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Why are Drillsearch shares up 18% in two days?

In just two days last week shares in Cooper Basin oil and gas producer Drillsearch (ASX: DLS) shot up 18%, snapping a losing streak and sending shares soaring. So what changed?

On Wednesday, Drillsearch released its first-quarter production update for the 2014 financial year. The results included record quarterly sales revenue and a massive increase in production which came as a surprise to investors who sent the share price climbing from $1.18 per share to $1.39 over two days – an 18% jump.

DrillSearch reported quarterly revenues of $86.7 million, up 71% on the June quarter of $50.7 million. This was helped by a 53% increase in production over the June quarter, up to to 0.85 million barrels of oil equivalent (mmobe) and the company expects the higher production levels to continue going forward.

Source: Drillsearch company presentation

Source: Drillsearch company presentation

The strong result by Drillsearch brings the number of companies to hit record oil revenues in the quarter to four. Along with Drillsearch, Senex Energy (ASX: SXY), Beach Energy (ASX: BPT) and Santos (ASX: STO) all announced record sales revenues.

The quarter also saw Drillsearch formalise its agreement with Santos on the Western Cooper Wet Gas Joint Venture. The project will see the two companies team up to quickly commercialise production of wet gas in the area. Santos will acquire a 60% interest in the Western Cooper Wet Gas Project and the two permits it relates to, while DrillSearch will get funding for the program to the tune of $100-120 million.

Santos was the first company to produce commercial unconventional shale gas in Australia in 2012 in the Cooper Basin, so is an ideal partner in the project. Santos also plans to continue its exploration of the Cooper Basin for unconventional gas to capitalise on its nearby Moomba processing plant.

Foolish takeaway

All four companies were assisted to their record revenues by the lower Australian dollar, which is down around 9% on the US dollar year on year. This means higher revenues from each barrel of oil sold and also a layer of protection from the recent slight fall in oil prices.

However all four companies have also made strong efforts to increase production over the last six months and this adds value for shareholders. The impact of this, as DrillSearch has seen, is higher share prices.

Santos is expected to significantly grow its dividend over the next three years, but for The Motley Fool's favourite income idea for 2013-2014 grab our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Regan Pearson owns shares in Senex Energy.

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