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Increased Oil and Gas Prices Help Dana Hit First-Half Earnings Gusher

Posted on: Thursday, 29 September 2005, 06:00 CDT

By MARK WILLIAMSON

THE transformational effects of rising oil and gas prices on the finances of exploration and production companies were vividly demonstrated by a surge in first-half earnings at Dana.

While the Aberdeen-based independent managed only a 5-per cent increase in production, operating profits doubled to GBP40m as a combination of political instability and booming demand for energy sent commodity prices upwards.

The growth in earnings vindicated the potentially risky decision of directors not to try to protect Dana against a fall in energy prices by selling output in advance at fixed prices.

By opting to take the prevailing market rate, the company felt all of the benefit of increased oil and gas prices in the six months ended June 30.

With oil and gas production prices set to remain strong, and Dana on target to double output to 40,000 barrels of oil equivalent daily by the end of 2007, this is not a policy that they will be in a hurry to reverse.

By contrast, neighbouring Venture Production, with which Dana held short-lived merger talks, slid into the red in the first half, partly as a result of deciding to hedge some of this year's output at prices fixed before this year.

Colin Goodall, Dana's chairman, said the record interim pretax profit of GBP42.6m achieved by the firm reflected the fact it had made progress on all fronts.

The company, which combines low-cost producing assets in places like the North Sea with higher-risk exploration further afield, increased first-half output to 18,796 barrels of oil equivalent daily, from 17,895 in the same period last time.

As well as starting to pump oil from the Gadwall field in the North Sea, Dana continued work to boost output from other oil and gas assets or bring them into production.

It also broadened its portfolio of development and exploration assets by trading stakes in Indonesian and UK assets for North Sea acreage.

Yesterday it announced the acquisition of a 40-per cent stake in block 48/2a, containing the Babbage gas discovery, in the southern North Sea from Shell for an undisclosed sum.

The group realised an average price of dollars-51.71 per barrel for its UK crude sales in the first half, up from dollars-31.33 in the same period last year.

As many of its costs are fixed, most of the resultant increase in revenues flowed through to the bottom line.

However, the shares fell 14p to 876p on disappointment that, at 20,000 boepd, average production for 2005 is now expected to be lower than investors had anticipated, following some slippage in development work and maintenance shutdowns.

Source: Herald, The; Glasgow (UK)

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