Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.
Hartshead Resources NL - Case Study
Written: 9 July 2023
Hartshead Resources (ASX:HHR) has had a rollercoaster three years on the ASX. This company was formerly Ansila Energy (ASX:ANA) which was focused on their ultimately unsuccessful Gora concession in Poland. The project had large gas prospects, yet less than expected reservoir quality which complicated the risk profile of the development.
In July 2019, the company announced a minority investment in a UK focused oil and gas explorer (then called Hartshead Resources Ltd) which had applied for 7 contiguous blocks in the UK North Sea. The transaction was for $184k pounds for a 21.6% equity interest.
Following the successful (provisional) award of the UK blocks to Hartshead in Sept 2020, Ansila commenced a pivot to capitalise on this by acquiring the remainder of Hartshead that it did not already own. The acquisition cost was 1b Ansila shares at a deemed price of $0.025 each, totalling $25m.
By May 2021, the company completed a rebrand from Ansila to Hartshead and became solely focused on developing their North Sea assets.
The company has had good success since the pivot and directors have broadly delivered meaningful progress for the business. Let's examine their threats below.
Threat 1: Transparent Strategy
The company has transparently outlined a clear strategy for how they intent to grow into a gas developer by commercialising their UK North Sea projects in three seperate stages. On May 2021, the company also released their Stage 2 and 3 development plans. This slide shows how the company intends to first progress Stage 1 (Anning and Somerville) to production, whilst working on delivering Stage 2 (Lovelace and Hodgkin) to production shortly thereafter. Stage 3 is an exploration play (so slightly different risk profile) but nevertheless part of the longer term strategy.
From our perspective as investors, we know what to expect right from the outset and that if we wanted a pure exploration company, we should look elsewhere. For investors who are after a slightly derisked gas development company (de-risked as we know that there was moveable gas from past production), Hartshead may be a fit for the portfolio.
From our perspective as investors, we know what to expect right from the outset and that if we wanted a pure exploration company, we should look elsewhere. For investors who are after a slightly derisked gas development company (de-risked as we know that there was moveable gas from past production), Hartshead may be a fit for the portfolio.
About transparency
Threat 2: Setting Goals
Hartshead has done a great job at setting goals and satisfying them all in a timely manner. This a challenging task in itself given the difficulty of building an early stage resource/energy company due to the multitude of unknowns around technical and stakeholder events.
The company first released a presentation outlining the key goals management expects to achieve as they progress the project to development. This presentation was released on 4 May 2021 around the time of their rebrand from Ansila to Hartshead.
The company first released a presentation outlining the key goals management expects to achieve as they progress the project to development. This presentation was released on 4 May 2021 around the time of their rebrand from Ansila to Hartshead.
From this we can see that the key events are:
- Field development concept
- Gas transport and processing
- Competent persons report
- FEED and environmental
- Final investment decision
As of the time of writing (July 2023), it looks like the Hartshead team has honoured each of these key milestones on time.
Goal
Expected Completion
Actual Completion
On time?
Link to announcement
Field Development Concept
Outcome: Southern Basin (Anning and Somerville) planned
Outcome: Southern Basin (Anning and Somerville) planned
By Mid 2022
30 May 2023
Yes
Gas transport and processing
Outcome; Agreement reached with Shell
Outcome; Agreement reached with Shell
By Mid 2022
22 August 2022
Yes
Competent persons report
Outcome: ERC Equipoise completed the Independent Competent Persons report
Outcome: ERC Equipoise completed the Independent Competent Persons report
By Mid 2022
23 June 2022
Yes
FEED/environmental
By H2 2023
TBC
90% complete s of 23 May 2023
-
Given the recent update with FEED, this is likely imminent and satisfies the timeline quoted. Furthermore, the company recently executed a $196.3m farmout deal with Rockrose Energy for 60% of the Southern Gas basin licenses - fully funding the company for the equity (non-debt) component of the development. This achievement, alongside the $20m equity placement announced concurrently de-risks the financing component of the FID significantly. The company stated in their 21 June 2023 development plan submission announcement that debt funding discussions are progressing and expected to conclude with FID in Q3 2023 - in line with their original timeline.
This on-time delivery of all these key goals are truely impressive as each of them are no small feat. This is despite the aggressive development timeline that was proposed, further meaning that the team had be be highly efficient with each of the key deliverables. For the remaining milestones in Stage 1, there is reasonable trust that they can deliver like they have been doing.
About setting goals
This on-time delivery of all these key goals are truely impressive as each of them are no small feat. This is despite the aggressive development timeline that was proposed, further meaning that the team had be be highly efficient with each of the key deliverables. For the remaining milestones in Stage 1, there is reasonable trust that they can deliver like they have been doing.
