Highlights Record total sales revenue for the Quarter of $86.7 million Record production for the quarter along with strengthening oil prices (AUD$121/bbl) resulted in a record result for quarterly sales revenue of $86.7 million, up 71% on the June quarter ($50.7 million). Record total production for the Quarter of 0.85 mmboe Volumes from all producing areas increased during the quarter with an increase of 53% over the prior quarter (0.6 mmboe) including a 65% increase from the Bauer Oil Field over the previous quarter to 1.14 mmbbls (0.7 mmbbls net to Drillsearch). It is expected that these strong levels of production will continue. 2P Reserves increase to approximately 30.0 mmboe Following the annual independent Reserves review, Drillsearch s 2P Reserves increased by 157% in FY2013 to 28.5 mmboe, with 2C Contingent Resources increasing by 41% to 14.8 mmboe. Drillsearch s acquisition of an additional 29% interest in Tintaburra announced on 4 July 2013 further increased its 2P Reserves to approximately 30.0 mmboe. Continued drilling success in PEL 91 Bauer-11 development well and Chiton-2 appraisal well were cased and suspended as future oil producers with Chiton-2 confirming the mapped size of the Chiton field. Completed transaction with Santos for Western Cooper Wet Gas Joint Venture Drillsearch and Santos have formalised the Joint Venture to accelerate Western Cooper Wet Gas commercialisation. Successful Flax Field appraisal Flax South-1 appraisal well confirms major extension of Flax wet gas field with 10 metres of net pay and well developed wet gas sands in upper Patchawarra. Cooper Basin shale gas exploration program commences Anakin-1, the first well in the four-well program, spudded on 19 and is targeting shale gas and tight sands of the Nappamerri Trough. Board renewal and expansion Mr Philip Bainbridge and Mr Teik Seng (TS) Cheah were appointed as Non-Executive Directors, while Non-Executive Director Mr BK Choo has elected not to stand for re-election at the 2013 Annual General Meeting. 1
Managing Director s comments Drillsearch has commenced Financial Year (FY) 2014 with a clear demonstration of our ability to deliver on our focused strategy of increasing Reserves, production and cash flow. We have increased total 2P Reserves significantly as well as set new records for quarterly production and sales revenues, consolidating the Company s strong performance of previous quarters and positioning Drillsearch to become a significant Cooper Basin producer and explorer. This strong Reserves and Resources growth is a result of success in exploration, development and appraisal activities across our Cooper Basin acreage. This has included continued success in drilling in the Western Flank Oil Fairway, particularly the Bauer Oil Field; Reserves added from the Western Wet Cooper Gas Project; and Contingent Resources acquired from Acer Energy permits in the Northern Cooper Wet Gas Project. In addition to strong Reserves growth, Drillsearch achieved significant increases in total production and sales revenue over the previous quarter. The Company achieved a new production record during the quarter, a 53% increase on the previous quarter. This, combined with stronger oil prices during the quarter contributed to record quarterly sales revenue of $86.7 million, a 71% increase on the previous quarter. Record oil production from the Bauer Oil Field in PEL 91 was a result of the first phase of the Bauer expansion where total fluid capacity was increased to approximately 33,000 bpd. Early indications are that these strong levels of oil production are continuing into the December 2013 quarter and beyond. In the Oil Business we have had continued drilling success in the Western Flank Oil Fairway with both the Bauer-11 development well and the Chiton-2 appraisal well being cased and suspended as future oil producers during the quarter. A three-well exploration drilling program was completed in PEL 91, testing Birkhead Formation stratigraphic plays interpreted on the Aquilus 3D seismic survey. The seismic model was validated after two wells intersected thick Birkhead Formation sands; however, no hydrocarbon shows were encountered and all three wells were plugged and abandoned. Drilling in the Oil Business will continue early in the March quarter of 2014 with one exploration well and a number of development and appraisal wells planned for the Bauer, Chiton and Pennington Oil Fields in PEL 91. We will also begin a five well development program in the Tintaburra Block on the Eastern Margin Oil Fairway in the December quarter. In the Wet Gas Business we have formalised the Joint Venture with Santos, as announced in July 