DRILLSEARCH ENERGY LIMITED 
By DRILLSEARCH ENERGY LIMITED December 2013
DRILLSEARCH ENERGY LIMITED
December 2013
Highlights
Record total production for the Quarter of 0.91 mmboe• PEL 91, and in particular the Bauer field, continues to perform ahead of expectations complemented by a
greater share of production from Tintaburra.
Record total sales revenue for the Quarter of $111.0 million• Record production and ongoing strength in oil prices contribute to another record revenue performance.
Balance sheet strengthened with cash position increasing to $78.3 million• Strong operational performance continues to allow Drillsearch to strengthen its balance sheet, while at
the same time ensuring that exploration and development programs remain fully funded through 2016.
Production guidance upgraded to 3.0-3.3 mmboe, compared with previous guidance of 2.3-2.5 mmboe
• Continued outperformance of PEL 91 drives a significant uplift in production guidance for FY2014.
Unconventional strategy progressing with ATP 940P Cooper Basin shale gas exploration program continuing• Top-holes for the first three wells now completed. Upgrade work on the Weatherford 826 rig nearing
completion, making it the most fit-for-purpose high pressure high temperature drilling unit in Australia.
Benefits beginning to flow-through from transaction with Santosannounced in mid-2013
• Field appraisal and development activities begin in PEL 632 (formerly PEL 106A), starting with
recommissioning of the wet gas gathering pipeline.
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DRILLSEARCH ENERGY LIMITED
December 2013
Managing Director's comments
Our year of outstanding operational and financial performance continued through the final three months of 2013, with a fourth consecutive quarterly record for total production and a sixth straight quarterly record for total sales revenue.
This operational performance, driven by another stellar three months in our Oil Business, continues to provide Drillsearch with a robust foundation, enabling us to continue to strengthen our balance sheet as well as to fund exploration and development programs. We have an enviable track record of delivering against our strategy of increasing Reserves, production and cash flow, and we are striving to maintain that performance for the benefit of our shareholders.
As an indication of the Company's strong performance, Drillsearch's FY2014 year-to-date total production and sales revenue have already exceeded results for the whole of FY2013. This has led us to upgrade our production guidance for FY2014 to 3.0-3.3 mmboe, up from prior guidance of 2.3-2.5 mmboe. The increase has been driven by the continuing better-than-anticipated performance of the PEL 91 permit in the Western Flank Oil Fairway of the Cooper Basin, as well as by an increased share of production from the Tintaburra block which lies in the Eastern Margin Oil Fairway. The significant additional cash flow generated will go towards strengthening our cash position, as well as being reinvested in an active exploration and development program across the Company's portfolio, with around 20 wells to be drilled in the second half of FY2014 under our current schedule.
Since the turn of the year, our Oil Business has begun a five-well drilling campaign in PEL 91, with the Chiton-3 well in the northern
recommissioning of the wet gas gathering pipeline and the workover and testing of the existing wet gas discoveries. Planning and preperations continue for the exploration drilling programs in both PEL 632 and PEL 106 (formerly PEL 106B) permits.
In the Unconventional Business, Drillsearch has continued to make early-stage exploration progress with the completion of top-hole drilling for the first three wells of our shale gas and tight sand exploration campaign in ATP 940P, in partnership with QGC,
a BG company.
The Weatherford 826 drilling rig
is currently undergoing upgrades with specialist high-pressure high- temperature (HPHT) equipment, after which it will be the most
fit-for-purpose HPHT drilling unit in
Australia. Following completion of the
Brad Lingo
Managing Director
area of the Chiton Oil Field most recently cased and suspended as a future oil producer. The PEL 91 drilling program being conducted with our partner Beach Energy Limited comprises two exploration wells, two appraisal wells and one development well. PEL 91, and the Bauer Field in particular, continue to outperform and our exploration focus
in the block is aimed at replacing and adding to Reserves so that that strong production performance and cash flow may be extended well into the future.
