Companies: HDY   

Discoveries in the Krishna Godavari Basin, and elsewhere offshore India, encourage Hardy Oil and Gas, despite a 2007 operating loss.

Only a £5.1 million gain on selling shares in Hindustan Oil Exploration and (reduced) investment income of £700,000, enabled AIM-quoted Hardy to turn a £407,000 operating deficit last year into pre-tax profits of £5.3 million. As expected, revenues dropped nearly 43 per cent to £6 million, with production falling at the London-headquartered company’s producing asset, Block PY3 in the Cauvery Basin south of Pondicherry.

Gross operated production fell nearly 30 per cent to 4,150 barrels a day. But more significant for the future were last year’s discoveries at the CY-OS2 block (Ganesha) in the Cauvery Basin and the GS-01 block in the Gujurat-Saurahtra Basin, off the west coast of India.

Hardy is farming down its present 75 per cent interest in CY-0S2, where testing of the intermediate zone produced an initial gas flow of ten million cubic feet a day, and says it expects to have halved its holding within a month. The company has ten per cent of GS-01, where its frequent partner, India’s giant Reliance combine, has 90 per cent, and, of two intervals tested, one produced 18.6 million cubic feet of gas a day.

Chief executive Sastry Karra claims ‘the jewel in the crown’ will be Block D9 in the Krishna Godavari Basin to the north of Cauvery, which is next to blocks where other groups have made ‘important’ oil and gas discoveries. Reliance has 90 per cent of D9, too, as it does of Block D3, where Hardy’s pre-drill resource estimates are many times those of independent consultant Gaffney Clein.

Investors are concerned at recent moves by the Indian government to end exploration companies’ seven-year tax holiday. Karra insists the proposals relate to future discoveries and will not be applied retrospectively to existing ones.

Hardy, which also has interesting prospects in Nigeria, raised £20 million in a share placing last June and ended 2007 with £15.6 million cash. Its shares, recommended by Growth Company Investor at 219.75p in September 2005 and again at 680p last month, hit 846p on Tuesday, but have now slipped to 795p, valuing the company at £495 million.

Partial profit taking might be tempting, but they should still outperform many in the sector.

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Hardy Oil & Gas	LSE	£119.14m	191.25p	-4.25p
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