Hyperdynamics Corp (HDYNQ)

[Rule_62]

Dependent on the Ebola situation, I think it's possible (although not probable) that we see a spud date by early Q1. I base that comment on the recent remark in the latest 10-Q stating that it would take 6 months to ramp up to drilling:

We expect the Consortium will resume petroleum operations if the impediments to drilling are removed. The timing or outcome of these events is unknown. We estimate that a period of approximately six months from the resumption of operations will be necessary to enact all procedures and to enter into the necessary contracts prior to drilling. Accordingly, the commencement of drilling before the end of 2015 is extremely unlikely.

Of course, as alluded to in what we know of the African Intelligence article, one possibility to circumnavigate the persistence of Ebola would be to relocate the base of operations to a port outside of Guinea. I'm not entirely convinced, however, that the Gov't of Guinea would be all that supportive of that move. Nor, based on the past track record of African Intelligence, do I put a lot of stock in what they have to say.

The SEC investigation, while it could result in a fine to HDY, should have no consequence on drilling plans. It was the DOJ investigation that was my main cause of concern. Personally I think given the outcome of the DOJ investigation, that the SEC is not likely to result in anything at this point.

As for concession relinquishments, as it stands now, that's spelled out pretty clearly in the PSC. While the following summary can be found in the most recent 10-Q ...

The continued absence of petroleum operations affects the value of the Concession as the second exploration period of the Concession ends in September 2016. The extension of the second exploration period (September 2013-2016) may be further extended for one year beyond September 2016 to allow the completion of a well in process and for up to two years to allow the completion of an appraisal of any discovery made.

An exploration well is required to be commenced by the end of September 2016 and reach a minimum depth of 2,500 meters below seabed to satisfy the September 2013-2016 work requirement. Failure to comply with the drilling and other obligations of the PSC could subject us to risk of loss of the Concession, and continued delays could affect adversely the ability to drill more than one well and the attractiveness of the Concession and our business to prospective industry participants and financing sources.


... the 2006 PSC and 2010 Amendment provide more clarity. The following is from the 2006 PSC:

ARTICLE 3: DURATION OF THE CONTRACT

3.1
This Contract shall consist of an exploration period and, in respect of each Commercial Discovery, an exploitation period.

3.2
The exploration period consists of a First Exploration Period and a Second Exploration Period. The First Exploration Period shall be for two Contract Years and the Second Exploration Period shall be for four Contract years.

3.3
The Contractor shall begin performing the Petroleum exploration operations within two (2) months after the Effective Date.

3.4
The Contractor shall be able to obtain ipso jure, the renewal of the First Exploration Period twice for an additional exploration period of one (1) Contract Year each time. For each renewal, the Contractor shall notify the Minister at least two (2) months prior to the expiry of such exploration period.

3.5
The Contractor is authorized to conduct First Exploration Period operations for the duration of this contract upon notification to the Minister two (2) months before the commencement of such work.

3.6
During the First Exploration Period, the Contractor may perform work obligations towards the fulfillment of the Second Exploration Period.

3.7
In order to enable the Contractor to complete its work, the Minister will grant an extension to the Second Exploration Period, for a period of four (4) years, upon notification made by the contractor at least two (2) months prior to expiry of the Second Exploration Period.

Upon a Petroleum discovery made during the Second Exploration Period and the remaining time is insufficient to allow the Contractor to undertake the appraisal works of such discovery, the Minister will grant an extension of two (2) years upon notification made by the Contractor at least two (2) months prior to expiry of the Second Exploration Period.

3.8
Subject to the provisions of Article 24 below, the Exploration Period shall expire two years after the end of the Second Exploration Period with the exception of the Exploitation Area(s) as defined in Article 7 below except in the event of surrender of the Contract Area as defined in Article 5.1 below in which case this Contract will not expire.

3.9
Following the determination by the Contractor of the commerciality of a discovery, the Exploitation Period with respect to that Commercial Discovery shall commence upon the date of adoption of the development plan in accordance with the provisions of Article 7 below and shall expire twenty-five (25) years following that date.

However, where the Contractor at the expiry of the Exploitation Period considers and provides the Minister with justifications, that the field is able to continue to produce commercially, said Exploitation Period shall be extended twice for ten (10) years each.

3.10
The Contractor shall have the right to drill more wells in the Exploitation Area during the Exploitation Period and where there are more than one Commercial Discovery, each of them shall have a different Exploitation Period.

Link to the full 2006 PSC

Here are the pertinent changes to Article 3 contained in the 2010 amendment:

Article 3: Duration of the Contract

Article 3.2 shall be deleted in its entirety and replaced by the following:

3.2 The exploration period consists of a First Exploration Period and its renewal in a Second exploration Period. The First Exploration Period shall be deemed to last four (4) contract years and shall expire on 21 September 2010.

The Second Exploration Period shall last three (3) years, renewable once for the same duration. It is specified that no renewal or extension shall be granted to the Contractor unless the latter fulfils its work and expenditure obligations for the preceding period.

Article 3.7 shall be deleted in its entirety and replaced by the following:

3.7 In order to enable the Contractor to continue and complete any drilling work already started, the Minister will grant an extension of the Second Exploration Period renewable for a period of maximum One (1) year provided the Contractor has applied for such extension at least two (2) months prior to the expiry of the second exploration Period.

In the case of a Petroleum Discovery during the second exploration Period renewable and if the time left is insufficient to enable the Contractor to carry out the appraisal works of the said discovery, the Minister will grant an extension of the said period for up to two (2) years, provided the Contractor has applied for such extension at least two (2) months prior to expiry of the Second Exploration Period. During such extension, the Contractor shall not undertake any operations other than those directly associated with the appraisal of the said discovery.

Article 3.8 shall be deleted in its entirety.

The final sentence of Article 3.9 shall be modified in order to provide for only one extension of ten (10) years of any Exploitation Period.

The French version of Article 3.10 of the PSC shall be conformed to the English version by inserting, before the last clause, the phrase “when there is more than one Commercial Discovery”.

Link to the 2010 Amendment

I do think a distinct possibility exists, however, for Tullow to negotiate an extension on the September 2016 second exploration period termination date on the grounds of the Ebola crisis. Any announcement to that effect will definitely give Hyper a shot in the arm.