Companies: HDY   

Despite one dry exploratory well, Hardy Oil & Gas sees strong output expansion after lifting interim profits 230 per cent.

The fully-listed company, with assets primarily in India and also in Nigeria, increased pre-tax profits from $2.9million (£1.6 million) to $9.9 million in the six months to June, on revenues 42 per cent ahead at $9.9 million. Hardy’s oil sales fell more than 12 per cent to 126,343 barrels because of a temporary production hitch at one well and a ‘natural decline’ at one field, PY-3, but Hardy’s average selling price rose 60 per cent to $100.97 a barrel.

Chief executive Sastry Karra maintains the company is on track to boost overall daily production from 4,200 barrels at the beginning of this year to ‘between 6,000 and 8,000 barrels a day by the second half of next year’. He insists the abandonment of well GS01-SI in Hardy’s major GS-01 block does not detract from the prospects of GS-01’s other prospects, such as Dhirubhai 33 and other parts of the company’s portfolio.

Karra says drilling starts on 1 October at Hardy’s B2 well and anticipates the first well at its D9 prospect in the fourth quarter of this year. With $40 million cash at the end of June, swollen by selling its shares in Hindustan Oil Exploration Company, and no debt, he says ‘we have enough money to drill 14 wells’.

Hardy’s Nigerian projects are ‘going slower than we had hoped’, reflects Karra, but he hopes for some production from there in the first quarter of 2009. In both India and Nigeria, he says costs have tripled in three years, though he suggests they have now reached a plateau and will start to drop ‘very slowly’.

Karra says Hardy remains on the look-out for projects and other acquisitions. He explains that, faced with the prospect of a ‘volatile’ oil and gas market, the company screens all potential projects using a notional $60-a-barrel oil price, against today’s $114 market price.

Growth Company Investor recommended Hardy shares at 276p in 2006 and again at 680p last March, but suggested partial profit taking in June at 808p. In the event, they hit 846p before halving to their present 418p, down 45.5p today and valuing the company at £263.2 million.

Volatility could persist in the short to medium term.