Drillsearch defies mining sector cool-off

Drillsearch is expected to confirm a significant increase in reserves at the end of August following record production in the year to June 30, after an upswing in exploration and development spending.

Drillsearch is expected to confirm a significant increase in reserves at the end of August following record production in the year to June 30, after an upswing in exploration and development spending.

The company is in transition from explorer to producer from its acreage in the western Cooper Basin in central Australia.

In the June quarter it generated $50.7 million of revenue, lifting financial year revenue to $99 million on record production volumes of oil and gas.

Exploration spending was also running at record levels, it said, reaching $106.8 million for the year, as activity continued at high levels on separate ventures with Santos and British Gas.

The company recently hired a commercial manager as it looks to possibly sell directly to large end-users of gas, which will help to expand margins. This is similar to the deal done recently by Strike Energy with Orica under a 20-year supply contract.

Unusually, Drillsearch has ventures with two of the three key shareholders in Queensland export gas ventures - Santos and British Gas - as both seek to ensure sufficient reserves for their contractual commitments.

"Five years ago, we thought the Cooper Basin was under-explored," said Drillsearch managing director Brad Lingo.

"Now, it is Australia's highest oil-producing basin. In the last quarter it produced more than the Gippsland Basin and this quarter more than the North West Shelf."

Drillsearch has been investing heavily in 3D exploration surveys as it seeks to maximise returns on its drilling program.

Analysts said the completion of the Bauer to Lycium pipeline underpinned the large rise in oil production in the June quarter, which more than doubled to 424,000 barrels.

It has further discoveries awaiting connection, which will help to underpin rises in production this quarter. The pipeline is already operating at capacity, with additional volumes being trucked to Moomba.

"We can't be valued as an exploration business, but at a valuation of our cash flow," chairman Jim McKerlie said.

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