Hyperdynamics (HDY) - an early stage oil exploration opportunity?
Hyperdynamics (AMEX:HDY) is a US listed oil exploration company with a market capitalisation about $200 million. Its only asset is an exploration licence offshore Guinea in West Africa. This looks very interesting but is at a very early stage of the exploration lifecycle. Dana Petroleum recently farmed in to 23%.
There was news out yesterday that the initial drilling programme has just been agreed by the JV partners and the Government of Guinea - 2 firm wells and one contingent - drilling starts Q4 2011. See news release for details.
I interpret the agreement, and its timing, as Dana doing the decent thing by its JV partner and firming up its contractual obligations ahead of the likely takeover by KNOC, so that the Koreans can't subsequently pull the rug from under HDY's feet. Good for Dana.
Guinea is very under-explored compared with the rest of West Africa. Just one well has been drilled in the past in the entire offshore area. The back story here is that Guinea has been plagued by political instability with military coups, mad dictators and the kind of excess and repression one associates with Graham Greene or Frederick Forsyth. Amazingly the last mad dictator's death - he was murdered by his own head of security in revenge for being framed for a massacre of political opponents - was not followed by the expected bloodbath. Instead the head of the army organised a transfer of power to a civilian administration led by an opposition figure. Proper elections have followed. There seems to have been a genuine transformation.
This changes the situation in which Hyperdynamics is operating. It's still a completely unexpored frontier from the perspective of the oil industry but the political/economic/commercial backdrop is vastly improved. The level of corruption has reduced very significantly. There is a substantial opportunity for the development of a local gas market.
Geological studies, oil seeps and so on are all promising when taken in the context of other nearby countries' exploration histories. Initial seismic has been collected and interpreted - admittedly in a hurry when a relinquishment date was brought forward unexpectedly - but it has produced ecouraging results.
The technical background is explained in a very useful article in E&P Magazine. At time of writing, 3D seismic is currently being processed over some of the best leads to enable selection of drilling targets. The seismic collection is being done by one of only two ships in the world equipped to collect ultra high resolution data. Some details are provided in an article on Energy-Pedia.
As always, the most critical question to consider at this point is funding. According to their recent presentation, HDY has around $50 million in the bank of which $20 million is committed for the seismic. The remaining $30 million is burning at $600k per month so will last for a few years. The 3 well drilling programme is estimated to cost $130 million. Hyperdynamics plan to farm out 30% in exchange for a free carry, which would amount to $60 million or so. Less if they accept a partial carry. Which sounds perfectly feasible to me. The farminee would end up paying about $100 million for 30% of the licence inclusive of a three well drilling programme - which seems reasonable.
I'm considering making a small investment here. Nothing I couldn't afford to lose but something that would multiply many times over in the event of drilling success. Timing is an issue, in the past month or so the share price has risen from about $1.10 to about $1.70. I'm inclined to watch it and see what happens when/if the KNOC bid for Dana succeeds. There could be a frisson of uncertainty which could unsettle the market and bring the price back towards the $1.10 mark. That would be a good entry point. Of course the SP might sail serenely onwards and upwards in which case, I'll take a view. No real hurry.
For more information see Hyperdynamics web site and Recent Investor Presentation. There are plenty of other presentations there. Its worth adding that the Hyperdynamics board of directors includes some very heavy weight non-execs - Lord Owen, Herman Cohen and Robert Solberg. And the management team has been staffed with seasoned professionals.
PS - This is just one example of the potential value embedded in Dana's business which is being valued at diddly squat by KNOC's current bid. But that's another story and it's best not to get me started on it.
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14 comments
Spuds well in Guinea
http://investors.hyperdynamics.com/releasedetail.cfm?ReleaseID=614661
Watching this one with interest. SP at $4.50 (Oct 14th), would like a punt here but at lower SP though. Looked at IG Index account and found out they don't offer a spreadbet on this so will either call in for a special one-off or just watch this from sidelines.
Any sniff of a find here, coupled with Guineas generous fiscal terms on offer, will see HDY soar to above $7 levels IMO. Again on a find I would guess that there would be plenty of farm-inees Qing also so dont see a problem with HDY funding long term on the back of a discovery. Anyone know what the COS of the drill is? 15%, 25% ..etc?
JPGH
Hyperdynamics has announced that the non-binding Letter of Intent it signed with a large independent oil and gas company has been terminated.
http://www.energy-pedia.com/article.aspx?articleid=143861
Makes sense, have a look at the seismic & take it from there......
