straddle the previous licences and increase Hardman’s total acreage in the offshore basin to approximately 74,000 square kilometres. The new PSCs are in joint venture with Dana Petroleum plc ("Dana"), an oil production company listed on the London Stock Exchange.

    Woodside/Agip Joint Venture:
    The drilling of the Chinguetti-1 and Courbine-1 wells by Woodside and Agip during 2001 completed the farmin obligations for Joint Venture Areas A and B. The Area C farmin well is to be drilled in the 2002 programme in PSC Block 6. Woodside committed to fund 50% of the well cost, while Agip has withdrawn from Area C resulting in Hardman increasing its equity from 22.5% to 36.0% and 35.5% in Blocks 2 and 6 respectively.

    The Joint Venture participants and the Mauritanian authorities have agreed on the 2002 work programme, which includes the acquisition of extensive 3D seismic and the drilling of up to four deep water wells as follows:

    Chinguetti Oil Field Appraisal (Block 4, PSC Area B) – Hardman equity 21.6%: One firm step-out exploration well on the field is planned as the first well in the programme. A second contingent well may be drilled as the third well in the field to fully delineate the size and scope for oil production in the Chinguetti Field. Testing equipment will be available to conduct an oil production test on one of the appraisal wells as warranted.

    PSC Block 6 (Area C) Exploration Well – Hardman equity 35.5%: A firm well is to be drilled to test the Lead 4 structure in Block 6, to the north of Area B. The primary target at Lead 4 comprises a sand channel system of Cretaceous age interpreted from 3D seismic. The flank of this prospect was partially tested by Shell in the 1970s with small quantities of oil recovered from wireline testing.

    PSC Area B Exploration Well (Chinguetti vicinity) – Hardman equity 21.6%: The intention is to drill one of the identified exploration prospects that are located within 25 kilometres of the Chinguetti oil discovery. Currently three prospects are being considered. Acquisition of new 3D seismic data is currently being undertaken over one of the prospects, and a final decision on the prospect validity will be taken in the third quarter 2002. The Area B well is therefore being carried as contingent pending the completion of this work and a decision by the Joint Venture to drill one of the prospects in the 2002 drilling programme. Prospects being considered have similar aged reservoir sands to the Chinguetti discovery. If the new exploration well is a discovery, it could be linked to the Chinguetti production facility, thus enhancing the project economics.

    3D Seismic Acquisition: Acquisition of 3D seismic surveys is currently in progress as follows:

    PSC Area A 900 square kilometres

    PSC Area B 515 square kilometres

    PSC Area C (Block 2) 1,000 square kilometres


    This new seismic data will further delineate the petroleum prospectivity of the deep water basin in areas adjacent to the existing 3D seismic data, and identify additional prospects for drilling in 2003 and beyond.

    Under a farmin agreement signed with Energy Africa in January 2002, the bulk of the 3D survey in Block 2 is to be funded by Energy Africa which will earn 20%interest in that area. Hardman will retain a 28.8% interest in Block 2.

    The 2002 work programme will add considerably to the understanding of the Mauritanian deep water basin and is aimed at upgrading the prospectivity of this new oil province. In particular, additional drilling of the Chinguetti Field will allow an accurate estimation of the recoverable oil volumes in the structure and the economic viability of the project.

    Chinguetti Field Development Studies: In January 2002 Woodside advised that the Scope For Recovery reserves based on the results of only the Chinguetti-1 well were 65 million barrels (recoverable). It should be emphasised that this estimate is based on a RISKED reserve estimate, whereby parts of the field which have not yet been evaluated by drilling have had a risk factor applied, thereby reducing the volume estimates.

    Studies of the Chinguetti Field by Hardman have indicated that the Most Likely (P50) technically recoverable volume for the primary reservoir target only (A Sand) is in excess of 100 million barrels. There may also be further potential in deeper Tertiary sands below the A Sand, which were not encountered in the Chinguetti-1 well, and also in the B Sands which contained a 7 metre gas column in Chinguetti-1.

    Woodside commenced development studies for the Chinguetti field were commenced by Woodside at the end of last year and a Joint Venture Evaluation Committee has now been established. These studies have initially focussed on defining the scope for recovery of the oil reserves, development options (eg. whether to build or lease the production facility) and timing of development. It is therefore encouraging that development studies conducted to date have indicated that the recoverable reserve volume required for a “stand alone” deep water development at Chinguetti could be much less than 100 million barrels.

