Company Reports

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

No-moat Beach Energy’s fiscal 2024 earnings beat our forecast materially, but it’s not all plain sailing for the small Australian hydrocarbon producer. Beach shares fell more than 10% following the announcement, the market presumably unimpressed with yet more reserve write-downs. The group's proven and probable, or 2P, reserve position of 205 million barrels of oil equivalent, or mmboe, is down by 50 mmboe or nearly 20% from this time last year. Half of this was already in the market, including the loss of 7mmboe from a poor Kupe South 9 development well outcome in June, and 18mmboe coming simply via production. But the balance is new, reflecting re-evaluation of Enterprise and Thylacine North reservoirs in the Otway Basin, in addition to more moderate Cooper Basin and Beharra Springs Deeps adjustments.

Our AUD 2.40 fair value estimate for no-moat Beach Energy stands. The company reported a 6% increase in fiscal 2024 fourth-quarter production to 4.8 million barrels of oil equivalent, in line with our expectations. Otway Basin production increased by 31% due to successful connection to the Enterprise gas field and higher customer nominations. Group fiscal 2024 production fell 7% to 18.2mmboe.

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

Our AUD 2.40 fair value estimate for no-moat Beach Energy stands. We think group operating and capital cost savings will offset forecast production cuts for BassGas and Kupe. The midsize oil and gas producer says AUD 135 million of more than AUD 150 million in planned operating and maintaining capital cost reductions have already been delivered, including more than 75% of an intended 30% headcount reduction. The planned operating cost reduction equates to around 20%.

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

No-moat Beach Energy reported lower-than-expected fiscal 2024 third-quarter production, up 4% to 4.5 million barrels of oil equivalent, or mmboe. However, we read no longer-term implications, our midcycle estimates are unchanged, and our AUD 2.40 per share fair value estimate stands. Higher production from the Otway and Taranaki basins was offset by poor weather in the Cooper Basin. Fiscal 2024 production guidance is consequently reduced by around 4% to 18 mmboe-18.5 mmboe from 18 mmboe-20 mmboe. We lower to a midguidance 18.2 mmboe and our fiscal 2024 earnings per share forecast falls 5% to AUD 0.147.

Almost unbelievably, the Waitsia Stage 2 gas project has suffered yet another cost blowout and schedule slip. No-moat Beach’s share of capital expenditure increases by around a third to AUD 600 million–AUD 650 million against prior guidance of AUD 450 million–AUD 500 million. We assume AUD 650 million at the high end. First gas is now not anticipated until early calendar 2025, another six-month delay. More construction quality issues surfaced during precommissioning activities and despite the late stage, additional unspecified remedial works are required. Prior rectification works included rebuilding compressors and replacing elements of pipework.

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

Our AUD 2.50 fair value estimate for no-moat Beach Energy stands. That’s despite the midsize Australasian oil and gas producer reporting lower than expected first-half fiscal 2024 underlying net profit after tax, down 12% to USD 113 million or AUD 7.5 cents per share. Our target was USD 155 million or AUD 10 cents per share. Higher-than-expected third-party gas costs for the maiden Waitsia LNG cargo and higher Cooper Basin joint venture costs ate into margins. Despite this, our midcycle estimates remain largely intact. We expect efficiencies and cost-outs under new CEO Brett Woods to lead to margin recovery.

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

Our AUD 2.50 fair value estimate for no-moat Beach Energy stands. That’s despite the midsize Australasian oil and gas producer reporting second-quarter fiscal 2024 production down 4% on the preceding quarter to 4.3 million barrels of oil equivalent, below our 4.5mmboe expectations. Higher Otway and Cooper Basin gas production were offset by Kupe and Lang Lang's downtime.

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 more than doubled to over 20 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages, Beach does not have sufficient resource life beyond 15 years.

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 Limited in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 28 million barrels of oil equivalent following 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages Beach does not have sufficient resource life beyond 15 years.

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 Limited in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 28 million barrels of oil equivalent following 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. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages Beach does not have sufficient resource life beyond 10 years.

Beach Energy produces oil, gas, and gas liquids from multiple wholly owned project 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 Limited in March 2016, which increased equity production to about 10 million barrels of oil equivalent. This is now more than doubled to 29 million barrels of oil equivalent following the successful 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 near 75% from pre-Lattice 50% levels. But even with Lattice, our no-moat rating stands. Despite Lattice’s advantages Beach does not have sufficient resource life beyond 10 years.

We make no change to our AUD 2.65 fair value estimate for no-moat Beach Energy. The company reported a solid fiscal third-quarter performance with production up 8% to 6.9 million barrels of oil equivalent, or mmboe, only marginally below our expectations. Revenue fell 7% to AUD 431 million, close to expectations. Importantly, Beach ended the period with net cash of AUD 80 million, up 23% from end December, though down on February’s AUD 151 million. The company spent AUD 246 million on exploration and appraisal in the third quarter, including expensive Tawhaki-1 frontier exploration drilling. This will now clearly be wound back while energy prices plumb current lows. For the moment, fiscal 2021 capital expenditure guidance still targets deferral of just 30% of previously planned spend, though sensibly a review is underway. We currently assume a 40% cut.

We make no change to our AUD 2.65 fair value for no-moat Beach Energy. As with energy exploration and production peers, the firm has reduced near-term capital expenditure guidance. Fiscal 2020 capital expenditure is reduced to the low end of most recent AUD 875-950 million guidance, with just one quarter left to run. There will be up to a 30% deferral in fiscal 2021 expenditure relative to prior guidance for AUD 650-800 million. Beach has a very strong balance sheet with AUD 151 million in net cash at end February 2020.

The failure of the OPEC coalition to reach agreement on production cuts on March 6 has sent oil prices into a tailspin, with Brent crude dropping into the low USD 30s in early trading before landing in the mid USD 30s. That's the biggest single-day loss in almost 20 years, essentially wiping out all gains since the 2016 low.