In ATP 299P in the Eastern Margin Oil Fairway, a five-well appraisal campaign is currently underway in the Tintaburra block, where Drillsearch now holds a 40% interest. The program aims to increase
oil production, improve overall oil recovery rates from the permit, and convert contingent Oil Resources to Reserves. Initial results have been encouraging with the first two wells being cased and suspended as future oil producers.
In addition to continued exploration success in the Oil Business, the PEL 91 Joint Venture continued work on upgrading and expanding the Bauer Central Production Facility. These works will expand the
processing and handling capabilities for oil fields in PEL 91, increasing capacity to 50,000 barrels per day of fluid production. The upgrade
is on track to be completed in March 2014 with increased processing capacity, allowing continued production levels to be sustained.
The Western Flank continues to offer numerous opportunities. We currently have a seriatim of more than 100 potential drill targets on the Western Flank - many of them covered by 3D seismic. This will form the foundation of sustained, strong production growth from the area, where even only moderate exploration success beyond three years will be sufficient to maintain current production levels.
In the Wet Gas Business, field appraisal and development activities have commenced in PEL 632 (formerly PEL 106A) including the
upgrade Drillsearch will deepen the three top-hole sections through the multiple reservoir formations beginning with Charal-1 in mid- February.
The initial four-well exploration campaign is testing the potential for gas production from unconventional shale and tight sand gas zones in the Nappamerri Trough. Final processing of the Winnie 3D seismic survey data has been completed, with additional ATP 940P drilling locations currently being optimised. Following the initial four-well drilling and stimulating program, the Joint Venture is planning an additional six appraisal and delineation wells which will form the nucleus of an initial unconventional production pilot.
During the December quarter, the Company's cash position increased to $78.3 million, a significant increase on the previous quarter's
cash position of $25.2 million as a result of continued strong sales revenue. This cash balance places the Company in a much stronger position overall, with some of the funds going towards financing our exploration and development activities throughout the year. Our work programs through to FY2016 continue to be fully funded, which is an enviable position for a mid-cap explorer and producer.
In summary, we have continued the strong momentum built up in calendar year 2013 into the New Year with clear objectives set for each of our core areas of focus. In the Oil Business, we are continuing our aggressive exploration campaign across the broader portfolio
in order to replace and add to Reserves and to sustain our cash flow into the future. In Wet Gas, we have a number of discoveries already identified and our challenge now is to commercialise those and make the Wet Gas Business a key source of revenue. Lastly, our Unconventional Business has a number of key milestones ahead that will continue to build our position in the emerging shale gas sector
in the Cooper Basin that has captured the attention of the energy industry worldwide.
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DRILLSEARCH ENERGY LIMITED
December 2013
Financial Overview
Our operations continued to perform strongly in the December quarter FY2014, with quarterly production increasing by 8% over the previous quarter (0.85 mmboe) to 0.91 mmboe.
This increase was driven by continued success in the Western Flank Oil Fairway where oil production rose by 5% to 0.72 mmbbls net to Drillsearch over the previous quarter (0.70 mmbbls). Drillsearch anticipates that production from PEL 91 will continue to be strong with the connection of the Bauer-9, -10, -11 and Chiton-2 discoveries in the March quarter of FY2014. Currently ten wells - Bauer-1 to 8, Chiton-1 and Hanson-1 - are online.
Wet Gas production from the Western Cooper Wet Gas project area remained consistent, with only a small decline that can be attributed to natural field decline combined with lost production due to boiler problems and resultant downtime at Moomba.
The high average oil prices of A$121/bbl seen during the September quarter increased further in the December quarter, with a 7% increase
in the realised average oil prices to A$129/bbl. This increase in oil price was the main contributor to the 28% increase in total sales revenue to
$111.0 million for the period. The record sales revenue has contributed to an improvement in Drillsearch's balance sheet during the quarter, with the Company's cash position rising to $78.3 million at 31 December 2013, up from $25.2 million at the end of September. During the quarter Drillsearch repaid $10.0 million drawn from the CBA facility. The full balance of the $50.0 million facility remains available to the Company.