    Negotiations to award the rig contract for the drilling in offshore Mauritania is in final stages of completion and should be signed during the next 2-3 weeks.Drilling is expected to commence in third quarter 2002.

    Dana Joint Venture Blocks 1, 7 & 8:
    The Dana Joint Venture comprises three PSC areas which are situated immediately to the north and south of the Woodside/Agip acreage. Under the terms of the Joint Venture, Dana Petroleum plc ("Dana") holds an 80% interest and is operator, while Hardman has an 18% interest.

    In October 2000, Dana and Hardman signed a Farmin Agreement with Woodside covering Block 7. Under the terms of the agreement, Woodside is acquiring a 35% interest in Block 7 in exchange for funding 50% of the 2D and 3D seismic costs and 50% of the cost to drill one offshore well. Upon completion of Woodside's earning obligation in Block 7, Hardman will hold 11.57% interest.

    Block 1
    A 2D seismic survey comprising 1,425 line kilometres was completed during the previous quarter and is currently being processed. This data was in addition to the previous 2D survey of 1,165 line kilometres undertaken during 2000. The new data will provide infill coverage over the identified structural leads.

    Block 7
    A 1,360 square kilometre 3D seismic survey was acquired over a number of deep water leads during the quarter. Under the farmin agreement, Woodside funded 50% of the survey cost, leaving Hardman to fund 8.8% of the survey whilst retaining its 11.57% equity. Processing of the 3D seismic data is in progress. Following interpretation of this data, a decision will be made by end of 2002 on whether to drill the first deep water well in the Block during 2003.

    Block 8
    Technical studies and specialised seismic processing work are continuing and a decision on whether to shoot additional 2D or 3D seismic is expected in the next quarter.

    GABON – WEST AFRICA
    Hardman holds a 12.86% working interest in two PSCs offshore Gabon awarded in November 1999 and referred to as Iris Marin and Themis Marin. The PSC areas have a combined area of approximately 2,000 square kilometres and are located in a proven and well established petroleum province.

    A 2D seismic survey of 2,732 line kilometres was acquired across both permits during the quarter. The new 2D seismic data will provide the first detailed seismic coverage across the permit areas available to the Joint Venture partners. Detailed depth conversion processing will be undertaken on the seismic data and is expected to delineate one or more prospects for drilling in 2003.

    UGANDA – EAST AFRICA
    On 8 October 2001 Hardman signed a Production Sharing Agreement ("PSA") with the Government of Uganda over Block 2. Hardman is the Operator of the PSA which is held in a 50-50 joint venture with Energy Africa Limited.

    The block covers an area of approximately 4,700 square kilometres over the northern part of Lake Albert in north-western Uganda. The area is under-explored with only one well having been drilled on the shores of Lake Albert in Block 2 by Shell in 1938, which encountered oil shows. The presence of a thick sedimentary sequence in the graben, well-documented oil seeps along the edge of the lake and information from gravity and magnetic surveys provide encouraging indications of the area's petroleum potential.

    The 2002 work programme for the PSA provides for the acquisition of seismic data. Planning for this survey has commenced with the expectation that approximately 1,500 kilometres of 2D seismic data will be acquired in Lake Albert using specialised equipment already in the country. The survey will be the first seismic data acquired over the lake and will be critical for definition of the basin architecture and prospects for drilling in 2003. The survey is to be conducted jointly with the University of Syracuse, a world leading research team on the geology of rift basins in East Africa

    GUYANE (FRENCH) – SOUTH AMERICA
    Hardman is operator and holds a 95% equity in the Exclusive Exploration Licence ("EEL") offshore Guyane, which was awarded on 1 June 2001. The licence covers the major part of the offshore basin of Guyane and extends from the twelve-mile coastal limit to the 3,000 metre water depth contour with a total area of approximately 65,000 square kilometres. The EEL provides for a five year exploration work programme with a well commitment due at the end of the first three years.

    A detailed technical evaluation of old 1970’s seismic and well data was undertaken by Hardman last year. This initial phase of work identified some large deep water leads and confirmed the prospectivity of the permit area. The next phase of work is to undertake a large regional 2D seismic survey to delineate the leads and identify drilling prospects.

    Plans are well advanced to acquire over 8,000 kilometres of 2D seismic during the third quarter 2002. Favourable contract terms have been negotiated with one of the major seismic contractors whereby Hardman will be required to fund only a portion of the survey cost. Currently all survey documentation is being finalised, ahead of a visit to Guyane by company personnel in the next quarter.

    It is expected that the new 2D seismic data will considerably upgrade the permit area and enable Hardman to attract larger oil companies to farmin and fund the drilling phase of exploration.

