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Fat Prophets
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04/04/2005Dana Petroleum >>
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Fat Prophets – Dog of the Week

Dog Of The Week - a weekly column from Fat Prophets, the providers of independent, unbiased research. Each stock is rated as either a Labrador, Poodle, Greyhound or Border Collie. All of the dogs have their own unique characteristics and qualities. Check out the 'Pound' on the left for an explanation of each dog.


Dana Petroleum

04/04/2005

Last week Aberdeen-based Dana Petroleum (DNX) announced record results for 2004. While the flurry of corporate activity Dana engages in attracts much attention, last year's results confirm the merit of management's operational strategy in our opinion. Dana's turnover for the year increased 27 percent to £109.5 million while net profit rose 14 percent to £22.4 million. Going forward we are confident that earnings out-performance can be sustained as the company ramps up production, whilst engaging in further astute asset swaps and acquisitions.

Underpinning Dana's solid 2004 results were healthy production growth and higher oil prices. Last year Dana's average production increased 8 percent to 18,608 barrels of oil equivalent per day (boepd) while the realised price per boe rose 31 percent to US$29.45. We are encouraged to learn that this year Dana has not committed to any commodity hedging thus allowing the company to enjoy full exposure to robust oil prices. Production is expected to increase to 22-24,000 boepd in 2005 and 30,000 boepd in 2006.

Due to the improved levels of production and higher oil price, net cash inflow from operations rose 17 percent to £61.2 million. This robust cash flow funded £32.3 million of capital expenditure including £17.3 million on development projects and £14.7 million on exploration and appraisal activity. A £30.0 million increase in net cash has now eliminated gearing.

Dana's exploration success and industry acumen is illustrated by the 116 percent reserve replacement ratio. As of December 31, Dana's proven and probable reserves stood at 124.8 million boe.

In February Dana increased an interest in the North Sea's Melville exploration area thought to contain approximately 110 million barrels of oil. Then earlier this month, the company swapped North Sea interests with CNR International, which included an agreement to increase the company's interest in an area known as the Clachnaben prospect calculated to contain around 60 million barrels of oil.

Dana's most recent acquisition was completed last week in a deal with Amerada Hess. In exchange for a 12 percent interest in the Pangkah PSC area offshore Indonesia, Dana increased its share in the North Sea's Hudson Oil Field by an additional 28 percent. Currently producing nearly 12,000 barrels of oil per day, completion of this agreement increased Dana's North Sea production by almost 3,400 barrels per day.

In total, Dana has plans for eighteen additional exploration and appraisal wells before the end of 2006. Eight of these wells, including Melville and Clachnaben, are expected to be drilled in 2005. Significantly two of the sites, one offshore Mauritania and one offshore Kenya, are targeting prospects with the potential to contain over one billion barrels of oil in place.

We are heartened by Dana's performance in 2004 and are confident management has the right strategy in place to maintain earnings momentum this year and beyond. With significant leverage to high oil prices and an exciting year of exploration and production ahead, we believe Dana's 2005 price earnings ratio of 10 times is undemanding.

Dana Petroleum Stock Charts :


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