one cent mores worth

Thanks for all the comments

Had another hard look at things and valuations in response to some comments out of the crowd yesterday.


Looking at the already explored and declared Chinguetti field they initially intersected a column of 62 meters of gas and 32 of oil. This was back last year and the field is estimated to be of between 125 and 142 million recoverable barrels.

When I look at the results from the recent tiof and tevet one had a massive 134m of oil and the other 70m of gas and 44 m of oil.

Now it is estimated somewhere Chinguetti has recoverable reserves of between 125 and 142 million barrels you may see where I am getting my estimates from.

It is unclear at this stage how big either will be. Tevet with the 70m gas and 44m of oil alone could be the size of Chinguetti. Tiof 3 appraisal well was the one with a huge 134 m of oil ... Hardman's only real comment was this was in line with their expectations proir to drilling. Since they had the most bullish outlook this is saying something.

I can understand why the market has sold off from its highs. Personally don't agree with them but was lucky with my own holdings.

Bottom line the facts are starting to come in on the probable overall size and whilst it may be many months until we see the official upgrade of recoverble resource the fact remains Tevet alone would appear to me to be commercial and probable 75/125 mio barrels alone and the Tiof wirelogs seem to pont to a big upgrade there as well. So my call for an increase in recoverble resource increase of 200 million barrels is not really in danger. Now way back in December 2003 Hardman made a big call about tiof of hoping for recoverble reserves in the region of 300 to 400 million barrels. This latest appraisal just adds more weight to their very bullish call.

Overall I was hoping for an increase over the original estimate of 350 mio barrels recoverble and TIOF alone seems to me to be that size all by itself. Add Chinguetti and Tevet and I am up around 600 million. Personally expect some more which will get us above the 850 mark. Not as high as the very bullish calls but minimum for me is now 600 mio plus and expecting more than likely 800 mio. Value of this to HDR if its correct with much higher oil base price than where we started back in 2003 is huge. Diluting everything well it suggests HDR is a bit cheap here. Taking off 20% for soveriegn risk, and usuing even a USD$30- per barrel still leaves me with HDR trading around 61% of ultra conservative NPV. Remeber it is still drilling and whilst we have had two dissapointments these to me are dwarfed by Tiofs implied size and probable tevet size. If we have another pleasant surprise it just adds more value.

Analyists will not update their models until an official announcement but with around a 20% holding when the Mauritanian goverment takes up its stake and usuing even Macquaries very conservative USD$30- per barrel it will change the whole ball game. Macquaries present NPV fair value revaluation is $2.09. If one were to add the NPV value of the extra 200 million less costs it would seem to add around 94 cents to their valuation or bring it up around the $3.00 mark. This is if the discover nothing more at all. Let alone any value of others ... Uganda looks like a sure producer to me.

Not much has changed. Traditional oil companies are seeing their reserves dwindle and still have to be sniffing in the wind. So for me with HDR sitting at $1.90 ish seems like good value beyond any other news. Have a personal view oil will remain USD $40- plus for a long time. A long term fall below this level will change things but I must hasten to point out I have been usuing Macquaries USD $29.50 number to come out with the result. Sentiment in the sector has certaily cooled in recent weeks with oil slipping back to $47- ish. Maybe it goes further but when you are usuing a number $17.50 below that it doesn't really matter that much. As I pointed out 5 year forward oil has been fairly stable around the USD $38- level so still usuing this lower number of 29.50 despite where the market is just adds more real value to me to the possible returns.

Other factors also may dampen the oilers from here. Not reasonable to expect the Chinese to increase rates again since they still have a higher inflation rate. Same with the USA ... more rises expected out of them as well.

Anyhow good luck ...

Just feel we are reaching levels that represent real value. Depends of course on your own view and interpretation of things. For me I am satisfied oil will stay up and the discovery and exploration wells eventually will lead to big upgrades in reserves for HDR.

Cheers