Drillsearch Energy Limited : Western Flank Oil Development Update

Drillsearch Energy Limited

ABN 73 006 474 844

Telephone +61 2 9249 9600

Facsimile +61 2 9249 9630 admin@drillsearch.com.au
www.drillsearch.com.au

Level 16, 55 Clarence Street

Sydney NSW 2000

12 July 2012

Western Flank Oil Exploration & Development Update

• Drillsearch commits to extensive Western Flank Oil exploration &

development program for FY 2013

• Seven appraisal/development wells planned for Bauer Oil Field and other Western Flank Oil discoveries

• Bauer Central Oil Production Facilities substantially completed with

20,000 barrels per day production capacity - oil and water

• Bauer-1 and 3 production wells currently producing at rates up to

1,200 BOPD with oil exported to Moomba via trucking operation

• Drillsearch commits to Western Flank oil export pipeline with 10,000

BOPD capacity expected to be operational by December 2012 quarter

• Exploration program to include five firm exploration wells and

400km2 of additional 3D seismic Drillsearch Energy Limited (ASX: DLS) is pleased to provide an update on the FY 2013 Western Flank Oil exploration and development program, approved by the PEL 91 Joint Venture. Drillsearch holds a 60% interest in PEL 91 while Beach Energy (ASX: BPT) as operator holds 40%.

The FY 2013 Western Flank Oil exploration and development program will bring into production the significant Oil Discoveries made at PEL 91 in the previous year and expand exploration to determine the future potential of the Western Flank Oil Fairway.
Drillsearch Managing Director, Brad Lingo said, "The FY 2013 exploration and development program is a major step forward for Drillsearch. The development program builds on the considerable exploration success we have seen in PEL 91 over the past year and is not only low risk but also realises the value of our significant oil discoveries. Further, our new exploration campaign will assess the prospectivity of the Western Flank Oil Fairway to provide future growth potential."

WESTERN FLANK OIL DEVELOPMENT PROGRAM Development Program Approved to Bring Oil Discoveries in Production

The PEL 91 Joint Venture has committed to the development program for the Western Flank Oil Fairway for FY 2013 (see attached map). This development program will bring into production the oil discoveries in PEL 91 and realise the significant exploration success experienced in the Western Flank Oil Fairway over the past 12 months.
During the previous financial year, the PEL 91 Joint Venture conducted a six-well exploration program and made significant oil discoveries with the Bauer-1 and Hanson-1 exploration wells and additional discoveries at Basham-1, Arno-1 and Snellings-1. These discoveries are in addition to the Chiton Oil discovery made in August 2009.
The FY 2013 development program will include:

• Drilling, completion, testing and connection of seven appraisal and development wells in the Bauer Oil Field and other oil discoveries;

• Completion of construction of the Bauer Central Oil Production (BCOP) Facilities capable of initially processing and handling up to 20,000 barrels of combined oil and associated water production;

• Connection of the Bauer-2 and 4 appraisal wells and the Hanson-1 production well to the

BCOP Facilities; and

• Construction of a 47km crude oil export pipeline from the BCOP Facilities to the Beach- operated Lycium Crude Oil Pipeline Hub.

Encouragingly, elements of the FY 2013 development and production program are already underway.

Appraisal/Development Drilling Commences

Drilling for the appraisal and development wells that form part of the Western Flank Oil Field Development Program has commenced with the spudding of the Bauer-5 appraisal/development well at 10am, on Wednesday, 11 July 2012.
Current 3D seismic mapping indicates that the Bauer Oil Field is likely to extend significantly north of the of the initial exploration and development wells. Bauer-5 is the first of three additional appraisal/development wells to be drilled during this program. The three-well program will appraise an extensive area north of the Bauer-4 well (see map below).
The Bauer-5 appraisal/development well is intended to assess further development of McKinlay and Namur reservoir sands encountered in Bauer-1, as well as the potential development of the Lower and Middle Birkhead Formation where oil shows were encountered in Bauer-1. Oil was also recovered from these sands at the nearby Basham-1 well.
Significant potential exists therefore to substantially increase the booked reserves. The Joint Venture also plans on taking an 18-metre core over the McKinlay Member to assist with understanding and further reducing the uncertainty in the McKinlay Reserves.
Mr Lingo said, "This appraisal and development program could substantially increase our overall
Reserves for the Bauer, Chiton and Arno oil discoveries. We don't believe we have found the crest
of the Bauer Oil Field yet and current 3D seismic indicates a potential northern extension of the
Field, possibly as far north as Arno oil discovery location.
"We have an independently certified 3P Reserve of 11.5 mmbbls (gross) at the Bauer Oil Field as well as a 3C Contingent Resource of 3.8 mmbbls. This appraisal/development drilling program marks the beginning of proving the significant potential of the Field."