Hi,
As I was not an investor in Dana, I am hoping that HDY does get a bit better than it is today. Word on this side of the pond is that the current run is because of, first the Blackrock investment, and second the NSAI report indicating 350M risked, or 2.3B P50 unrisked reserves. I expect the new JV deal to be a bit better than most expect, as in, I do not expect a sell off due to perceived overvaluation.
Mr Leonard has said that NSAI will also release an updated report, once they study the 3D. This will undoubtedly result in a decrease in the risk level, and many guess a substantial increase in the risked number.
I think most HDY investors are waiting for the results of drilling into the 3 play types before making long term plans. I plan to go to the Share holder meeting in Feb.
Jim
And up to $6-36 this evening.
The US edition of the Motley Fool is carrying a short piece which implies there have been some interesting developments
see http://www.fool.com/investing/general/2011/01/07/hyperdynamics-shares-popped-and-plunged-what-you-n.aspx
Don't ask me what's going on - I'm clearly off the ball as far as this escapee is concerned. Not only has it wriggled deftly out of my incompetent grasp - it is now running rings round me thumbing its nose and chanting "nah nah na na nah" as it does so.
Where next? $10, $20, $30? Has the PMG contagion been spread by close contact with Mr C?
$600 million seems rather a lot for the present. But what on earth do I know?
Actually KNOC/Dana already has Mauri on the slate don't they?
Serve 'em right too.
Bear a grudge?? Moi!! I'm not sure about Mauri either, Tullow & co have been busy there since September ......
Hi TGG
sorry for my typo - of course I meant to say.....
Obviously everyone hopes that Guinea will turn out to be a carbon copy of Mauritania......
I'm glad to see I'm not the only person here sufficiently immature to bear a grudge aginst KNOC.
:~)
Obviously everyone hopes that Guinea will turn out to be a carbon copy of Ghana
Maybe everyone except me! I hope it's a ruinously expensive fisaco if KNOC maintain their interest ;-#)))
Just had a very quick and very superficial look at what's happening.
Hyperdynamics announced in December that they were in discussion with a major about a farm-out - and that the major had been awarded an exclusivity window until Jan 27. That's obvioulsy what's pushed the price up from
$3-50 to $5-10.
There's nothing surprising in this announcement - HDY said yonks ago that it wanted two farm-in partners - and described Dana as the junior partner so clearly signalled their wish for the senior partner to be larger than Dana.
Of course since KNOC took over Dana it is quite unclear whether KNOC/Dana has any ongoing interest in the Guinea project or whether they will be looking to offload their stake asap.
So HDY's market cap must now be around $500 million - which seems fairly fully valued to me. Obviously everyone hopes that Guinea will turn out to be a carbon copy of Ghana - and if it does so, then half a billion will seem like a bargain. But there are many bridges to cross before we get anywhere close to that. So for the time being it does seem quite fully valued to me.
If the deadline of the 27th passes without a deal being announced then the SP will undoubtedly fall back quite a way. That's the main obstacle to my taking a punt at this stage.
Still, it is quite irritating to have spotted the potential and to have mismanaged my exploitation thereof so dismally. There again the thing that's distracting me is rather more important - so perhaps I should give myself a break.
T
Well, well, well
When I wrote the thread header at the end of September the Hyperdynamics share price was $1-70 and I said I'd wait and see if it fell back towards $1.
Just a week later the SP reached $2-50 (see my post #1 above)
And within a month it reached $3-40 (see post #3 above) and I described it as "one that's got away"
As of last night it was at $5-14.
That means it has trebled in 3 months.
And did I ever buy it?
No. I can't include US stocks on my daily watch lists so I have to do it manually as it were. And more important family issues have pre-occupied me so I've neglected to keep my eye on it.
So, is it worth buying now? I don;t have a clue. I'll have to do some more diligent research as and when I can and think about it.
T
new conference call on the Hyperdynamics web site today
audio only at present - and of variable quality - video to follow
link at www.videonewswire.com/event.asp
just listening - will report any headlines
Well that's one that got away - at least in the short term. When I wrote the thread header the price was around $1.70.
Now it's doubled to $3.40 - see price quote.
Can't win 'em all.
Hi Tournesol,
Thanks for the write up on Hyperdynamics. On the US side of the pond we have been wondering if some of the recent volume in HDY stock turnover might be from DNX investors (independent or company insiders) moving to diversify. From my talking with other investors, it just might simply be due to rumors floating around about the possibility of earlier drilling, rumors which I doubt are true.