2013, following the satisfaction of mutual due diligence conditions to the series of binding transactions. With the aim of accelerating Western Cooper Wet Gas commercialisation, Drillsearch has commenced internal planning in anticipation of the Santos-operated development and exploration activities in PEL 106A and PEL 513. We have also had drilling success in the Northern Wet Gas project area, with the Flax South-1 appraisal well in PRL 18 confirming a major extension of the Flax Field. Wireline logs confirmed 10 metres of net pay in well developed wet gas sands distributed throughout the Tirrawarra and Patchawarra Sandstone Formations. The well was cased and suspended with production testing to be undertaken in the near future. In our Unconventional Business, the eagerly-anticipated Cooper Basin shale gas drilling campaign in ATP 940P commenced with the spudding of the Anakin-1 well on 19 September, with surface casing set to a depth of 2,600 metres on 14 October 2013. This kicks off the second stage of our ATP 940P Joint Venture with QGC, following the completion of the Winnie 3D seismic survey. The initial four-well exploration campaign is testing the potential for gas production from unconventional shale and tight gas zones in the Nappamerri Trough. The program continues to be on plan. With the current heightened levels of industry and media discussion around eastern Australian gas supply and demand, our Wet Gas and Unconventional Businesses are increasingly coming into focus. As a pure Cooper Basin producer and explorer, we are well placed to capitalise on the near-future opportunities from the east Australian gas market fundamentals, and we are working to ensure our strategies and plans in these Businesses make the most of the opportunities. Drillsearch announced its FY 2014 production guidance of 2.3 2.5 mmboe; a significant increase on last year s target but a range we believe is achievable given the anticipated ramp-up in annual production from the Western Flank Oil Fairway via the Bauer-to-Lycium Oil Pipeline and a full year of Wet Gas production as a result of new Gas Sales Agreements signed in FY 2013. The Company has previously provided capital cost guidance for 2014 of $90 110 million, with the majority slated for activities in our Oil and Wet Gas Businesses. Drillsearch s work programs through to FY 2016 are fully funded, which is an enviable position for a mid-cap explorer and producer. This is due to all the hard work and effort of previous quarters in securing an optimal mix of funding sources on the Company s balance sheet. The Company finished the quarter with a solid cash balance of $25.2 million. Our AGM will be held in Sydney at 10.00am on Wednesday, 20 November 2013 at the Museum of Sydney, on the corner of Phillip and Bridge Streets, Sydney. I look forward to welcoming shareholders to the meeting and answering your questions about the Company. A light lunch will be available to shareholders after the meeting. Brad Lingo Managing Director 2
Financial Overview Drillsearch achieved record production rates again for the September quarter with total production of 0.85 mmboe, a 53% increase over the June quarter (0.6 mmboe). This in turn led to another record result for quarterly sales revenue of $86.7 million, up 71% on the June quarter ($50.7 million). This will provide a good start to our annual earnings as we retain a strong focus on cost management. Bauer-5 was brought online during the quarter and tested in excess of 8,500 bopd. The Bauer-9, 10, 11 and Chiton-2 wells are expected to be connected and online over the coming months. Wet Gas production also increased 12% over the quarter to 0.15 mmboe, despite three days of lost production due to boiler problems at Moomba and the resultant downtime. Wet Gas sales revenues have remained strong due to the Joint Venture focusing on high liquids production from the Canunda Wet Gas Field which was commissioned in June 2013. Focusing production on gas liquids is highly attractive since the ultimate price received for liquids production is based on an oil-linked pricing mechanism which is tied to international liquids price indices for condensate and LPG. Oil prices continued to strengthen, averaging AUD$121/bbl realised for the quarter, an increase of 12% over the previous quarter (AUD$108/bbl). During the quarter the company entered into a Put and Call Options arrangement ( Collar ) on a limited quantity of its oil production for a 12 month period as a condition of establishing an AUD$50 million working capital facility with the CBA. The collar had no impact on reported sales in the period. Contributing to the production success was record