There's more in the pipeline, says Drillsearch

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

The company is transitioning 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 year to June 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 continues 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 potentially similar to the deal done 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 Brad Lingo, Drillsearch's managing director. "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."

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

The company 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.

British Gas aims to build volumes

British Gas is seeking to finalise gas purchase agreements with new suppliers as it works to increase volumes at its Queensland export project as quickly as possible once the plant is finished.

The company is hoping for first gas to flow through its plant late this year as it begins commissioning and starting up the power generation units, with initial gas flows of about 20 million cubic feet needed in the first two or three months.

"We are negotiating a number of third-party supply agreements so that we are as well placed as we can possibly be to fill those trains [plants] to the brim as soon as they start up," managing director Chris Finlayson told analysts last week.

Increasing export volumes as fast as possible was "really the value creator ... rather than the absolute date of a start-up", he said.

Confirmation that the company is seeking additional gas reserves comes amid speculation in the sector that each of the three Queensland export gas projects may be short of the gas to meet their contractual commitments.

Earlier this year British Gas finalised the sale of a half-interest in the export gas project to China National Offshore Oil Co, which included a share in some exploration acreage.

British Gas is looking to free up cash from the project by selling part of its equity in the infrastructure of the project. Recently, Origin Energy announced the potential sale of part of its equity in its own pipeline.

Mr Finlayson told analysts British Gas is hoping to sell equity in its water treatment plant along with its gas supply pipeline on a sale and leaseback basis.