Dana Petroleum

We were impressed with the recent interim results released by Aberdeen based Dana Petroleum (DNX). Like most other oil and gas companies, steady production and strong energy markets combined to significantly boost revenue and profits. We see this trend continuing throughout the remainder of the year.

For the six months ending June 30, turnover increased a robust 47 percent to £71.6 million. Production rose a modest 5 percent to 18,796 barrels of oil equivalent per day (boepd), with the major contributor to the result a 45 percent increase in the average realised price of oil to US$39.40. Operating profits nearly doubled to £40.0 million even as costs on a per barrel basis rose due to higher tariffs. Encouragingly, production is set to rise to 21,000 - 22,000 boepd in the second half.

Dana's exploration and appraisal activities in the North Sea have this year yielded three successful results from four attempts, including the Melville oil field discovery and the expansion of the Johnston and Barbara fields. Another promising exploration target, the Clachnaben prospect will be drilled before year-end.

In addition to the active drilling programme, Dana has also been busy acquiring new exploration areas. Building on previous deals Dana acquired a 40 percent interest in the Babbage gas field from Shell. This field potentially contains 390 billion cubic feet (Bcf) of gas in place or 65 million boe. Dana was also successful in the latest round of government awards, receiving four North Sea licences (20 Blocks).

Some of Dana's most exciting prospects are found further afield. Offshore Mauritania, the Faucon prospect will be drilled this quarter. Dana has a 60 percent interest in this prospect which has the potential to contain one billion barrels of oil in place. Several other interests offshore Mauritania, Morocco, Kenya and Australia are undergoing appraisal and exploration.

In our opinion Dana is ideally positioned to benefit from the on-going strength in energy prices.

By the end of 2007, Dana expects production to nearly double to 40,000 boepd. With future production un-hedged and a well funded appraisal and exploration programme targeting several high potential areas, we believe significant upgrades in earnings and reserves are likely in the medium term.

*Disclosure: Interests associated with Fat Prophets declare a holding in DNX.