Oil Production Facilities Commissioned and Substantially Complete

In May 2012 the PEL 91 Joint Venture substantially completed the construction and commissioning of the Bauer Central Oil Production (BCOP) Facilities. The BCOP Facilities currently have an installed capacity of up to 20,000 barrels of fluid (oil and associated water) production per day.
First oil production from the BCOP Facilities commenced on 17 May 2012 from the Bauer-1 discovery well. Bauer-1 tested at a production rate of up to 6,000 BOPD.

PEL 91 - Bauer Central Oil Production Facilities

The Bauer Oil Field contains four oil production wells - Bauer-1 to 4. Oil is currently being produced from the Bauer-1 and 3 production wells at a consistent rate of 800 BOPD (gross), up to
1,200 BOPD (gross), with no associated water production. The two production wells are capable of producing at a rate of over 3,000 BOPD (gross).
The current production rate has been limited by truck transportation capacity and crude oil unloading constraints at the Moomba Central Processing Plant. Once the planned Bauer Crude Oil Export Pipeline is completed and commissioned, the PEL 91 Joint Venture is projecting that Bauer Oil Field production will increase to over 5,000 BOPD (gross) by the end of CY 2012.
Mr Lingo said, "The FY 2013 Western Flank Oil Fairway development program will deliver a rapid and major increase in production and cash flow for Drillsearch. With the central production facilities substantially complete and already commissioned, we will be able to ramp up production rapidly from our existing discoveries as well as accelerate the time to first oil production and reduce development costs for any new oil discoveries."

Additional Bauer Production Wells Nearing Completion

The Bauer-2 and Bauer-4 development wells previously drilled and completed in late 2011 will be commissioned as production wells by the end of July 2013 following initial production testing.
Initial production testing will perforate the McKinlay Member sandstone to improve understanding of the reservoir properties for this oil pay zone. The underlying Namur reservoir sandstone will also be perforated and flow tested. These initial production test results will be used to further refine the Joint Venture's production forecast and Reserve estimates for the Bauer Oil Field.

Bauer Crude Oil Export Pipeline Approved

The PEL 91 Joint Venture will build a 47km crude oil export pipeline from the Bauer Central Oil Production Facilities to the Beach-operated Lycium Crude Oil Pipeline Hub. Construction of the Bauer-Lycium Crude Oil Pipeline is expected to commence in October 2012 with commissioning anticipated by the end of CY 2012.
Once the pipeline is commissioned, gross oil production is expected to increase to over 5,000
BOPD (3,000 BOPD net to Drillsearch). The Bauer-Lycium Crude Oil Pipeline is designed to have an oil export capacity of over 10,000 BOPD. Crude oil from the Bauer-Lycium Crude Oil Pipeline is intended to be transported to the Moomba Crude terminal via the new-built Beach-operated Lycium-Moomba Crude Oil Pipeline.
The Bauer-Lycium Crude Oil Pipeline is estimated to cost approximately $12 million (gross) and will be constructed out of 6-inch GRE pipeline - the same type of pipeline currently used by Beach Energy for the construction of the Growler-Lycium Crude Oil Pipeline and similar to the 8-inch GRE Lycium-Moomba Crude Oil Pipeline.

Lycium Oil Pipeline Hub Construction - Operated by Beach Energy

Mr Lingo said, "Construction of the Bauer-Lycium Crude Oil Pipeline is a major game-changer for Drillsearch. The installation of pipeline infrastructure to the Western Flank Oil Fairway substantially weatherproofs our operations to deliver reliable cash flows to the Company.
"The Bauer-Lycium Crude Oil Pipeline gives us the opportunity to reliably export large quantities of oil, driving Drillsearch's production up to 3,000 barrels per day. Further, it provides tremendous upside in the near-term with export potential of 6,000 barrels per day net to Drillsearch."

