Drillsearch Energy Limited (ASX: DLS), the developer of conventional and unconventional oil and gas, has seen a big expansion in production with annual revenue rising from $16 million to $102 million over the past two years. Operating in the Cooper-Eromanga Basin region in SA and QLD, in the December quarter it raised its guidance on production to about 3 million – 3.3 million barrels of oil equivalent (boe) for FY2014, which is about three times the level for FY2013.
Its development of unconventional oil and gas resources has been moving along well also, having commercial partnerships with Santos Limited (ASX: STO) and BG Group (LSE: BG). It has established access to infrastructure, making its oil and gas accessible to the LNG export industry that is due to kick off in 2015, when the first natural gas processing plants are operational.
In the recent half-year report, it confirmed that it beat FY2013 production in the first four months of the half-year ending December, and the previous full-year guidance is still in place. Half-year revenue soared to $200 million, up from about $25 million.
Third largest onshore producer
The company is now the third largest onshore Australian producer based on average daily production after Beach Energy Limited (ASX: BPT) and Santos. It is also benefiting from the higher oil and gas prices, fueling the earnings rise to $35 million NPAT achieved in the half year.
Beach Energy also operates in the same regions, as well as having producing assets in the US and Egypt. Connected with the SACB joint venture with Santos and Origin Energy Limited (ASX: ORG), it has an exploration program to open up new resources in the oil and gas rich region.
Expanding production levels
It has had its own success in realising higher than expected production levels in the under-explored Western Flank area of the Cooper Basin and raised its production guidance in January from about 8.7- 9.3 million boe to 9.2- 9.6 million boe, largely due to this Western Flank development.
The half-year report that came out last Monday showed a 25% gain on production of total oil and gas to 4.95 million boe, appearing to be well on its way to meeting its earlier guidance.
Foolish takeaway
As the mining industry is working out how to cut costs to adjust to the new realities of international supply and demand, the energy sector is taking up the slack for investors. Talk of higher oil and gas prices as well as restricted supplies points to stronger revenues for companies like these two. Over the next two years we should see great movements in the oil and gas industry once the LNG exportation begins out of QLD.
