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Hardy Oil & Gas HDY Interim Management Statement

  Hardy Oil & Gas (HDY) - Interim Management Statement

RNS Number : 6001Q
Hardy Oil & Gas plc
08 November 2012




8 November 2012



                            Hardy Oil and Gas plc

                                  (LSE: HDY)

                                      

                         Interim Management Statement



Hardy Oil and Gas plc ('Hardy' or 'the Company'), the oil and gas  exploration 
and production  company  with  assets  in  India,  today  issues  its  Interim 
Management Statement for  the period  from 1  July 2012  to the  date of  this 
announcement.



Summary



Corporate

· Completed strategic review reaffirming  our commitment to the  Company's 
India focused portfolio

· Relocation  of the  corporate office  to Aberdeen,  the UK's  centre  of 
excellence for upstream oil and gas expertise

· Cost rationalisation  exercise undertaken  resulting in  a reduction  in 
annual overhead costs of approximately $1.0 million

· Cash and short term investments  at 30 September 2012 amounted to  $30.3 
million which is sufficient for  the Company's committed exploration  drilling 
programme; the Company has no debt



Operational

· D3 -  PSDM processing  of 3D  seismic data  of 1,292  km^2 covering  the 
eastern area of the block is in  progress and expected to be completed by  the 
year end

· D3 - Declaration  of commerciality for the  Dhirubhai 39 and 41  natural 
gas discoveries under review by the Government of India ('GOI')

· PY-3 - Secured partner consensus on  a timeline for the submission of  a 
revised full field development plan by the end of 2012

· GS-01 - Ongoing discussions  with the operator regarding the  submission 
of a development plan for Dhirubhai 33 natural gas discovery

· CY-OS/2 -The dispute resolution is in progress to extend the  production 
sharing contract



Outlook

· D3 - Carry out the  geotechnical studies to rank prospects and  finalise 
the next locations for drilling. It is expected that the drilling of the fifth
exploration well is likely to commence in the first half of 2013

· CY-OS/2 - Award of the tribunal on the dispute with the GOI is  expected 
by the end of 2012

· PY-3 - Submit a full field development plan to the GOI for their  review 
and seek to secure  their approval by  the first quarter  of 2013. Subject  to 
approval, complete the tendering process for facilities and initiate  planning 
for a drilling programme to recommence production in 2014

· GS-01 - Development plan schedule to be submitted to the GOI by the  end 
of 2012



Ian MacKenzie, Chief Executive Officer of Hardy, commented:



"Following our review, we have concluded that Hardy's India focused  portfolio 
has the potential  to add  significant shareholder value  and our  medium-term 
focus will therefore remain on India. The outcome of planned activity  through 
2013 is expected to crystallise our  view on the longer-term prospects of  our 
portfolio. In the interim  we will continue to  consider all opportunities  to 
accelerate value creation for our shareholders."





For further information please visit www.hardyoil.com or contact:



Hardy Oil and Gas plc                                   0122 461 2900
Ian MacKenzie, Chief Executive Officer

Richard Galvin, Treasurer & Corporate Affairs Executive
Arden Partners plc                                      020 7614 5917
Richard Day

Justine Waldisberg
Tavistock Communications                                020 7920 3150
Simon Hudson

Jeremy Carey



CORPORATE



Strategic Review

The Board has completed its strategic review. Our review focused on  assessing 
Hardy's   existing   assets,   organisational   competencies   and   potential 
opportunities to create value for  shareholders. Whilst the Company  continues 
to evaluate long-term upstream growth  opportunities, the Board believes  that 
Hardy's India focused portfolio, in the medium-term, provides a good  platform 
from which to create shareholder value.



India focused  portfolio  - Our  review  concluded that  the  Company's  asset 
portfolio, being spread  across the spectrum  of early exploration,  appraisal 
and development, has  substantial underlying  value which  should be  realised 
through  the  implementation  of  the  planned  programmes.  Consequently,  we 
reaffirm our medium term commitment to our India focused strategy.



India's improving investment  climate -  In 2013 we  look forward  to the  GOI 
reaffirming its commitment to encouraging  investment in India's upstream  oil 
and gas sector and the  resolution of a number  of industry concerns. We  very 
much hope that this will result  in an acceleration of the approvals  process. 
India's gas market fundamentals remain strong  and the gap between demand  and 
supply is expected to  remain high with consequent  upward pressure on  future 
gas pricing.



Reorganisation - An  objective of  our review was  to more  closely align  our 
underlying  overhead   requirements   to  our   overall   activities   without 
compromising the competencies required to  remain an offshore operator.  Based 
on our review, the Company's corporate office has been relocated to  Aberdeen. 
The  relocation  has  resulted  in  a  reduction  in  annualised  overhead  of 
approximately $1.0  million.  Locating to  Aberdeen  also brings  the  Company 
closer to the expertise and resource base in designing, planning and executing
complex offshore hydrocarbon projects which will be of benefit to the  Company 
in the implementation of development programmes.