During the quarter the Company extended its Put and Call Options arrangement ("Collar") on a limited quantity of its oil production, covering a rolling 12-month period, as a condition of the $50.0 million working capital facility with the CBA. The collar had no impact on reported Sales in the period.
The following chart shows the continued robust growth the Company's revenue and production.
Revenue (A$m)
Production (BOE)
120,000
Oil revenue NGL revenue Gas revenue
Total Production Oil Production Gas Production
1,000,000
900,000
100,000
800,000
80,000
700,000
600,000
60,000
500,000
400,000
40,000
300,000
20,000
200,000
100,000
0
September 2012
December 2012
March 2013
June 2013
September 2013
0
December 2014
Source: Drillsearch Energy Ltd
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DRILLSEARCH ENERGY LIMITED
December 2013
The financial information in the following table provides detailed production, revenue, operating and capital expenditure. The data presented is unaudited.
Description Units
Production (by product type)
6 Months Ended
December 2013
3 Months Ended
December 2013
3 Months Ended
September 2013
Quarter
Change %
Oil bbl 1,481,286 779,469 701,817 11% Gas "Raw" MMscf 1,291 723 568 27% LPGs Ktonne 5.14 2.60 2.54 2% Condensate bbl 52,250 23,721 28,529 (17%)
Production (by business unit)
Oil bbl 1,481,286 779,469 701,817 11% Wet Gas boe 282,623 134,719 147,904 (9%) Total Production boe 1,763,909 914,188 849,721 8%
Sales Revenue (by product type)
Oil A$000 186,024 105,764 80,260 32% Gas "Sales volume" A$000 2,593 1,119 1,474 (24%) LPGs A$000 3,887 1,698 2,189 (22%) Condensate A$000 5,196 2,404 2,792 (14%)
Sales revenue (by business unit)
Oil A$000 186,024 105,764 80,260 32% Wet Gas A$000 11,676 5,221 6,455 (19%) Total Revenue A$000 197,701 110,986 86,715 28%
Avg Realised Oil Price A$/bbl 125.58 129.16 121.16 7% Avg Realised Condensate Price A$/boe 104.68 101.17 107.54 (6%) Avg Realised Gas A$/boe 12.88 11.09 14.67 (24%) Avg Realised LPG Price A$/boe 89.45 85.14 93.12 (9%)
Direct operating expense (by business unit)
Oil A$000 51,294 29,772 21,522 38% Wet Gas A$000 4,211 1,656 2,555 (35%) Total direct operating expense A$000 55,505 31,428 24,077 31%
Oil & gas asset expenditure (by business unit)
Oil A$000 5,152 313 4,839 (94%) Wet Gas A$000 395 45 350 (87%) Total oil & gas asset expenditure^ A$000 5,547 358 5,189 (93%)
Exploration & evaluation expenditure (by business unit)
Oil A$000 3,837 148 3,689 (96%) Wet Gas A$000 18,477 4,512 13,965 (68%) Unconventional A$000 4,557 2,731 1,825 50% Corporate A$000 654 311 343 (9%) Total exploration & evaluation expenditure A$000 27,525 7,702 19,822 (61%)
Net Asset Acquisitions / (Divestments)
Assets Acquired A$ mil 38.7 1.5 37.2 n/m Assets Divested A$ mil (15.0) 0.0 (15.0) n/m Net Asset Acquisitions / (Divestments) A$ mil 23.7 1.5 22.2 n/m
Financials
Cash & Cash Equivalents A$ mil 78.3 78.3 25.2 211% Utilised Senior Secured Bank Debt A$ mil 0.0 0.0 10.0 (100%) Unutilised Senior Secured Bank Debt A$ mil 50.0 50.0 40.0 100% Total Senior Secured Bank Debt A$ mil 50.0 50.0 50.0 0% Unsecured Convertible Bond^^ A$ mil 130.4 130.4 130.4 0%
^Does not include acquisition of increased holding in ATP 299P ($37.2m including transaction costs)
^^Fair value adjustment completed as at 30 June 2013
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DRILLSEARCH ENERGY LIMITED
December 2013
Exploration and Development Overview
Oil BusinessWestern Flank Oil Fairway
During the quarter, work continued on the upgrade and expansion of the Bauer Central Production Facility in PEL 91 (Drillsearch 60% and Beach as Operator with 40%). These works have been aimed at
expanding the Bauer processing and handling capacity to 50,000 bbls per day of total fluid production and are expected to be completed by the end of March 2014.
