Hardy Oil and Gas

Source: Energy Digital

Date :21/11/2007 11:15:02

Hardy’s competitive edge

London-based Hardy Oil & Gas plc makes its living in the oilfields off India and Nigeria. Dinesh Dattani and Yogeshwa Sharma explain its thinking and talk about progress

Written by Ruari McCallion and Produced by Alex Smith

It pays to be focused on your core business. When Hardy Oil & Gas plc acquired an oilfield off the east coast of Tamil Nadu, in the south of India, the seller’s difficulties led to the resource being virtually abandoned. At that time oil was selling for less than $20 a barrel and any offshore operation would have found difficulty making a profit at that level. It was an ill wind that did nobody any good; now however, the recent rise in oil prices have been good news for Hardy.

“We have revived the PY3 field and it’s currently producing around 2450 barrels a day,” said Dinesh Dattani, Chief Financial Officer. “The field has a substantial undrilled area and that’s what we plan to exploit in 2008. By the end of the year, ?we expect to be producing more than 8000 barrels a day.” The future beyond 2008 looks rather attractive, too; Hardy has substantial interests in the vicinity ?that look very promising.

Areas of interest

“Block CY-OS2 ring-fences PY3 and PY1 fields, in which we are in partnership with Reliance Industries Ltd, are promising,” he said. “Further north, in the Bay of Bengal, block D9 is one of our areas. We are a ten percent partner with Reliance again – but we think it will be the jewel in our crown. Block D9 is to the east of Block D6, which has had giant hydrocarbon discoveries – of around 20-30 million cu ft of gas, and two billion barrels of oil. We’re drilling in D9 in the first half of next year and, while we expect it to be as big as D6, we won’t know for sure until we drill the well. Block D3, to the west of D6, is also a valuable asset.”

Hardy is present over on the west coast, too, in the Gujarat-Saurashtra basin off of Mumbai. Three wells are planned for 2008. It is currently involved in a total of five licenses in India: it is acting as an operator in PY3 and CY-OS/2, in which it is also the 75 per cent majority partner. In its other interests, it is the minority partner with Reliance. This all adds up to what is described as a ‘focused, high-quality portfolio’.

Competitive edge

All of this is very exciting and times are undoubtedly good for Hardy. But the question has to be posed: does the world really need another oil and gas exploration and development company? What is it that differentiates Hardy Oil & Gas plc from all the others?

“We have a very experienced management team, whose backgrounds range from finance to engineering and we’ve put together a very high quality portfolio,” Dattani said. “We have a very sophisticated shareholder base, which understands the natural resource oil and gas business. That allows us a level of growth.” Hardy has been in existence in its present form for only around ten years but it has a history going back a lot further – and it’s quite an interesting tale, too.

“The company was founded in 1997, as Jehan Energy Corporation, with the intention of establishing a private sector production and exploration company in India,” said Chief Operating Officer Yogeshwa Sharwa, one of the company’s founders. “We purchased the Indian operations of Hardy Oil & Gas from British Borneo Oil and Gas plc in 1999 and changed our name. Hardy has pedigree: it was one of the original independent companies operating in the North Sea and was spun off from Trafalgar House in the 1970s. The acquisition brought with it exploration and production assets in India.”

As previously mentioned, they were non-performing but Hardy’s management team changed that, quadrupling total output between 1999 and 2005. Operations in Nigeria are currently at the exploratory stage, with Hardy holding a 40 percent working interest. Discussions with the local community are ongoing too – the last thing it wants is the sort of trouble plaguing some other companies operating in the Niger Delta.

“We have overcome problems by engaging with the local community. That’s the secret of successful operations in Nigeria,” Dattani said. “We now have low-cost access to proven fields; in India, we have even more exploration fields. We have a good balance of exploration and production.

“Our current fields yield about 20 percent of proven reserves under natural depletion,” said Sharma. “Beyond that, we apply recovery technology schemes as dictated by economics. Each field has its own unique lifecycle. As technology improves, recovery yields go up – depending on the oil price. We expect our current production fields to have a 10-year life cycle with further drilling, but it could be as much as 20. The other fields that are under exploration haven’t even begun production so, obviously, we can’t be sure of their life.”

Market factors

It may seem strange that a company whose main assets are in India and Nigeria, and was established to exploit opportunities on the subcontinent, is based in London. But there is a great deal of logic and method in this approach.

“Our main operating challenges revolve around the fact that we are drilling in some deep water – from 100 metres to 3000. That requires building a big infrastructure,” Sharma said. “The company operated privately for seven years, but exploration requires significant amounts of capital. We came to London for an IPO on AIM in June 2005. That was a success and we have subsequently returned to the market in February 2006 and June 2007. In that time, our share price has risen from £1.44 to £4.23 in June and we have been able to raise a total of £21 million.”

With the Pound Sterling strong against the US Dollar, and oil and gas activities mostly priced in the American currency, that’s a pretty handy resource to have. Investors and others, who have seen Hardy’s turnover fall over the last fiscal year, are expecting drilling and production to change the downturn too.

“Our aspiration is to graduate to the main market,” said Sharma. “We expect to be drilling in all our blocks over the next 18 months, so it’s a very exciting time for us.”