Drillsearch benefits from oil hedging

Shares in Drillsearch Energy have surged more than 10 per cent after the oil and gas producer’s hedge program helped soften the impact of the slump in commodity prices.

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Drillsearch’s underlying profit beat analyst forecasts at $57.8 million, down just 1.1 per cent on the prior corresponding period after oil hedging helped secure an average realised price of $US97.20 a barrel.

That compared favourably with its rivals, with both Oil Search and Santos reporting this week that their average realised oil price over the six months to June almost halved to around the $US60 mark.

“They must have sold forward quite well. That is an extraordinary realised price,” CMC chief market strategist Michael McCarthy said.

“That’s much better than the market had been expecting and that could see further support for them. That makes them a bit of a standout in the sector.”

The price of US crude has tumbled from more than $US100 a year ago to around $US40 a barrel on worries about China’s weakening economy and a glut of supply.

Drillsearch said its hedging program had contributed $20.6 million and that it has 1.6 million barrels of oil hedged at a floor price of at least $US60 for delivery over the next two financial years.

It expects to increase production from its Cooper Basin business by 50 per cent over the next five years.

“It’s smart for an energy company to be including a five-year outlook at the moment as an expression of faith in their continued existence. It looks to be well justified,” Mr McCarthy said.

“They’re going to be one of the survivors. They’re definitely riding out a rough patch.”

Shares in Drillsearch, which had more than halved since the end of April, closed up 7.5 cents, or 12.4 per cent, at 68 cents.

The company’s net loss of $8.1 million, compared to a $41.9 million profit a year ago, was largely due to a $51.9 million writedown related to its Eastern Margin/Tintaburra assets in Queensland.

Falling commodity prices also affected engineering construction giant WorleyParsons, which swung into the red with a $54.9 million full year loss as customers reduced their spending.

The company, which made a $249.1 million net profit in 2013/14, was dragged down by $198.6 million worth of previously announced goodwill writedowns.

Underlying profit, which strips out significant items, fell 24.6 per cent to $198.6 million.

The company has axed 6,000 jobs since 2013 in order to offset the effects of the downturn in the resources industry and slide in commodity prices.

Shares rose 48 cents, or 6.27 per cent, to $8.13.

“The bounce today reflects its prepositioning,” Mr McCarthy said.

“Clearly earnings momentum remains downward and that suggests we might see lower share prices before a recovery.”

DRILLSEARCH DOWN

* $8.9m net loss from 41.9m net profit

* Revenue down 35.2pct to $250.6m

* No dividend

WORLEY’S WOES

* $54.9m net loss from $249.1m net profit

* Revenue down 8.6pct to $8.758b

* Final dividend 22 cents unfranked, down from 51 cents partially franked