Threat 3: On-market buying
Throughout this stage 1 development process, the directors of Hartshead has been very supportive on-market which is a great move of confidence. Over the last 18 months, the company's director purchases are as below:
Nathan Lude - total $491,487 of additional purchases
Nathan Lude - total $491,487 of additional purchases
- 9 Feb 2022: on-market purchase of 500,000 shares at $0.021 each. Link
- 11 Feb 2022: on-market purchase of 700,000 shares at $0.021839 each. Link
- 25 Aug 2022: placement participation of 4,545,455 shares at $0.0275 each. Link
- 14 Apr 2023: on-market purchase of 1,000,000 shares at $0.0375 each. Link
- 17 Apr 2023: on-market purchase of 1,000,000 shares at $0.038 each. Link
- 5 April 2023: placement participation of 6,250,000 shares at $0.04 each. Link
- 19 Apr 2023: on-market purchase of 400,000 shares at $0.038 each. Link
Bevan Tarratt - total $563,875 of additional purchases
- 9 Feb 2022: on-market purchase of 500,000 shares at $0.021 each. Link
- 11 Feb 2022: on-market purchase of 500,000 shares at $0.021 each. Link
- 25 Aug 2022: placement participation of 4,545,455 shares at $0.0275 each. Link
- 5 April 2023: placement participation of 6,250,000 shares at $0.04 each. Link
- 31 May 2023: on-market purchase of 2,000,000 shares at $0.023 each. Link
- 2 June 2023: on-market purchase of 500,000 shares at $0.027 each. Link
- 5-6 June 2023: on-market purchase of 1,000,000 shares at $0.027 each. Link
- 30 June 2023: on-market purchase of 3,500,000 shares at $0.02325 each. Link
Christopher Lewis - total $375,000 of additional purchases
- 25 Aug 2022: placement participation of 4,545,455 shares at $0.0275 each. Link
- 5 April 2023: placement participation of 6,250,000 shares at $0.04 each. Link
Andrew Matharu (since resigned)- total $125,000 of additional purchases
- 25 Aug 2022: placement participation of 4,545,455 shares at $0.0275 each. Link
This is a great vote of confidence in the business and the transitions happened alongside the fulfilment of the company stage 1 development goals. This behaviour is additionally interesting as each of the directors received a substantial amount of 'free' shares following the vend in of Hartshead Resources into Ansila. This would've given each of them a sizeable share holding in the public company for no cash consideration. Yet, in choosing to commit additional cash on-market, I can't help but wonder what the directors know that have prompted them to take on additional risk despite their pre-existing 'free carried' share holding. Indicators from the announcement does suggest that the stage 1 development will deliver substantial free cash flows, which is the likely reason for the additional on-market investments.
About on-market buying
Area of Concern - Insider Conflicts during Harthead Vend-in
During the vend in of Hartshead into Ansila, one of the acquisition conditions was a independent experts report concluding the transaction was fair and reasonable.
Yet interestingly, the acquisition still proceeded despite the BDO independent experts report concluding that the transaction was not fair but reasonable.
This report outcome states that the transaction was not fair because the additional shares of Hartshead acquired was not worth the price paid - indicating heavier dilution to existing shareholders. Yet, the pro-forma company was more valuable, hence the fairness opinion.
Area of Concern - Inequal Capital Raise Access
Since the announcement to fully acquire Harthead into Ansila, the company has disproportionately excluded existing shareholders from their capital raising transactions. During this period, the capital raising deals are listed below:
My concluding thoughts
To wrap up here, we can see that Hartshead Resources is a rare triple threat of a company. Management have proven themselves to execute on goals extremely well and delivered what they promised to shareholders. This has further been backed up by generous on-market purchases.
Yet, this good work must also be seen in the shadow of a expensive initial vend in transaction that disproportionately benefitted the directors/Hartshead shareholders. However, as it is probably clear, the achievements to date has definitely positioned HHR in a strong position to become a North Sea gas producer at reasonable dilution.
To wrap up here, we can see that Hartshead Resources is a rare triple threat of a company. Management have proven themselves to execute on goals extremely well and delivered what they promised to shareholders. This has further been backed up by generous on-market purchases.
Yet, this good work must also be seen in the shadow of a expensive initial vend in transaction that disproportionately benefitted the directors/Hartshead shareholders. However, as it is probably clear, the achievements to date has definitely positioned HHR in a strong position to become a North Sea gas producer at reasonable dilution.
Register for the next Triple Threat update
Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.