gross oil production from the Bauer Oil Field of 1.14 mmbbls (0.7 mmbbls net to Drillsearch), a 63% increase over the June quarter (0.4 mmbbls). The first expansion of the Bauer facility was completed in early September, with total fluid capacity increasing from approximately 20,000 bpd to approximately 33,000 bpd. Wet Gas from the Canunda Wet Gas Field is approximately four times more liquids rich than wet gas produced from the Middleton and Brownlow Wet Gas fields. In order to maximize liquids recoveries from the Canunda field, sales gas and liquids production volumes from the Middleton and Brownlow fields has been reduced until compression facilities are installed at the Middleton Gas Plant which is proposed to occur later this financial year. The following chart shows the strong growth in our revenue. As can be seen the Company has experienced strong revenue growth as oil and wet gas production increases. Revenues are expected to remain at strong levels for the balance of this financial year. The Company is generating strong cash flows and is in a position to fully fund its exploration and development plans. Revenue and Production History Revenue (A$m) Production (BOE) 100,000 Oil revenue NGL revenue Gas revenue Total Production Oil Production Gas Production 900,000 800,000 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 0 Source: Drillsearch Energy Ltd 3
The financial information in the following table provides detailed production, revenue, operating and capital expenditure. The data presented is unaudited. Description Production (by product type) Units 3 months ended 3 months ended June 2013 Quarter Change % Oil bbl 701,817 423,868 66% Gas Raw MMscf 568 567 0% LPGs Ktonne 2.54 2.22 15% Condensate bbl 28,529 16,865 69% Production (by business unit) Oil bbl 701,817 423,868 66% Wet Gas boe 147,904 132,043 12% Total Production boe 849,721 555,911 53% Sales Revenue (by product type) Oil A$000 80,260 45,792 75% Gas Sales volume A$000 1,474 1,604 (8%) LPGs A$000 2,189 1,822 20% Condensate A$000 2,792 1,474 89% Sales revenue (by business unit) Oil A$000 80,260 45,792 75% Wet Gas A$000 6,455 4,901 32% Total Revenue A$000 86,715 50,692 71% Avg Realised Oil Price A$/bbl 121.16 108.19 12% Avg Realised Condensate Price A$/boe 96.21 92.02 5% Avg Realised Gas A$/boe 18.05 18.13 (0%) Avg Realised LPG Price A$/boe 101.76 97.19 5% Direct operating expense (by business unit) Oil A$000 21,522 18,238 18% Wet Gas A$000 2,555 1,760 45% Total direct operating expense A$000 24,077 19,998 20% Oil & gas asset expenditure (by business unit) Oil A$000 4,839 9,124 (47%) Wet Gas A$000 350 2,725 (87%) Total oil & gas asset expenditure^ A$000 5,189 11,849 (56%) Exploration & evaluation expenditure (by business unit) Oil A$000 3,689 1,756 110% Wet Gas A$000 13,965 21,090 (34%) Unconventional A$000 10,351 300 n/m Corporate A$000 343 4,819 (93%) Total exploration & evaluation expenditure A$000 28,349 27,965 1% Net Asset Acquisitions / (Divestments) Assets Acquired A$ mil 37.2 0.0 100% Assets Divested A$ mil (15.0) 0.0 100% Net Asset Acquisitions / (Divestments) A$ mil 22.2 0.0 100% Financials Cash & Cash Equivalents A$ mil 25.2 36.1 (30%) Utilised Senior Secured Bank Debt A$ mil 10.0 10.0 0% Unutilised Senior Secured Bank Debt A$ mil 40.0 0.0 100% Total Senior Secured Bank Debt A$ mil 50.0 10.0 400% Unsecured Convertible Bond^^ A$ mil 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 4
Exploration and Development Overview Oil Business For personal use only Western Flank Oil Fairway On 15 August 2013 Drillsearch announced a 157% increase to its total 2P Reserves during FY 2013 to 28.5 mmboe. This followed the completion of the Company s annual independent Reserves and Contingent Resources review by RISC and DeGolyer and MacNaughton. Contributing to the increase was the continuing success in exploration, appraisal and development in the Western Flank Oil Fairway, which delivered four new oil discoveries out of five exploration wells in FY 2013. In addition, the ongoing successful appraisal and development of the Bauer Oil Field not only replaced Reserves from all oil production during FY 2013 but delivered additional Reserves. During the quarter the PEL 91 Joint Venture (Drillsearch 60% and Beach as Operator 40%) drilled the Bauer-11 well with the aim of further developing the Bauer Oil Field and to provide additional structural control in the north of the field. The well encountered an 11 metre oil column over the McKinlay/Namur interval and was cased and suspended as a future oil producer. Also in PEL 91, the Chiton-2 well was drilled to appraise the Chiton field structure. The well is located 270 metres northwest of