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For Beach Energy, priority remains to expand output from existing reserves, mainly in the Perth and Cooper/Eromanga basins

Business Strategy & Outlook

Beach Energy produces oil, gas, and gas liquids from multiple wholly owned projects and joint ventures in the onshore Cooper, Perth, and Eromanga basins, and offshore in the Otway, Bass, and Taranaki basins. Beach merged with Cooper Basin joint-venture partner Drillsearch Energy in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 23 million boe following the purchase of Lattice from Origin Energy in 2018. Lattice’s scale enhancing incorporation, expanding Beach’s footprint across multiple basins and production hubs, resulted in an increase in EBITDA margins to over 70% from pre-Lattice 50% levels. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

Beach’s goal to double production and reserves in five years was achieved via the AUD 1.6 billion acquisition of Lattice, rather than from organic growth. But the priority remains to expand output from existing reserves, mainly in the Perth and Cooper/Eromanga basins. Beach also sees huge potential for unconventional shale gas in the Cooper and elsewhere. The new target is for 34-40 mm boe of production in the next five years. Most recently a final investment decision was taken for the Waitsia Stage 2 expansion project. The Waitsia project has become an inaugural accessor of North West Shelf Project liquefaction capacity of up to 1.5Mtpa to 2029. Beach’s 50% Waitsia Stage 2 gas expansion to 250 TJ per day (100% basis) is equivalent to around 1.6 Mtpa of LNG. Beach’s estimated share of the upfront development capital expenditure is AUD 350-400 million and Waitsia Stage 2 alone could increase Beach’s equity production by 7.5 mmboe or around 27% on current production levels. Also implicit in Beach’s production growth target is improvement in facility reliability, renewed Cooper Basin growth efforts and Otway gas plant production increase by around 35% to around 57 PJ by fiscal 2023 from around 42 PJ in fiscal 2019.

Financial Strengths

Beach typically has a healthy balance sheet and cash flow, though field life on current reserves is only just approaching 15 years. Beach ended the period to June 2022 with USD 120 million in net cash. The strong unleveraged balance sheet remains a key appeal of Beach Energy. A maintenance of an unleveraged balance sheet in fiscal 2023 despite increased development expenditure is expected. Even with anticipated expenditures, including on Waitsia project development, hence an unleveraged balance sheet by as soon as fiscal 2023 is anticipated, all else equal. An unleveraged balance sheet is the appropriate position for a small company in a world of energy supermajors requiring capital reinvestment to maintain life. Despite growth plans for production of 34-40 mmboe in the next five years, Beach targets a near zero net debt position due to strong free cash flows. Cash flow projections are underpinned by strong long-term gas contracts and repricing. The current net cash position is in stark and favorable contrast to mid-fiscal-2018 annualized net debt/EBITDA levels near 2.0.

Bulls Say

  • Beach has healthy cash flow and reasonable field reserve life.
  • Net operating cash flow per share has proved resilient.
  • The effective net cost of reserve additions has been minimized by well-timed asset sales.

Company Description

Beach produces oil, gas, and gas liquids from numerous joint ventures in the onshore Cooper and Eromanga basins. Beach merged with Cooper Basin joint-venture partner Drillsearch Energy Limited in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 23 million barrels of oil equivalent following the successful purchase of Lattice from Origin Energy in 2018. The average field life is 10 years based on forecast production and 313 mmboe of proven and probable reserves. A credit life of nearly 15 years, assuming substantial conversion of 2C contingent resources into reserve category with drilling. Shale gas resources are blue-sky.

(Source: Morningstar)

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