I can add a few things about HDY as a potential investment:
First, to be clear, I have never been to Guinea so this is all second (at best) hand info. From a northern perspective i think all Guinea leaders might be considered mad. I am a very big fan of looking at things within the context in which they exist. Guinea is a 3 (maybe 4th) world country. There is a lot of corruption, it seems to be kind of embedded in the society. From that point of view, it seems somewhere between hard and impossible for a westerner to get much done on his/her time schedule. From the outside it is easy to think the society corrupt, and the rulers mad, and maybe some truth there, but I think it is way too limiting a perspective to believe this. The rulers, I think, have been very savvy, but once in power they tend to like to stay there and enjoy their position, maybe not so different from other places. After Conte died the next leader, Camera, did try to stamp out the cocaine trade from Columbia, through Guinea and on to Europe. He made a few enemies doing this, he also grew to like hearing his voice on TV every week exposing people and activities he found undesirable. You are correct that he was shot by his aid (and leader of one of the military/clan leaders). He was a bit offputting to people, including to Rex Tillerson, who apparently visited Guinea after Exxon had studied the Hyperdynamics 2D data. Camera spent 15 minutes screaming at him, so maybe we can consider him a bit batty.
Camera was flown to Morocco for treatment, and while he was there there was a VERY intense full court press put on him, by the US (very directly) to step aside. His second in command, General Konaté, did not take over in Guinea when Camera left, instead he went to visit him in Morocco to assess his condition and ability to rule. While in Morocco he too was "talked to" about what would most likely be the best way forward for him and Guinea. Whatever was said might not ever come out, but what happened was that the president, Camera, recovered from his shot to the head, and sought and received asylum from Burkino Faso, a country near Guinea, which is where he has stayed to this day. His second in command, General Konaté, returned to Guinea and announced that "the people have become tired of us" and pledged to move to civilian rule. He seems to be serious, and a run off election is, currently, scheduled for October 17th.
So the political risk might be thought of as having been reduced significantly.
HDY raised some money with a shelf offering, and of course from Dana, but I think they currently have about 26-28 million, not a lot more. This is enough to pay the 3D and all other bills until the 3D is finished. Ray Leonard has stated that his plan is to sell another 15 or 30% working interest to raise enough for a 3 well program. He feels very comfortable that he will be able to do this.
The evidence for large amounts of oil has always been there, unfortunately the prior management ran the company into the ground, and it's reputation is only now starting to recover from this past. The N & S estimates (2.3B recoverable) are for only a few targets in the shallower water. Some of us longer term shareholders are still chomping at the bit to see 3D on the Deep water Jurassic Structure. That is why I personally invested. Ray Leonard and Dana have said they will do 3D on this in 2012. Having said that, even if only 1 of 3 wells hits next year (Kosmos's average in West Africa, and Ray Leonard's lifetime average), and nothing ever after, we will still have 47% of 600M recoverable, and for a company with a potential of fully 125 million shares (existing + all options and warrants), that is still over $20 a share. Not a bad reward for the risks as I see them.
I have been following for about 6 years, so I am more than a bit excited at this point. There are many more leads that are not counted in the N&S report (but a couple are in the Dana report interestingly), and then there is that super giant deep water lead.
Of course the share price has gone up recently, but if I was interested, but not invested, I would really look at the presentations on the company web site. I would also spend quite a bit of time looking into the past work experience, and reputations of the current management and board members. There are 2 message boards about "HDY", and "HDY discussion" on Investor Village. There is a lot of banter there, and even the occasional good thought among all the retired guys and the right wing nut jobs. I mention this site just to say that things break there first.
I think the next steps to look forward to are:
-Release of any 3D results
-News of a 15 or 30% JV partner, and terms as well
-News of drilling rig contract (this was a recent rumor)
The only negative that I am watching closely is the potential for a hostile takeover. This has been a concern for over a year (prior to Dana's event), so management has had a long time to create a response.
In the thread header I said
I obviously haven't lost my keen sense of timing. ;~(
Yesterday there was significant trading volume and the stock ended at $2-50.
Anyone who bought when I wrote the header (this does not include me) has already made nearly 50%. Does that mean the rest of us have missed the boat? No, I don't think so. I expected a run in the lead up to drilling, just didn;t expect it quite so soon. Is that it finished? Will it retreat? Well the strength of yesterday's rise means either
1) there is a very strong run just getting under way or
2) there will be a pull back which will provide a lower entry point
It's anyone's guess which will be the case
I obviously need to dig deeper before reaching a conclusion. I'll do so and report back.