Petsec Accelerates Gulf of Mexico Exploration

Petsec Energy

Petsec Energy Limited will from next month accelerate its Gulf of Mexico exploration program in a move which could deliver the Australian company significant additional free cash flow.

The company's exploration plans – including the drilling of up to 11 wells - were outlined today by Petsec's Executive Chairman, Mr Terry Fern, at the annual Good Oil Conference being held in Fremantle, Western Australia.

"Starting in October, the closing months of 2006 will see Petsec target a total of 19-to-36 billion cubic feet of gas equivalent (Bcfe) with the drilling of a significantly increased number of exploration wells in the Gulf region," Mr Fern told the conference.

"If successful, that exploration could generate free cash flow over the next three years to Petsec in the range of US$120 million to US$216 million, based on the current net operating margin of US$6 per million cubic feet of gas," he said.

Mr Fern said Petsec has already enjoyed significant exploration success in 2006. Six wells were drilled in the June half year and five were successful, discovering 21 Bcfe of gas in the Main Pass 18/19 leases in the Gulf of Mexico and in excess of 2.5 million barrels of oil in Block 22/12, Beibu Gulf, China, net to Petsec.

The upshot for Petsec in the half year to 30 June 2006 was a 70% boost in estimated recoverable reserves to 65 Bcfe - compares with 38 Bcfe at the start of the current calendar year, he said.

The exploration boost follows the recent announcement that Petsec had nearly trebled its leasehold position in the Gulf of Mexico from 17 to 50 leases, substantially increasing the Company's inventory of high quality drillable prospects 'with the potential to create significant growth for shareholders.

The new Focus exploration joint venture covers 33 lease blocks in the Outer Central Shelf (OCS) waters of the Gulf of Mexico. Petsec acquired a 50% interest in 28 lease blocks, a 25% interest in 5 additional lease blocks, and the right to participate in future MMS lease sales with the group for up to a 35% working interest.

Over 36 prospects have been mapped to date with an estimated net unrisked potential of 157 Bcf of gas and 29 million barrels of oil. Within this potential is an estimated 43 Bcfe of gas net, discovered by prior drilling.

The leases, which have all been acquired at OCS lease sales in 2005 and 2006, are expected to be tested over the next two to three years.

The current prospect inventory of 280 Bcf of gas and 37 million barrels of oil, reserves potential, is seven times larger than the Company's current reserves, providing considerable potential for future reserves growth.

Mr Fern said drilling of the first wells on the newly-acquired lease blocks was expected to start next month at Mobile Bay with a 2-to-5 well program targeting 5-to-11 Bcf of gas net to Petsec.

Also starting in October would be the first wells on Petsec's Gulf of Mexico onshore play – the Moonshine Project – where the company plans 2-to-3 wells to test 6-to-10 Bcf of gas net,

Exploration/development of Petsec's Main Pass 18/103 leases (2 to 3 wells) would test 8-to-15 Bcf of gas, starting late in 2006.

Petsec recently reported a 33.3% rise in net profit before tax to US$9.6 million (A$12.9 million) for the six months to 30 June 2006 compared to US$7.2 million (A$9.3 million) for the previous corresponding period.

Net operating cash flow (EBITDAX) was US$27.7 million and net cash at the end of the June half year was US$25.7 million.