    MALTA
    Hardman holds an 87.6% interest in Blocks 4 and 5 offshore Malta. The licence area is held as an Exploration Study Agreement ("ESA") which may be converted into a full PSC with pre-negotiated terms. The ESA area is located 60 kilometres east of the island of Malta and southeast of several oil fields offshore Sicily in Italian waters. The largest of those fields, Vega Oil Field, is reported to contain 300 million barrels of recoverable oil and is located approximately 65 kilometres from Blocks 4 and 5.

    A 900 kilometre 2D seismic survey was shot in December 2000 over the four main prospects. Interpretation and mapping of the new seismic data has confirmed that the Beta and Gamma prospects are structurally closed with potential to contain large hydrocarbon volumes at both the Upper Cretaceous and Lower Jurassic reservoir horizons.

    Following a meeting with the Maltese government during the quarter, the term of the ESA was extended to 5 October 2002. The extension will allow further time for Hardman to complete Joint Venture arrangements prior to entering into the PSC contract and committing to drill the first well in the licence area during 2002/2003. Hardman is seeking farmin partners to fund part of the drilling cost and aims to form a joint venture group that will drill the first offshore well in the licence.

    During the second quarter, the Italian major ENI/Agip will be drilling an offshore well in Malta located approximately 80 kilometres to the west of Hardman’s permit area. This well will test similar play objectives to the prospects within the Hardman permit.

    ITALY

    Hardman has interests in two onshore permits as follows:

    Fiume Tevere (46.118%), permit located south of Rome.

    Fiume Arrone (40%), permit application located to west of Rome, adjacent to Fiume Tevere licence.

    No exploration activity occurred in these permits during the quarter.

    NEW ZEALAND
    Hardman was awarded Petroleum Exploration Permit ("PEP") 38215 in the Great South Basin, New Zealand in August 2001 and holds a 53.75% working interest.

    During the quarter the New Zealand Ministry of Economic Development approved an application by the Joint Venture to extend the area of Petroleum Exploration Permit (PEP) 38215 by approximately 17%. The extension, which increases the size of the permit from 11,641 square kilometres to 13,614 square kilometres, is the result of a review of the prospectivity of the permit by the Joint Venture. The review revealed a number of large leads that were only partially contained within the permit, with the balance of the leads extending into vacant acreage.

    The Joint Venture intends to focus on the hydrocarbon potential of the base Tertiary/top Cretaceous within the Central Graben of the Great South Basin. Existing seismic data shows a number of untested structures within the Central Graben, which are well placed to receive hydrocarbon charge. The joint venture is currently reprocessing 1,600 kilometres of existing seismic to improve the data quality and identify the best prospects for future work.

    AUSTRALIA
    Woodada Gas Field:

    Hardman purchased the Woodada Gas Field from the Griffin Group in June 2001. Thepurchase included the two production licences (PL4 and PL5), the gas treatment plant and the existing sales contracts. The Woodada Field is located 280 kilometres north of Perth, Western Australia and is connected via the Parmelia Pipeline to customers in the Perth area.

    The Woodada Gas Field has produced about 44 billion cubic feet (BCF) of gas since 1982 at rates up to 20 million cubic feet per day (MCFD). Current production is about 3.5 MCFD from seven partially depleted wells.

    The Company is being assisted by Bounty Oil & Gas NL ("Bounty") which is providing production engineering expertise and field operations management. During the quarter, Bounty exercised its option to purchase a 25% interest in the Woodada Field from Hardman for a pro-rata share of the purchase price, plus accrued interest. Therefore, Hardman now holds a 75% interest in the gas field.

    Following a detailed technical review of seismic and well data, Hardman and Bounty have prepared a field development plan which, if successful, will substantially increase the existing gas reserves and production rates. The first phase of this programme was the drilling of a new production well to test the western flank of the Woodada anticline where seismic amplitude analysis has shown the development of a thick Carynginia Limestone (gas producing interval).

    The Woodada #19 well is being drilled as a gas appraisal well to access additional gas reserves from producing zones within the Carynginia Limestone at about 2,200 metres depth. However, a decision was made to also drill the well to basement at approximately 2,900 metres depth to investigate three prospective deeper exploration targets below the gas producing zone. This decision was strongly influenced by the Cliff Head -1 oil discovery in WA-286P, offshore from the Woodada field, which has highlighted the potential for additional oil and/or gas zones in deeper targets below the gas reservoir. If significant hydrocarbon zones are not encountered in the deeper targets, Woodada #19 can potentially be completed as a gas production well in the Carynginia Limestone gas reservoir.