Ongoing assessment -  As plans for  PY-3 and CY-OS/2  become clearer,  further 
direct recruitment or engagement of support resources will be put in place. We
will continue to assess and evaluate further opportunities that complement our
existing portfolio in India and identify longer term upstream opportunities to
diversify the Company's portfolio.



REVIEW OF OPERATIONS



Financial Position

As at 30 September 2012,  the Company had cash  and short term investments  of 
$30.3 million and no debt.



Block KG-DWN-2003/1 (D3): Exploration (Hardy 10 per cent interest)



Update - The  joint venture continued  to undertake a  number of  geotechnical 
studies including  the  PSDM reprocessing  of  over  1,292 km^2  of  3D  data. 
Geotechnical studies  have been  focused  on assessing  the potential  of  the 
eastern area of the block and high grading prospects, including testing deeper
play types.



A revised  proposal  for  the  declaration  of  commerciality  (DOC)  for  the 
Dhirubhai 39  and 41  natural gas  discoveries, submitted  earlier this  year, 
remained under review by the GOI. The proposed development plan provides for a
dry gas, sub-sea cluster development with the flexibility to add in additional
wells and to include possible adjoining area of discoveries.



Outlook - The joint venture will continue the geotechnical work into 2013.



The deep-water  drillship  Dhirubhai  Deepwater KG2,  contracted  to  Reliance 
Industries Limited (Reliance), is expected to  arrive in Indian waters by  the 
end of the year. Drilling of a fifth exploration well is expected to  commence 
in the first half of 2013.



The GOI's review of the D3 DOC proposal will likely continue into 2013.



Background -  Situated in  the Krishna  Godavari Basin,  a prolific  petroleum 
province on the East coast of India, the D3 exploration licence encompasses an
area of 3,288  km^2, in  water depths  of 400  m to  2,200 m,  and is  located 
approximately 45 km offshore. The D3 block is operated by Reliance which holds
a 60  per  cent  participating  interest,  BP  and  Hardy  hold  participating 
interests of  30  per  cent  and  10 per  cent  respectively.  To  date,  four 
consecutive gas discoveries have been made via the Dhirubhai 39, 41, 44 and 52
(KGV-D3-A1, B1, R1 and W1) exploration  wells. The joint venture has  acquired 
approximately 3,250 km^2 of 3D seismic data over the block.





Block CY-OS 90/1 (PY-3): Oil Field(Hardy 18 per cent interest - Operator)



Update -  As  previously  announced,  the  PY-3  field  remained  shut-in.  We 
continued working with  partners and  government authorities to  plan for  the 
timely recommencement of  production. We  have held a  number of  constructive 
meetings with partners and the India  upstream oil and gas regulator  ('DGH'). 
As a result we have  agreed to a timeline to  submit a full field  development 
plan.



Outlook - Assuming timely  approvals from partners,  a full field  development 
plan is to be submitted  for the GOI's review and  approval by the end of  the 
first quarter  of  2013. Once  the  revised plan  is  approved, we  intend  to 
initiate a tendering process for the required production facility and drilling
services. Based on  current assumptions,  production could  recommence in  the 
first half of 2014.  The field's existing  well is capable  of producing at  a 
gross daily rate of over 3,000 bbld  and with future planned wells, the  field 
has the potential to reach 8,000 bbld.



Background - The PY-3 field is located off the east coast of India 80 km south
of Pondicherry in water depths between 40  m and 450 m. The Cauvery Basin  was 
developed in the  late Jurassic /  early Cretaceous period  and straddles  the 
present-day east coast of India. The  licence, which covers 81 km^2,  produces 
high quality light crude oil (49° API).





Block GS-OSN-2000/1 (GS-01): Appraisal (Hardy 10 per cent interest)



Update -  Hardy  continued discussion  with  the operator  to  facilitate  the 
preparation of a detailed field development plan for the Dhirubhai 33  natural 
gas discovery. The field development plan is scheduled to be submitted to  GOI 
for review by the end of the year.



Outlook - The GOI's review of the field development plan will likely  continue 
through 2013.



Background -In 2011, the GS-01 joint venture secured the GOI's approval for  a 
DOC proposal for the Dhirubhai 33  discovery (GS01-B1, drilled in 2007)  which 
flow-tested at a rate of 18.6 mmscfd gas with 415 bbld of condensate through a
56/64 inch  choke at  flowing tubing  head pressure  of 1,346  psi. The  GS-01 
licence is located  in the  Gujarat- Saurashtra  offshore basin  off the  west 
coast of India, northwest  of the prolific Bombay  High oil field, with  water 
depths varying between 80 m and 150 m. The retained discovery area covers  600 
km^2





Block CY-OS/2: Appraisal (Hardy 75 per cent interest - Operator)



Update - The dispute resolution process  with the GOI, to secure an  extension 
of the production sharing contract, is  progressing. The final hearing of  the 
tribunal took place in the third quarter of 2012.



