Hardy Oil Declines as India Well Plugged, Operating Costs Rise

By Grant Smith and Tara Patel

Aug. 26 (Bloomberg) -- Hardy Oil & Gas Plc, a U.K.-based explorer in India and Nigeria, fell the most in more than three years in London trading after saying operating costs rose and it plugged and abandoned an exploratory well in India.

Hardy fell as much as 58.5 pence, or 13 percent, to 405 pence before recovering to trade 6 percent down at 435.75 pence at 10:23 a.m. London time.

Hardy drilled exploratory well GS01-S1 to a depth of 3,985 meters (13,074 feet) in its GS-01 block in India, and found no hydrocarbons, the Douglas, Isle of Man-based company said today in a statement distributed by the Regulatory News Service.

``Production costs rose dramatically,'' Nick Copeman, analyst at Oriel Securities Ltd. said by telephone from London, adding that the GS-01 block result `` while not key, isn't great news.''

Hardy, which also reported profit in the first half tripled on higher crude prices, said cash flow from operating activities fell to $2 million from $4.1 million last year. ``Increased revenue was more than offset by higher operating and general and administrative costs,'' the statement said.

Net income increased to $6.18 million in the six months ended June 30, or 9 cents a share, from $1.9 million, or 3 cents a share, in the same period last year.

Drilling Plans

Hardy plans to drill 14 wells by the end of next year and expects its Oza project in Nigeria to begin producing from the second quarter of 2009.

It is also exploring in the Krishna Godavari basin of eastern India, where it has a 10 percent interest in Block KG- DWN-2001/1 (D9). ``The board expects the exploration drilling program for D9 to commence in 2008,'' the statement said.

``We see the current weakness in Hardy's share price as an opportunity to get in ahead of drilling on Block D9,'' Nathan Piper, analyst at RBC Capital Markets, which values Hardy at 620 pence a share, said in an e-mail. The block ``has the potential to double the company's value,'' he wrote.

Hardy said it will continue to focus on further drilling for the appraisal of the Dhirubhai 33 (GS01-B1) discovery. It is additionally drilling on the GS01-M1 prospect, it said.

``The company has made significant progress in moving its exploration and development programs forward,'' Chairman E. Paul Mortimer said in the statement.

Sales rose to $9.9 million in the first half from $7 million last year amid a 61 percent jump in the price of oil futures, the company said. Crude surged to records at the start of 2008 amid supply disruptions in Nigeria.

``This is the tenth year we're continuing to have positive results,'' Chief Executive Officer Sastry Karra said in a telephone interview.

To contact the reporter on this story: Grant Smith in London at gsmith52@bloomberg.net