Shares digital

A £5 million share sell off by the two Hardy founders is not all it seems

Tom Sieber

The two founders of explorer Hardy Oil & Gas have between them sold £5 million worth of shares in the company. The decision has raised eyebrows, particularly after recent results which revealed a fall in operating profit for the India-focused group. Primarily this was a result of declining output from its one producing asset in India’s Cauvery basin. For a number of reasons though the actions of CEO Sastry Karra and COO Yogeshwar Sharma, neither of whom were available for comment, are worth keeping in perspective.

Finance director Dinesh Dattani told Shares that the pair took the decision to divest some of their investment now because it was in a relatively quiet period, after results and not in close proximity to any significant announcements. He says: ‘There is only one reason why people buy, there are lots of reasons why people have to sell, this doesn’t mean it is a bad investment.’

The reported fall in profits was not unexpected and should not be a cause for huge concern given that Hardy, which also has assets in Nigeria, is still very much an exploration-focused company. Investor attention is heavily focused on the potentially massive prospects in the deep water D9 block off India’s east coast. Hardy has a 10% interest in the licence and partner and operator Reliance, India’s biggest firm by market cap, has 90%.

And while we are talking about substantial amounts of money, both men retain large holdings in Hardy. Karra sold half a million shares but still has around eight million or 12% of the company and Sharma sold 200,000, to be left with around four million or 6%.

A Hardy history

It is the first time in the firm's 11 year existence, that either of the industry veterans have sold shares. Karra has more than 40 years worth of experience, holding senior management roles at Occidental Petroleum Corporation and Petronas as well as earlier experience with Gulf Canada, Husky and Ashland. He has also held various consulting roles with the Boston Consulting Group and Santa Fe Resources and was a senior lecturer at the University of Ibadan, Nigeria in the 1970s. A key figure in the Indian oil and gas scene, Karra is both founder and chairman of the Association of Oil and Gas Operators of India and the vice chairman of the National Council of the Society of Petroleum Engineers.

Sharma has himself more than 30 years of experience. Having worked with Energy Resources Conservation Board and Pan Canadian in Calgary and Saudi Aramco. He has held senior technical positions at Schlumberger and Elf International, where he helped found the Elf Geoscience Research centre in London in 1991.

The company was originally incorporated by Karra and Sharma in 1997, under the name Jehan Energy, with the aim of developing an oil and gas exploration and production business in India, built on the expertise and relationships of the management team.

The group was able to steadily build material positions offshore India through both partnerships and acquisitions and in January Hardy made the leap from Aim to the main market, where it has since become a FTSE 250 constituent.

Reasons to be cheerful

Nathan Piper, RBC Capital Markets analyst, remains a believer in the group’s potential but admits that the price has, to an extent, run away from reality: ‘While I think Hardy is one of the more exciting exploration stories in the sector the share price has run up in anticipation of this exploration. Our valuation of the company is £5.20 a share which is obviously some way south of the current share price. However, we believe that if the current drilling campaign was successful across the portfolio it could potentially add as much as £12 a share.'

Piper concedes that the company’s fortunes are intrinsically tied up with the D9 block – where securing a rig before the end of the year could be a challenge. But adds: ‘When I first started looking at Hardy, it was all about D9, but the company has a more diverse portfolio now and there is excitement to be had elsewhere. We’re still buyers of the stock but there is more risk in the share price at its current level.’