The Company's focus on 3D seismic continued with the processing of both the Irus and Caseolus 3D seismic surveys completed and
the final volume delivered and now undergoing interpretation. Site preparation continued during the quarter in readiness for the five-well drilling program in PEL 91 announced subsequent to the end of the December quarter. This latest campaign builds on the recent success
of the Bauer-11 and Chiton-2 wells and is in line with Drillsearch's strategy of pursuing strong growth in Reserves, production and cash flow. The campaign includes two appraisal wells, one development well and two exploration wells.
The first well to be drilled, Chiton-3, is located 600 metres north of Chiton-2 and was drilled to appraise the northern extent of the Chiton Oil Field. The well encountered 3.5 metres of oil within the Namur Sandstone and a further 3 metres within the McKinlay Member,
and therefore it was cased and suspended as a future producer. The success of this appraisal well is expected to enhance the field's Reserves and allow for infill development drilling.
Drillsearch expanded its interests in the Western Flank Oil Fairway during the December quarter by acquiring an additional 3% working interest in PEL 182 from Australian Oil Company Limited. Drillsearch's ownership of PEL 182 now stands at 43% with Senex Energy Limited owning the remaining 57% as Operator.
inland Cook Oil Fairway
During the quarter, geological and geophysical studies continued on the Inland Cook Oil Fairway, in addition to regional seismic reprocessing which is expected to be completed early in the March quarter. In ATP 924P, Drillsearch has conducted a tender process for the proposed 3D seismic survey program. The tender has been awarded
to the Terrex Group with the program expected to start early in the
June quarter of 2014. It is intended that this 3D seismic survey will
de-risk and high-grade the multiple prospects Drillsearch had already identified on vintage 2D seismic within the Hurron prospect region.
eastern margin Oil Fairway
Following the acquisition of an additional 29% interest in the Tintaburra block by Drillsearch in mid-2013, the ATP 299P Joint Venture (Drillsearch 40% and Santos 60% and Operator) embarked on an expanded work program aimed at increasing oil production and improving overall oil recovery rates with a view to converting a significant portion of the contingent Oil Resources to Reserves.
The five-well Ipundu Oil Appraisal Campaign, which began in late December 2013, is gathering data to optimise the Field Development Plan for the Ipundu and Ipundu North fields. Initial results from the campaign have been positive, with the Ipundu-17 and 18 wells cased and suspended as future producers.
WeSTeRN FlANk Oil FAiRWAy, COOPeR-eROmANgA BASiN
Source: Drillsearch Energy Limited
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DRILLSEARCH ENERGY LIMITED
December 2013
Wet Gas BusinessWestern Cooper Wet gas Project Area
As part of the newly created Wet Gas Joint Venture with Santos, Drillsearch has established a formal split of the
PEL 106A and 106B permit areas into two licences issued by the South Australian Government. PEL 106A has become
PEL 632 and PEL 106B remains as PEL 106. Within the newly renamed PEL 632 Joint
Venture area, Santos, as the new Operator
of the permit, has already commenced field appraisal and development activities. A multiple work-over program of existing discovery wells commenced in December
2013 with Smegsy, now completed, and in- well bore work currently being conducted at Cadenza. Future projects are currently being assessed as part of a wider in- wellbore program over the next year.
