Hyperdynamics Makes Big Bet on African Oil

In West Africa, perhaps the most underexplored oil and gas region remaining in the world today, a tiny Texas exploration and production firm is poised to become a big player.

Hyperdynamics(HDY Quote), a Sugar Land, Texas, firm with an $80 million market cap, is preparing a drilling program for a 31,000 square-mile offshore mineral leasehold it controls through an agreement signed last year with the Republic of Guinea.

The area -- the size of South Carolina -- is larger than that of any other company in the region, including integrated giants such as Total(TOT Quote), Devon(DVN Quote) and Petrobras(PZE Quote), according to IHS, an energy-information-gathering firm.

A large oil or gas discovery there could quickly propel Hyperdynamics from being a small unknown firm into the oil and gas big leagues. A litany of challenges, including a long history of political unrest in Guinea that has largely kept foreign investors and the big players away, makes the transition a difficult one. Still, the company is optimistic.

"So far we have found some extremely good-looking sections," says Bob Bearnth, a geophysicist who helped originate the Guinea project for Hyperdynamics. "The acreage in offshore Guinea clearly has the potential for world-class oil and gas reserves."

A Series of Agreements

In 2002, Hyperdynamics approached Guinea, located on Africa's northwest bend, with a proposition: The company would assume a dormant agreement between Guinea and another company to look for oil and gas off the country's coast. Hyperdynamics would invest the time and energy into finding and mapping possible hydrocarbon deposits, and in exchange Guinea agreed to grant the company the right to drill any wells if they were found.