Drillsearch Energy Limited (ASX:DLS) Quarterly Report For The Period Ended 31 December 2009

Sydney, Feb 2, 2010 AEST (ABN Newswire) - Drillsearch Energy Limited (ASX:DLS) (PINK:DRLLF) is pleased to provide a Quarterly Activities Report for the period ended 31 Dcember 2009.Production and Revenue

Australian oil production for the December quarter was 26,167 bbls, which was 14% below the prior quarter. This was primarily due to the ongoing decline of existing fields. However, in future periods this trend should reverse as first oil is expected from the Chiton oil field in early 2010 which is anticipated to have positive material impact on the Company's oil production in the near term. Canadian oil and gas production for the December quarter from Circumpacific was 15,957 boe, which was 2% higher than in the September quarter.

Australian revenues for the December quarter were A$1.34m, which was 14% below the previous quarter. Canadian revenues were A$0.38m, which was 59% lower than in the previous quarter. Drillsearch's Australian operations realised a December quarterly average oil price of A$93.09/bbl. This compares with a price of A$81.69/bbl in the previous quarter.

Despite the favourable oil price movement over the December quarter, Australian revenue declined due to a temporary inventory build up in the Jackson-Moonie pipeline. This should be reversed during the first half of 2010 as the Jackson-Moonie Pipeline is decommissioned.

Development and Exploration

Development of Chiton Oil Discovery
(PEL 91) (60% Drillsearch)

Following the discovery of the Chiton Oil Field in August 2009, the Chiton-1 discovery well was completed for production. After perforation of the Namur pay zone in Chiton-1, an 80 minute flow test yielded an average rate of approximately 2,430 barrels of oil per day.

Chiton-1 is the first commercial oil discovery in PEL 91. Production facilities have been completed and production commenced on 22nd January 2010. Production at Chiton-1 will commence via the PEL 92 facilities upon the finalisation of commercial arrangements between the PEL 91 and PEL 92 joint ventures.

Major new Cooper Basin Exploration Permit

On 9 December 2009, Drillsearch Energy announced that it had been awarded a major new exploration permit by the Government of South Australia, being PELA 513 (previously referred to as CO-2009 Block B). PELA 513 is an excellent strategic fit with Drillsearch's existing position in the Western Cooper Basin.

It covers portions of the Western Flank Oil, the Wet Gas and the Unconventional Gas play fairways that management have outlined as being the cornerstone strategic opportunities that Drillsearch is built around.

Confirmation of Significant Western Cooper Basin Prospective Resource Potential During the December 2009 quarter, Drillsearch received the results of an independent review of the resource potential of the Western Cooper Unconventional Gas Project. The review, which was conducted by MBA Petroleum Consultants, estimates gross Deep Coal Seam Gas-in-Place of 10.9 TCF and confirms Gross Prospective Resource potential of 2.7 to 5.4 TCF.

It should be noted that these figures do not include the additional impact of the recently awarded PELA 513 permit.

Regardless, these results are very encouraging for Drillsearch. To put the scale of this in perspective, around 2 TCF is sufficient to supply one 1.5m tpa LNG plant for 20 years.

Multiple Drilling Successes at the Tintaburra Block

In November 2009, Drillsearch achieved drilling success at both the Ipundu-16 and Ipundu North-13 development wells in the Tintaburra Block. The Tintaburra Block is a joint venture of Santos Ltd (89%) and Drillsearch Energy (11%). Both of these wells have been cased and suspended as future oil producers.

Further testing is planned and updates will be provided along with recoverable oil estimates as these become available.

Financial Position

Drillsearch Energy remains in a very sound financial position. Its cash balance at the end of December 2009 was A$12.91m. Actual cash payments for exploration, appraisal and development expenditure for the December quarter were A$3.55m, compared to A$2.60m in the previous quarter. Cash reserves were increased by $4.4m as a result of the share purchase plan. Drillsearch Energy has adequate cash resources to meet its funding requirements for all of its existing capital commitments.

Corporate

Board Appointments

On 6 October 2009, Drillsearch's Chairman Jim McKerlie announced the appointment of two additional Non-Executive Directors, Fiona Robertson and Ross Wecker, to the Company's Board. The appointments support the Company's strategic objective of being a major player in the Cooper Basin where it has substantial opportunities and puts in place a strong, experienced and independent Board that will oversee the Company's growth objectives.

Management Changes

On 21 October 2009 the Board announced the appointment of Mr. John Whaley as Chief Commercial Officer. John has responsibility for the development and commercialisation of Drillsearch's assets together with managing acquisitions and divestments.

The Board also began a process of recruiting a new Chief Technical Officer who will take responsibility over the Company's exploration acreage and technical team. Significant progress has been made on this front with an announcement imminent.

Notice of ceasing to be a substantial Shareholder

Having spent much of 2009 successfully defending itself against the hostile takeover bid launched by Beach Petroleum on 5 May 2009, the Company was advised by Beach that it ceased to be a substantial shareholder of the Company on 12 November 2009. Beach no longer has any shareholding in Drillsearch.

Capital Raising

On 18 September 2009, the company successfully completed an equity placement raising $9.58 million at $0.05 per share to new institutional and sophisticated investors. In parallel with the equity placement, the company completed a share purchase plan offering shares to existing shareholders at $0.05 per share (the same price as the equity placement). The share purchase plan closed on 30 October 2009 having raised $4.4 million. These funds have to date been principally applied to funding the initial development of the Chiton Oil discovery.

Portfolio Rationalisation

The company has engaged RFC Corporate Finance and RISC Pty Ltd to assist it with the evaluation, sale and/or farmout process for identified non-core assets. The recently announced surrender on 20 January 2010 of Petroleum Exploration Permit WA-352-P to the WA Government signals the Company's desire to deliver on its promise to shareholders to rationalise its portfolio and to maintain its focus on the Cooper Basin. No asset is sacred. The Company intends to continue to bring to bear a rigorous and ruthless approach to the rationalisation of its portfolio of assets.

Canada

The company was required to requisition a shareholders' meeting to vote on the election of new directors in its 79.5% owned TSXV-listed subsidiary, Circumpacific Energy Corporation (Circumpacific) during the December quarter. We were pleased to announce at the Drillsearch Annual General Meeting the successful appointment of Drillsearch nominees to the Circumpacific board and the resolution of outstanding issues between the two companies.

For the complete Drillsearch Energy Quarterly Report for the period ended 31 December 2009, please click the link below:

http://www.abnnewswire.net/media/en/docs/62195-ASX-DLS-580863.pdf

Contact

Brad Lingo Managing Director Tel: +61-2-9241-4440 www.drillsearch.com.au Email: admin@drillsearch.com.au