WeSTeRN WeT gAS PROjeCT AReA
Source: Drillsearch Energy Limited
Northern Cooper Wet gas Project Area
During the December quarter, Drillsearch received the YFJ (Yarrow, Flax and Juniper) preliminary Field Development Plan from RISC. The preliminary plan outlined a number of development options open to Drillsearch, all of which will be reviewed while the Company considers the best economic case.
Drillsearch has made substantial progress in maturing a significant number of prospects on the recently acquired and processed
high resolution Coolibah 3D seismic survey. Work has begun in readiness for an appraisal well in PRL 17 at the Juniper Field, which is planned for the September quarter.
NORTheRN WeT gAS PROjeCT AReA, COOPeR-eROmANgA BASiN
Source: Drillsearch Energy Limited
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DRILLSEARCH ENERGY LIMITED
December 2013
UnconventionalBusiness
Central Unconventional Fairway
During the December quarter, the Weatherford drilling rig 826 cased and suspended the top-hole section of the first three wells: Anakin-1 to 2,530m, Padme-1 to 2,402m and Charal-1 to
2,451m. Currently the rig is being upgraded with specialist high-pressure, high-temperature (HPHT) equipment, after which the Weatherford 826 rig will be the most fit-for-purpose HPHT drilling unit in Australia.
Once the upgrade is finished the three top-hole sections will be deepened through the reservoir formations beginning with Charal-1 in mid- February. This work will be followed by the stimulation and testing of the wells which will again start with the Charal-1 well around mid-year.
Corporate
CeNTRAl UNCONveNTiONAl FAiRWAy - ATP 940P
Source: Drillsearch Energy Limited
key management movements
As part of Drillsearch's ongoing growth and development, the Company continually looks to strengthen and refresh its management team. As part of that process, Dudley White joined Drillsearch in January as General Manager, Corporate Communications. Dudley brings to the role more than 17 years' experience in communications and media in Australia and overseas. Dudley has developed and implemented communication plans for numerous resources companies, including providing senior media and investor relations counsel on M&A and equity capital markets transactions, as well as ongoing corporate calendar activity.
In addition, Chief Operating Officer John Whaley has left Drillsearch to pursue other opportunities. The Board and Management of Drillsearch would like to thank John for his contribution to the growth of the Company over the past four and a half years, which was a transformational period for Drillsearch. The Company is actively seeking a successor to John, with long term employee and Chief Technical Officer David Evans currently overseeing his responsibilities in an acting capacity and Duncan Lockhart assuming David's role as Acting Chief Technical Officer.
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DRILLSEARCH ENERGY LIMITED
December 2013
Change of Share Registry
Drillsearch transferred responsibility for the maintenance of the Drillsearch Share Register to Link Market Services Limited (Link), effective start of business Monday, 16 December 2013. The new share registry contact details are provided below:
link market Services limited
Street Address: Postal Address: Level 12 Locked Bag A14
680 George Street SYDNEY SOUTH NSW 1235
SYDNEY NSW 2000
International Telephone: +61 2 8280 7111
Facsimile: 02 9287 0303
Further information
For further information please contact: Brad Lingo
Managing Director
Ph: +61 2 9249 9600
Email: admin@drillsearch.com.au
Investor and Media enquiries to: Dudley White
General Manager - Corporate Communications
Ph: +61 2 9249 9969
E: dudley.white@drillsearch.com.au
Or visit the website at www.drillsearch.com.au
If you would like to register for email alerts, please register on the
Home page of our website
About Drillsearch Energy Limited (ASX: DLS), which listed on ASX in 1987, explores and develops conventional and unconventional oil and gas projects. Drillsearch has a strategic spread of petroleum exploration and production acreage in Australia's most prolific onshore oil and gas province, the Cooper-Eromanga Basins in South Australia and Queensland. The Company's focus is on 'brownfields' exploration where geological risk is reduced and there is access to existing infrastructure, ensuring that any discoveries can be brought into production.
level 16 , 55 Clarence Street
Sydney NSW 2000
Australia
P: +61 (02) 9249 9600
F: +61 (02) 9249 9630
e: admin@drillsearch.com.au
www.drillsearch.com.au
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