Exxonmobil Backs Drillsearch For Explosive Results At Marina

The Age

Monday August 27, 2007

Barry Fitzgerald

Drillsearch Energy

OIL exploration and production stocks got beaten up along with the rest of the resources sector in the subprime credit crisis sell-off 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 of the Aussie dollar taking some of the gloss off oil prices. But with world prices climbing back to more than $US70 a barrel, the recovery in share prices is set to continue.

That is particularly so where a stock can match a long-term cash flow to leverage some high-impact exploration. Sydney-based Drillsearch Energy finds itself in this position.

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 14?, it was valued at about $64 million.

Underpinning the valuation are production interests in Australia and Canada. Sales revenue for the year to June 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-west Queensland accounting for $9.32 million of the total.

Both blocks are part 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 high-impact Marina 1 wildcat well in the Bonaparte Gulf, off the West Australian coast.

Drillsearch reckons Marina could 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 is obviously 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 a 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 15 per cent of the costs while retaining a 35 per cent interest. The response to a big find at Marina would be explosive for Drillsearch, but it's a high-risk game.

Beach Petroleum

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 around 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 in early July when Beach was looking nice and strong at $1.43 a share. That Beach has drifted back to $1.145 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 re-rating that Baker and others think is now due to Beach, now ranked No. 4 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 high-impact exploration portfolio.

Four high-impact wells are slotted to be drilled in the next 15 months. The big Fermat 1 gas target off Portland in Victoria (1200 petajoules in the second quarter of 2008) has been locked in for a while. The new additions (one 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.

Ampella Mining

RECENTLY floated Burkina Faso gold/zinc explorer Ampella Mining has survived its baptism of fire to be trading just shy of its 20? float price at 19.5? a share.

Perth-based Ampella debuted on August 10 when equity and metals markets were in freefall .

It now has a market capitalisation of about $12.5 million and is planning to capture some of Burkina Faso's untapped mineral wealth.

Ampella is expected to update the market this week on its initial work program, with work at the group's Dore gold prospect in the north-east corner of the Madougou project area expected to provide early encouragement.

Locals have been making a living from surface scratchings at Dore for ages but it has never been the subject of a modern exploration program.

The market is expecting first results from a sampling program of material taken from the top of spoil heaps left from the local's scratchings.

Good results will lead to a drilling program from mid-September, which will be month or two ahead of a drilling program at the priority project in the float, the Doulina zinc project.

© 2007 The Age

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