Company Profile – Drillsearch is engaged in exploration, development and production of oil and gas interests. Drillsearch operates in three segments: Oil, Wet Gas and Unconventional. Drillsearch owns a portfolio of Oil and gas assets in Canada, Australia and Papua New Guinea. The company operates in Cooper Eromanga Basin and Gippsland Basin in Australia, PPL244 – Papua Basin in Papua New Guinea and Western Canada Sedimentary Basin in Canada. Drillsearch is headquartered in Sydney. The company's project includes Cooper-Eromanga Basins (Cooper Basin), located in Central Australia and spans the north-eastern region of South Australia and the south-western region of Queensland. It supplies Cooper Basin gas in South Australia, New South Wales, Queensland and Victoria markets via a pipeline network. Drillsearch Energy is also involved in the exploration of wet gas within the Western and Northern Cooper Basin; and unconventional oil and gas resources through its two project areas that include the Central Cooper Basin-Nappamerri Trough Shale and Basin Centred Gas Fairway, and the Western Cooper Basin-Patchawarra Trough Tight Gas Fairway.

Analysis – Guidance for FY2014 increased to 3.0 million - 3.3Million barrels, from previous guidance of 2.3 Million – 2.5 Million barrels. New guidance would represent a record for Drillsearch, around triple the 1.1 Million barrels produced in FY 2013, the previous record. Increase driven by higher than anticipated production from the Bauer field in PEL 91 (60%DLS). Production of 1.76 Million barrels in the first half ended 31^st December. Increase demonstrates continued delivery against Drillsearch’s strategy of growing reserves, production and cash flow. The record performance is driven by the continuing better than anticipated performance of thee PEL 91 permit in the Western Flank Oil Fairway of the Cooper Basin and in particular Bauer Field, as well as by an increased share of production from the Tintaburra block in the Eastern Margin following the transaction announced in mid-2013 with Santos Limited. The significant additional revenue being generated will be used to strengthen the company’s balance sheet, with funds also reinvested in an active exploration and development program across the portfolio, with around 20 wells to be drilled in the second half of FY2014 under the current work schedule.

Drillsearch reported December Quarter 2013 production of 0.91 mmboe and revenue of $111 Million driven by stronger than anticipated Western Flank Oil production, with water ceuts coming through slower than anticipated. We believe this raises the potential for greater recovery factors at Bauer than currently implied by the company’s audited reserves and thus we risks to the reserves at existing fields as placed firmly to the upside. With Drillsearch confirming around 20 Wells are to be drilled, we see positive positive exploration momentum re-emerging given the company’s strong exploration track record to date. Notably, 5 wells are scheduled Western Flank Oil fairway, including two exploration wells. The first well drilled chiton -3 appraisals successfully extended the chiton field to the North.

Some of the key risks associated with the company are development delays, Exploration risks and regulatory risks. Drillsearch is seeking to develop its Cooper Basin resources. Any delays in the development of its resource base could adversely affect revenue generation and therefor impact its ability to realise value from its acreage [position. Drillsearch’s long term growth profile is leveraged to outcomes from upcoming exploration drilling across its western Flank Oil, Wet Gas and unconventional acreage in the Cooper basin. While Drill search’s acreage lies in a proven petroleum basin, exploration risks can never be eliminated. With increasing opposition to unconventional gas production, the potential responses from regulators poses a residual risk in terms of a stricter compliance and monitoring burden and therefor higher costs.


Source - Thomson Reuters

Price		Price % Change
Close:	1.44 (04-Feb-2014)	3M:	5.11%
52 Wk. High:	1.64 (29-Jan-2014)	6M:	8.27%
52 Wk. Low:	0.91 (25-Jun-2013)	1Y:	12.94 %

Australian Oil Company (AOC) an oil and gas company sold 7.5% joint venture interest in PEL 182 in cooper basin, South Australia to Senex energy Limited and DLS for a sale consideration of A$3.75 Million. The PEL 182 exploration permit lies on the Cooper Basin on the Northwest Patchawarra Trough which is a proven oil and gas reserve generative area. The block PEL 182 is located 80 Km north of the Moomba facilities and encompasses an area of 1,750 sq km. PEL 182 contains the Vanessa gas discovery and is considered to have additional gas potential. The acquisition enables
Drillsearch to expand it Oil and gas asset base in Australia. DLS also entered into an agreement to acquire additional 29% stake in Tintaburra Oil block form Santos Limited for a purchase consideration of AUD 36.8Million.

Drillsearch has a substantial program of exploration and appraisal work scheduled for Oil and Wet gas assets, with significant potential for increases in production and reserves. Last year it was the oil business that contributed to much of the gaining reserves, production and cash flow during the uear with the completion of Bauer to Lycium pipeline being a major milestone allowing the company to expand oil production volume. Exploration success in Western Flank Oil Fairway has contributed significantly to the reserves growth.
 

DLS	2013	2012	2011	2010	2009
Total Revenue	102.2	22.4	14.4	6.1	10.0
Gross Profit	70.4	14.2	6.4	3.1	6.3
Total Operating Expense	84.5	18.9	21.5	30.2	20.1
Operating Income	17.8	3.5	(7.0)	(24.1)	(10.1)
Net Income After Taxes	45.1	10.0	(6.6)	(24.0)	(9.9)

 
The ongoing success off Bauer Oil Field appraisal and development program has proven that the oil field was much larger than originally expected, possible extending  as far north as the Bauer North1 oil discovery. This has the potential to increase the reserves significantly sustaining the oil business well into the medium term and positioning Drillsearch as Major Cooper basin Oil Producer.
We believe that the strong production results and the guidance upgrades demonstrates the sustainability of Drillsearch’s production profile and highlights the superior quality if its Western Flank Oil acreage. We will be putting a BUY on DLS at the current price of $1.44.

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