Australia's oil and gas exploration company Drillsearch Energy Ltd. provided Thursday a market update on the company's operations.

FY2016 Performance and Guidance

Production

Against a backdrop of uncertainty in global commodity markets and the company’s proposed merger with Beach Energy Ltd., Drillsearch continues to perform strongly at an operational level.

Production during the first half of FY2016 was 1.63 million barrels of oil equivalent (MMboe), with the Western Flank Oil Fairway operations (Drillsearch 60 percent; Beach 40 percent and Operator) and the Western Wet Gas joint venture with Beach (Drillsearch 50 percent) both performing ahead of budget.

Following the commencement of production at Cadenza-1 in our Wet Gas joint venture with Santos (Drillsearch 40 percent; Santos 60 percent and Operator) announced in December 2015, the joint venture commenced production from a second well, Yarowinnie South-1, at the end of December 2015.

Connections and tie-ins will continue in our Wet Gas business in the second half, including a third well in our joint venture with Santos, Varanus South-1, expected to be in production this month, along with connection of the Vanessa-1 well (Drillsearch 43 percent; Senex 57 percent and Operator) later this quarter.

Based on performance in the financial year-to-date, Drillsearch expects FY2016 production to be at or above the higher end of FY2016 guidance of 2.8 to 3.2 MMboe (FY2015 3.0 MMboe).

Capital Expenditure

Subject to final joint venture billings for the second quarter, Drillsearch’s capital expenditure (CAPEX) for the first half was approximately $16.6 million (AUD 24 million). Drillsearch’s FY2016 work program is weighted to the second half of the financial year, with a significant proportion of first half activity covered by free carries in three of our joint ventures with Beach and Santos.

Drillsearch expects full-year CAPEX to be at the lower end of FY2016 guidance of $55.4 million (AUD 80 million) to $76.2 million (AUD 110 million).

Additional details relating to performance during the December 2015 quarter will be included in Drillsearch’s December 2015 Quarterly Report planned for release on Jan. 28.

Corporate

Proposed merger with Beach

The meeting of Drillsearch shareholders to seek approval for the scheme of arrangement to merge with Beach Energy will be held at 11:00 am on Wednesday, Jan. 27, at the Museum of Sydney.

The Board unanimously recommends that shareholders vote in favour of the scheme, in the absence of a superior proposal, and encourages all eligible shareholders to participate in the meeting in person or by proxy.

The deadline for submitting votes by proxy is 11:00 am on Monday, Jan. 25.

Sale of Tintaburra

In December, Drillsearch entered into a sale and purchase agreement in relation to its 40 percent working interest in the producing Tintaburra Block (ATP 299) operated by Santos. Completion is conditional on joint venture and regulatory approvals.

Drillsearch’s production guidance for the full year (see above) is not affected by the proposed sale.

Impact of Oil Price

Volatility in global oil markets continues to impact the exploration and production industry, with lower realized prices (before the effects of hedging) increasing the need for cost discipline. Drillsearch continues to closely monitor its capital expenditure in order to ensure that the company maintains a robust financial position. Capital expenditure continues to be focused on activity that delivers reserves, production and cash flow, with a target of matching CAPEX to net operating cash flows.

The decline in the oil price since June 30, 2015, combined with weakening market sentiment and a decline in Drillsearch’s share price, is likely to require an assessment of the carrying value of Drillsearch’s assets at the Half-Year.

At this stage, and subject to finalization of our Half-Year results, Drillsearch does not anticipate a material impact on the carrying value of its oil and gas assets as at Dec. 31, 2015, however, the value of Drillsearch’s longer-dated exploration and evaluation assets may be affected by the weaker oil price environment.

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