In today’s daily we have covered stock research on Drillsearch Energy (BUY).









 
The S&P 500 was up by 9.42points or 0.46%on Friday to 2070.65 points. U.S. stocks extended gains for a third session on Friday, giving the S&P 500 its best weekly performance in nearly two months as energy shares continued to rebound. The S&P energy index jumped 3.1 percent, leading the benchmark index's advance, and closed out the week with a 9.7 percent gain, its biggest weekly increase since December 2011.

Helping to lift energy shares, Brent crude rose 3.6 percent at $61.38 a barrel, while WTI crude  jumped 4.5 percent to settle at $56.52. Energy shares have recovered in the recent rally even when oil prices continued to fall. Shares of Red Hat surged 10.6 percent to $68.04 after it raised its profit forecast for the full year and reported quarterly revenue and profit above expectations. On the downside, shares of Nike shed 2.3 percent to $94.84, a day after the company flagged slowing growth in Western Europe. 



NIKE Daily Chart (Source – Thomson Reuters)
S&P ASX 200was up by 127.8points or 2.45%on Friday and closed at 5338.6 points. All sectors jumped more than 1 per cent on Friday, with industrials up 3.3 per cent, materials 3.1 per cent higher and financials 2.5 per cent stronger, among the best performers. Vocus Communications mounted a bid, worth $653 million, for Amcom Telecommunications, in an attempt to create one of Australia’s largest telco operators, worth $1.1 billion. 
Santosshares surged 11.6 per cent to $7.99 this week after the oil producer secured a new $1 billion loan facility with ANZ. Woodside Petroleum struck a deal to buy Apache’s stakes in two liquefied natural gas projects and a West Australian oilfield for $4.6 billion. Seven West Media is looking to snap up NSW and Victoria thoroughbred racing broadcast rights in a move that would hurt wagering giant Tabcorp Holdings. 

Woodside Daily Chart (Source – Thomson Reuters)
 
Top Performers on the ASX 200 were :-


 
Stock of the Day - Drillsearch Energy (BUY)
 
DLS held its 2014 AGM in November. FY2015 is shaping up as a very busy year with over 40 wells planned across its oil, wet gas and unconventional businesses. DLS’s balance sheet is in relatively good shape given its cash position (offset by long dated convertible bonds and unused debt capacity). DLS maintained its FY15 capex guidance of A$130m – 170m with circa 75% to be spent on conventional exploration, appraisal and development opportunities.

Northern Cooper Oil & Gas Project Area (Source - Company Reports)
At PEL 91 (its flagship oil asset) two further development wells have been drilled with four more planned. These new development wells with help will arrest production decline from this field. We model declining production from this asset but expect some oscillation quarter on quarter as new Bauer development wells are brought online along with other smaller field in PEL 91 including KCS, Pennington and Stunsail.


FY2015 Work Program (Source - Company Reports)

Out of the Cooper Basin producers Drillsearch is the most levered to the oil price in the sense that it has the most liquids production relative to its market cap. Given the impressive margins still seen on the oil fields we continue to view this as a strength. It also means it has a lot of upside if the oil prices go up. The downside is that it will be hard to cut capex.


DLS Daily Chart (Source - Thomson Reuters)

Drillsearch has reported September Quarter production of 0.75mmboe which was down 9% on the June Quarter. Oil production was down 10% on the Western Flank, up 22% from the smaller, Eastern Cooper and down 16% in the wet gas business. Guidance of 3.0 – 3.4 mmboe for FY15 is unchanged. The decline in oil production and weaker oil price combined to reduce sales revenues. DLS generates positive cash flow , despite a record exploration program and we expect production to rebound in the December Quarter. We put a BUY recommendation at the current price of $0.765.

 
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