Chiton-1, which produces oil from a Namur Sandstone reservoir. Chiton-2 confirmed the mapped size of the Chiton field with the intersection of a 5.5 metre gross oil column, and was cased and suspended as a future oil producer. Following the development and appraisal drilling, the PEL 91 Joint Venture embarked on a three-well exploration drilling program which was completed during the quarter. The program intersected reservoir within the wells, which confirmed the prediction of sandstone intervals within the Birkhead Formation using the latest 3D seismic analysis techniques. Future work will focus on trap definition and migration pathway analysis. The first well, Guichen-1, was plugged and abandoned after intersecting a thick sequence of sandstone interbedded with siltstone within the target Birkhead Formation. No hydrocarbon shows were detected. The second well, Pondalowie-1, intersected an 18 metre thick, excellent quality sand within the Birkhead Formation. Wireline logging indicated the sand was water-bearing and the well was plugged and abandoned. The final well of the campaign, Neaves-1, intersected several thick Birkhead sands, validating the seismic model. No hydrocarbon shows were encountered during drilling and the well was plugged and abandoned. 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 2014. Pre-scout activities commenced in ATP 924P in preparation for seismic tendering. WESTERN FLANK OIL FAIRWAY, COOPER-EROMANGA BASIN Source: Drillsearch Energy Limited 5
Wet Gas Business Western Cooper Wet Gas Project Area Drillsearch announced on 4 July 2013 that it had entered into a series of binding transactions with Santos Limited whereby Santos acquired a 60% interest and operatorship in both PEL 106A and PEL 513. These transactions were completed during the September quarter. Drillsearch is currently carrying out internal planning in anticipation of the Santos-operated development and exploration activities for PEL 106A and PEL 513. The Western Wet Gas project area made a significant contribution to the increase in total 2P Reserves, as outlined in the annual independent Reserves and Contingent Resources review. This incorporated the increase in Estimated Ultimate Recovery (EUR) of producing wells in the Middleton Gas Project in PEL 106B, and the conversion of Contingent Resources for existing discoveries in PEL 106A to Reserves. The latter was made possible when Drillsearch secured additional development and commercialisation arrangements with Santos Limited, as announced on 4 July 2013. Processing of the Irus 3D seismic survey, which overlaps PELs 91 and 106B was finalised during the quarter with processing of the Munathiri 3D seismic survey in PEL 513 continuing. WESTERN WET GAS PROJECT AREA, COOPER-EROMANGA BASIN Source: Drillsearch Energy Limited 6
Northern Cooper Wet Gas Project Area During the quarter, Flax South-1 was drilled as an appraisal well in the Flax field. Wireline logs confirmed 10 metres of net pay distributed throughout the Tirrawarra and Patchawarra Sandstone Formations confirming a major extension of the Flax wet gas/tight oil field and indicating well developed, liquids rich, wet gas play intervals in the upper Patchawarra. The well was cased and suspended with production testing to be undertaken in the near future. Appraisal and development work continued during the quarter with planning and preparation for a static gradient survey of the Flax Field undertaken along with well integrity checks within the Flax, Juniper and Yarrow Fields. Work has also commenced in identifying and selecting a wet gas export pipeline from the Flax, Juniper and Yarrow production plant to tie into the SACBJV gathering system. The Northern Cooper Wet Gas project area contributed to the 41% increase in the Company s total 2C Contingent Resources to 14.8 mmboe, as outlined in the annual independent Reserves and Contingent Resources review. This included the booking of Contingent Resources in the recently acquired Acer Energy permits PRLs 14, 17 and 18 and the wet gas discoveries in PEL 101. Processing of the Coolabah 3D seismic survey, which covers PEL 101 (Drillsearch 80% and Operator), continued during the quarter. Given the high quality of the results seen so far, Drillsearch has decided to apply advanced processing techniques which are expected to be completed at the end of December 2013. NORTHERN WET GAS PROJECT AREA, COOPER-EROMANGA BASIN Source: Drillsearch Energy Limited 7
