End game to the oil rout, page-43

Hey Eshmun, good question. Out of the Cooper Basin stocks, DLS would IMHO, be the strongest survivor if the price of oil stays low for the next 2-3 years. Currently DLS has approx $132 million in cash, with the convertible notes at around $150-160 million, however, the notes are not due until Sept 2018. That's over 3 years away. DLS could drastically cut their exploration and development programs if needed and basically just continue to build up its cash balance if need be. Their western flank production costs are AUD $29 , which if you include the benefit of the currency rates, means that in U.S dollars, the price of oil would have to full below $25 for an extended period before DLS was looking at not profiting from its sales (i.e $23 * 1.3 = AUD $30). Also, the high capex for the last 2 years has been focused on a number of fronts, the most important being PEL 91 and the 16 discoveries to date. A lot of infrastructure and piping has recently been commissioned and this will ensure that DLS has 2-3mmbo of production for the next 2-3 years (minimum) at the above costs... with no new discoveries being included in that.

Also, DLS is looking at a capex of approx $80-110 million this year. Firstly this does not include the free carry's it has from STO in the Western Flank gas, plus its PEL 570 carry, nor BPTs ATP 924 drilling campaign (from memory I estimated this would be around $30-50 million in FY16). DLS can actually reduce capex even further if need be, but still have a decent amount of exploration and development to tide them over whilst this price fall continues. They really are in an enviable position considering the current sectors woes.

For what its worth, I would much rather be buying DLS at $.70 than $1.70. In this kind of market, the strongest companies bounce the hardest.