    Woodada #19 has been located to intersect the primary gas reservoir target approximately 700 metres west of the Woodada #8 gas production well. Drilling commenced on 11 April 2002. A period of 25 days has been estimated for the completion of drilling and testing operations at Woodada #19 to an approximate total depth of 2,900 metres.

    North Perth Basin Exploration Permits:

    As part of on the Woodada purchase agreement with the Griffin Group, Hardman also purchased interests in three exploration permits located in the North Perth Basin, close to the Woodada Field. Hardman currently holds the following equity in the permits:

    EP368 22.5%

    EP413 22.376%

    TP15 30.0%


    EP368
    The permit is located approximately 50 kilometres north of Woodada. The Joint Venture is currently reviewing the well and seismic data and considering the future exploration programme.

    EP413
    The permit adjoins the Woodada production licences to the north and TP15 to the east and covers the prospective area between the Woodada and Dongara fields. Following the completion of a small 2D seismic survey in the previous quarter, the Joint Venture met to decide on the location for drilling a well in June/July 2002. Currently two prospects are being considered and a decision is to be made by May 2002.

    TP15
    The permit covers the narrow 5 kilometre wide State Territorial Water zone along the coastline opposite the Dongara Gas/Oil Field. The permit adjoins offshore permit WA-286P where Roc Oil drilled the Cliff Head oil discovery in December 2001.

    Roc Oil reported that Cliff Head-1 had intersected a 5 metre oil column with excellent reservoir quality below 1,278 metres depth. A sidetrack well was then drilled (Cliff Head-2) and encountered a gross oil column of 28.5 metres at a location approximately 4 kilometres from the TP15 boundary. Preliminary calculations suggest that the Cliff Head Oil Field has the capacity to contain between 80 and 100 million barrels of oil in place.

    Following the Cliff Head discovery, Hardman entered into a farmin agreement with Norwest Energy NL (“Norwest”). The agreement requires Norwest to fund 20% of the cost of drilling for the first two wells (to a limit of A$2 million per well) and the cost of cased hole testing of one well to earn a 10% interest in TP 15. Upon completion of Norwest’s farmin obligations, Hardman will hold a 30% interest in the permit. The TP 15 Joint Venture has now agreed to drill up to two offshore wells (one firm, one contingent). These wells would be drilled at the same time as further appraisal wells are drilled in WA-286P and will probably commence in January 2003 with the exact timing being determined by rig availability and weather conditions.

    INVESTMENTS

    CARNEGIE CORPORATION LTD

    Hardman has retained an interest in Carnegie Corporation Limited ("Carnegie") since first spinning off Carnegie as an ASX listed company in 1993. Hardman currently holds 4,366,784 shares which are considered a medium term investment. Carnegie is involved in mineral exploration in West Africa and in the development of new engineering technology.

    ARC ENERGY NL

    On 20 September 2001 Hardman announced that it had entered into a Memorandum of Understanding ("MOU") with ARC Energy NL ("ARC") with the intention of enhancing the capability of both companies to add value to their Perth Basin assets. As part of the corporate alliance between the two companies, Hardman subscribed $2,500,000 for a convertible note issued by ARC. The note was convertable to ARC at a conversion price of 16 cents per share.

    ARC is the owner of the Dongara gas field approximately 60 kilometres north of Hardman's Woodada gas field and currently provides back-up gas for Hardman's customers. The two fields are connected via the Parmelia pipeline to Perth. Both companies are actively involved in exploration in the Northern Perth Basin.

    Following the issue of the convertible note, ARC had two oil discoveries at Hovea and Cliff Head which have considerably upgraded the oil and gas potential of ARC's areas in the Northern Perth Basin. Subsequent to the end of the quarter, Hardman converted the loan to shares representing approximately 10% of ARC. During the week of 25-28 March inclusive, the average daily closing price of ARC shares on the ASX was 48 cents, representing a 300% unrealised profit to Hardman on its investment in ARC. On 6 March 2002 Tap Oil announced a takeover offer for ARC consisting of one Tap share for every four ARC shares. Hardman has advised the ASX that it does not intend to accept this offer.

    HARDMAN RESOURCES LTD

    TED ELLYARD
    MANAGING DIRECTOR

    24 April 2002

    Note: In accordance with Australian Stock Exchange Limited listing requirements, the geological information supplied in this report has been based on information provided by geologists who have had in excess of five years experience in their field of activity.

 
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