Unconventional Business Central Unconventional Fairway During the quarter the Cooper Basin Shale Gas Exploration Program commenced with the spudding of the first well in the program, Anakin-1, on 19. The four-well exploration program comprising Anakin-1, Padme-1, Charal-1, and Amidala-1 will be drilled over the next year and will test the potential for gas production from unconventional shale and tight gas zones in the Nappamerri Trough in the Central Cooper Basin. The drilling locations for the first three exploration wells have been selected based on initial interpretation of the recently acquired 1,052km 2 Winnie 3D seismic survey. The drilling location for the fourth well will be finalised based on the drilling results from the initial wells. The primary targets of the drilling program are the shales of the Permian Roseneath and Murteree Formations and the sandstones of the Permian Patchawarra Formation. The secondary targets are the sandstones of the Permian Daralingie, Toolachee and Epsilon Formations and Tirrawarra Formation. The drilling program will also test the basin-centred gas pay interval reported by Beach Energy to be present in this part of the Nappamerri Trough of the Cooper Basin. Drillsearch will firstly complete three top holes in Anakin-1, Padme-1 and Charal-1 to approximately 2,500 metres and run 9-5/8 casing. The Weatherford 826 rig will then be upgraded with specialist High Pressure, High Temperature (HPHT) equipment to provide for safe and effective drilling through the deeper high temperature reservoir formations. After upgrading equipment the Weatherford 826 rig will be the most fit-for-purpose HPHT drilling unit in Australia. The three top holes will be completed by end 2013 and commencing in January 2014, these top holes and another new well will be drilled to total depth of approximately 4,000 metres. Reservoir intersections are expected in the first well, Anakin-1 during the March quarter 2014. Interpretation of the Winnie 3D seismic survey continues with the aim of optimising future well locations and utilising the 3D seismic data set as a sweet spot predictive tool across the play. The final processing of the 3D seismic data is ongoing with an expected completion date in mid December 2013. CENTRAL UNCONVETIONAL FAIRWAY ATP 940P Source: Drillsearch Energy Limited 8
Corporate Drillsearch and Santos Western Cooper Wet Gas Joint Venture For personal use only The mutual due diligence conditions to the series of binding transactions with Santos Limited as announced on 4 July 2013 were satisfied and each of the transactions were completed in September. The transactions aim to accelerate Western Cooper Wet Gas commercialisation and expand Drillsearch s Cooper Basin oil Reserves and production. Board renewal and expansion Drillsearch s Board has undergone renewal during the quarter with the appointment of Mr Philip Bainbridge, an experienced international oil and gas executive and Mr Teik Seng (TS) Cheah, a Singapore based investment banker as Non-Executive Directors. Current Non-Executive Director Mr BK Choo has elected not to stand for re-election at the 2013 Annual General Meeting (AGM). Drillsearch had undertaken an extensive review of its governance practices, board performance, senior management capabilities and remuneration policies as a result of the Company s considerable growth in the last 12 months, including extensive corporate activity. One outcome of this review was the confirmation of the need to expand the Board and this has now been completed successfully. Annual General Meeting Wednesday, 20 November 2013 Drillsearch Energy will hold its Annual General Meeting of shareholders at 10.00am on Wednesday, 20 November 2013 at the Museum of Sydney, corner of Phillip and Bridge Streets, Sydney. Drillsearch Board and senior management visit ATP 940P in South West Queensland during the 1,052 km2 Winnie 3D seismic acquisition, September 2012. 9
Further information For further information please contact: Brad Lingo Managing Director Ph: +61 2 9249 9600 Email: admin@drillsearch.com.au Or visit the website at www.drillsearch.com.au Media enquiries to: Rebecca Lawson Associate Director, Media Relations, Mercury Consulting, Ph: +61 2 8256 3332 Email: rebecca.lawson@mercuryconsulting.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. Competent Person Statement Any reference to Reserves and Resources in this release follows guidelines set forth by the Society of Petroleum Engineers Petroleum Resource Management System (SPE PRMS). The Reserves estimates used in this report were compiled by Mr David Evans, Chief Technical Officer of Drillsearch Energy Limited, who is a qualified person as defined under ASX Listing Rule 5.11 and has consented to the use of the Reserves figures in the form and context in which they appear in this report. 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 10