WESTERN FLANK OIL EXPLORATION PROGRAM Active Western Flank Oil Exploration Program

Drillsearch is also committed to a significant exploration program in the Western Flank Oil Fairway. As part of the FY 2013 Work Program and Budget, the PEL 91 Joint Venture has committed to a substantial exploration drilling and seismic acquisition program. The FY 2013 Exploration Program includes the drilling of five exploration wells within the existing 3D seismic coverage areas once the interpretation of the Aquillus and Limbatus 3D seismic is completed.

Substantial Exploration Prospects Identified

The Aquillus and Limbatus 3D seismic surveys completed in 2011 have already identified significant prospects for further exploration as part of the FY 2013 Western Flank Oil Fairway exploration program.
Early stage processing and interpretation of the Aquillus 3D seismic indicates that extensive mid- Birkhead sandstone systems appear to exist with seismic signatures similar to those seen associated with the mid-Birkhead Oil Discoveries in PELs 104 and 111. The Aquillus 3D seismic survey covers an extensive area of the Western Flank Oil Fairway in close proximity to the Growler, Wirraway, Snatcher and Charo Birkhead Channel Oil Discoveries in PELs 104 and 111.
Mr Lingo said, "With the analysis of our recent 3D seismic surveys starting to come through, we are continuing to see very robust exploration potential following the tremendous success of our FY
2012 exploration program that saw five discoveries out of six wells.
"The new seismic, as well as work completed on the interpretation of the Modiolus 3D, indicates that not only do we have significant additional potential adjacent to our existing discoveries but we look to have a major series of Birkhead Channel prospects entering the north-eastern portion of PEL 91."

Additional 3D Seismic Planned in PEL 91 to Determine Future Prospects

The PEL 91 Joint Venture has also committed to the 400 km2 Irus 3D seismic survey, which will cover the south-eastern portion of PEL 91, immediately adjacent to the PEL 106B permit held by Drillsearch (50%) and Beach Energy (50% and operator).
The Irus 3D seismic will survey the portion of the permit area that the PEL 91 Joint Venture believes to be the transition zone between the Western Cooper Wet Gas and the Western Flank Oil Fairways. This region is likely to be prospective for wet gas and oil in the deeper Permian pay zones as well as oil in the shallower Jurassic pay zones seen further west in the Western Flank Oil Fairway.
Mr Lingo said, "The considerable size of the Irus 3D seismic coverage area highlights how prolific this portion of the Western Cooper Basin is and how much additional prospectivity remains. This region is very exciting as we are looking at an area where a number of plays converge, both in shallow as well as deeper zones.
"Given the infrastructure now in place with both the Western Cooper Wet Gas Project and the Bauer Central Oil Production Facilities in operation, this exciting region gives Drillsearch a great opportunity to develop any new discoveries, whether they are oil or wet gas. We have had great exploration success in the PEL 106B Joint Venture Wet Gas area with four successes out of five wells and we see clear signs that this play trend continues into the south eastern portion of PEL
91."
Yours faithfully
Brad Lingo Managing Director P+612 9249 9600
admin@drillsearch.com.au
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David Greer, Executive Director, Radar Group, P+612 8256 3307, davidg@radargoup.com.au

About Drillsearch Energy Limited (ASX: DLS), which listed on ASX in 1987, explores and develops conventional and unconventional oil and gas projects. Drillsearch has a strategic spread of petroleum exploration and production acreage in Australia's most prolific onshore oil and gas province, the Cooper-Eromanga Basins in South Australia and Queensland. The company's focus is on 'brownfields' exploration where geological risk is reduced and there is access to existing infrastructure, ensuring that any discoveries can be brought into production. Competent Person Statement

Information on the Reserves and Resources in this release has been compiled by Mr. David Evans, Chief Technical Officer of Drillsearch who has given his consent as of the date of this release to the inclusion of this statement and the information in the form and the context in which they appear in this release.

PEL 91 Western Flank Oil Fairway - Bauer Oil Field Development PEL 91 Western Flank Oil Fairway

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