Good luck to holders. I dont hold...but looks very promising with results in 3 weeks.
August 27, 2007
Page 1 of 2 | Single page Oil exploration and production stocks got beaten up along with the rest of the resources sector in the subprime credit crisis of two weeks ago.
And like their mining cousins, they spent last week recapturing some, but not all, of the lost ground.
Blame that on the strength in the Aussie dollar taking some of the gloss off oil prices. But with world prices climbing back over $US70 a barrel, the recovery in share prices should continue.
That is particularly so where a stock can match a long-term cash flow to leverage in some high-impact exploration. It is a position that one of the industry's junior stalwarts, the Sydney company Drillsearch Energy, finds itself in.
Drillsearch has 462 million shares on issue after recently pulling in $6.6 million from a share purchase plan. At Friday's closing price of 14c, it was valued at about $64 million.
Underpinning that valuation are production interests in the Australia and Canada. Sales revenue for the year to June 30 was $14.68 million, with the group's stake in the Santos-operated Tintaburra (10 per cent) and the Naccowlah (2 per cent) blocks in south-western Queensland accounting for $9.32 million of the total.
Both blocks have been subject of the so-called Cooper oil project in which Santos and its other partners are drilling small oil pools on a rapid-fire basis to maximise production at a time of historically high oil prices.
The project has been kicking goals but floods in the region mean that the full benefits won't begin to flow until the end of the year.
That's all well and good but the punter's main interest in Drillsearch at the moment is in the drilling of the Marina 1 wildcat well next in the Bonaparte Gulf, offshore from Western Australia.
Drillsearch reckons Marina has the potential to contain more than 200 million barrels of oil equivalent. Its partner in the well, ExxonMobil no less, isn't saying what it believes the potential is but the oil giant obviously is not interested in wasting its time by drilling anything but a significant target.
Marina is in WA-318-P, about 250 kilometres west of Darwin in water depth of 65 metres.
Proposed total depth is 2350 metres so, if it all goes to plan, Drillsearch should know within three weeks of Marina's spud-in date whether it's on to a company-maker or not.
The well will target three potential reservoir units where hydrocarbons have been discovered in adjoining permits, most notably ENI's Blacktip field, 60 kilometres to the east.
ExxonMobil will be paying 85 per cent of the well costs to earn a 65 per cent working interest in the permit, leaving Drillsearch to pick up 15 per cent of the costs while retaining a 35 per cent interest. Needless to say, the response to a big find at Marina would be explosive for Drillsearch.
Beach is starting to look underpriced
Reg Nelson gets to preside over the release of what should be a bumper result for Beach Petroleum on Wednesday. Thanks to a full year from the Delhi acquisition, the market will be looking for something near the $90 million mark ahead of a charge to $200 million in following years.
That's why analyst Stuart Baker at Morgan Stanley slapped a $2-a-share price target on the stock early last month when Beach was looking nice and strong at $1.43 a share. That Beach has drifted back to $1.145 on Friday - it hit 99c on Black Thursday - reflects the lack of rebound for the stock since the subprime sell-off, plus some disappointment that the BMG oil project in Bass Strait needs remedial work to get to original forecast production levels.
Wednesday's profit report could be the catalyst for the rerating that Baker and others think is now due to Beach, now ranked number four in our listed oil and gas stocks behind Woodside, Santos and Oil Search. Now that Beach has arrived as a sizeable and profitable producer for the long term (20 years-plus), Nelson has cranked up its exploration portfolio.
Four high-impact wells are now slotted to be drilled in the next 15 months. The big Fermat 1 gas target offshore from Portland in Victoria (1200 petajoules in the second quarter of 2008) has been locked in for a while. The new additions (1 in New Zealand's Taranaki Basin and two in the Bass Basin) each have the potential to yield net oil reserves to Beach of more than 20 million barrels of oil.
ExxonMobil will be paying 85 per cent of the well costs to earn a 65 per cent working interest in the permit, leaving Drillsearch to pick up 15 per cent of the costs while retaining a 35 per cent interest. Needless to say, the response to a big find at Marina would be explosive for Drillsearch.