Outlook - The award of the tribunal is expected prior to the end of 2012.



Background - Block  CY-OS/2 is  located in the  northern part  of the  Cauvery 
Basin immediately  offshore from  Pondicherry,  India and  covers an  area  of 
approximately 859 km^2. The licence encapsulates the fields of PY-3 and PY-1.



In January 2007, the Company announced  that the Fan A-1 exploration well  had 
discovered hydrocarbons.  The  Company  proceeded  to  the  appraisal  of  the 
non-associated  natural   gas   (NANG)  discovery   to   establish   potential 
commerciality.



In 2009 the  DGH informed the  Company that, in  their opinion, the  discovery 
should be  classified as  an oil  discovery  and that  the allowed  period  to 
declare commerciality had lapsed. Provisions of the CY-OS/2 production sharing
contract (PSC) provides  for a period  of 60 months  to declare  commerciality 
from date of discovery for NANG discoveries  whereas it is 24 months for  oil. 
As a result, the Company initiated  formal dispute resolution as provided  for 
in the PSC.





OUTLOOK



The D3 exploration licence in the  Krishna Godavari Basin remains at the  core 
of our near term growth potential. The Krishna Godavari Basin is a world-class
petroleum province and  together with  rapidly improving  Indian gas  pipeline 
infrastructure and the  high demand for  gas, the prospects  for the  economic 
development of gas resources in this area are excellent.



Through 2013  we  will continue  to  collaborate actively  with  our  partners 
Reliance and  BP  to  optimise  the  exploration  programme  for  this  highly 
prospective block. The declaration of commerciality proposal for the D3  block 
is being reviewed by  the GOI and  this process is  expected to continue  into 
2013. Processing of 3D seismic data covering the eastern area of the D3  block 
is also expected to be completed by  the end of 2012. Assuming the arrival  of 
the drillship Dhirubhai  Deepwater KG2 in  Indian waters by  the end of  2012, 
drilling of the fifth  exploration well is expected  to commence in the  first 
half of 2013.



The resolution of the CY-OS/2 dispute and the securing of timely approvals for
the PY-3  redevelopment  plan are  additionally  instrumental in  shaping  our 
planned operating activity beyond 2013.



The working capital  position of the  Company remains strong  and we are  well 
funded to  meet  our  planned  work  programmes.  We  will  continue  to  seek 
opportunities to build value for shareholders.

GLOSSARY OF TERMS



$            United States Dollar
bbld         stock tank barrel per day
BP           BP plc
D3           Exploration licence KG-DWN-2003/1
D9           Exploration licence KG-DWN-2001/1
DGH          Directorate General of Hydrocarbons
Dhirubhai 33 gas discovery on GS-01-B1 announced on 15 May 2007
Dhirubhai 39 gas discovery on KGV-D3-A1 announced on 13 February 2008
Dhirubhai 41 gas discovery on KGV-D3-B1 announced on 1 April 2008
Dhirubhai 44 gas discovery on KGV-D3-R1 announced on 22 December 2009
Dhirubhai 52 gas discovery on KGV-D3-W1 announced on 31 August 2010
Ganesha      non-associated gas discovery announced on 8 January 2007
GOI          Government of India
GS-01        Exploration licence GS-OSN-2000/1
KG Basin     the Krishna Godavari sedimentary basin located on the east  coast 
             of India
km           kilometre
km^2         square kilometre
m            metre
PSC          production sharing contract
PSDM         pre-stacked depth migration
PY-3         licence CY-OS-90/1
Reliance     Reliance Industries Limited

NOTES TO THE EDITORS

Hardy Oil and Gas plc is an upstream oil and gas company focused on India. Its
portfolio includes a blend of  exploration, appraisal, and production  assets. 
Hardy's goal is to evaluate and exploit its asset base with a view to creating
significant value for its shareholders.



Hardy is the operator of an offshore oil field in India's Cauvery basin. Hardy
also has interests in three offshore exploration blocks in India's Saurashtra,
Cauvery, and Krishna Godavari basins.



Hardy is incorporated under the laws of  the Isle of Man and headquartered  in 
Aberdeen, UK. Ordinary shares of Hardy were admitted to the Official List  and 
the London Stock Exchange's market for listed securities effective 20 February
2008 under the symbol HDY.



The Company's Indian assets are held through the wholly owned subsidiary Hardy
Exploration & Production (India) Inc, located in Chennai, India.



                                    -ends-

                     This information is provided by RNS
           The company news service from the London Stock Exchange

END


IMSFSWFWWFESEEF -0- Nov/08/2012 07:00 GMT