Company Overview - Beach Energy is an Australian-based company engaged in oil and gas exploration, development and production. The Company has its core focus on the resource-rich Cooper Basin with gross acreage of over 56,000 km2 while also having permits in other basins around Australia and overseas. The Company is an onshore producer with drilling and new oil discovery programs in the Western Flank of the Cooper Basin. The Company has prime tight gas acreage in the Nappamerri Trough with transformational prospects for Australia's East Coast gas market. It holds interests in more than 300 exploration and production tenements in Australia, Egypt, Tanzania, Romania and New Zealand. The Company seeks domestic and international opportunities while continuing exploration of gas saturated shales and tight gas in Cooper Basin, Otway Basin and Bonaparte Basin. The Company also holds interests in production joint ventures in the Cooper Basin, Eromanga Basin and the Gulf of Suez in Egypt.


BPT Details

Positive Exploration results: Beach Energy Ltd (ASX: BPT) reported that its South Australian Gas project (with Beach holding 20.21%, Santos having 66.6%, Origin having 13.19%) showed promising prospects as per the June Monthly drilling report. The project’s five well development campaign targeting gas and gas liquids within the Patchawarra Formation and oil within the Tirrawarra Sandstone progressed well. The second and third wells of the campaign, Tirrawarra?92 and Tirrawarra?91, respectively, were cased and suspended as future producers following high?side gas and oil pay outcomes. The second well of the campaign, Tirrawarra-92 was spudded on 18 May 2016 and is currently drilling ahead at 3,490 meters in the Patchawarra Formation. As per the Queensland Gas (Beach 23.2%, Santos 60.06% and operator, Origin 16.74%) three-well appraisal campaign at the Coolah Complex, the targets identified from 3D seismic acquired over the Coolah area in 2015, complemented past 3D seismic across the Barrolka Field to the north and Durham Downs Field to the south. Dunadoo?1 and Coolah?3 (first two wells of the campaign,), were cased and suspended as future producers following identification of gas pay in the Toolachee Formation. In fact, Dunadoo?1 (spudded on May 25, 2016) witnessed net gas pay of 15 metres within a 71 metre gross section while Coolah?3 encountered net gas pay of 16 metres within a 74 metre gross section. The final well of the campaign, Coolah?4, was spudded subsequent to month?end. Earlier, BPT reported that the joint venture would evaluate results from the campaign to determine potential for further drilling in the area. With regards to the group’s international efforts, Beach has the Abu Sennan Concession project (a joint venture of Beach with 22%, Kuwait Energy comprising 50%, and Dover having 28%). Al Jahraa SE-1X oil exploration well was spudded on May 20, 2016 and now reached total depth of 3,361 metres in the Bahariya Formation and will be cased and completed.
 

South Australian Gas Development Update (Source: Company Reports)
 
SACB and SWQ joint venture highlights: Beach Energy’s Cooper Basin has a solid acreage of about 69,000 km, offering huge exploration and production opportunities. The group’s Delhi based SACB and SWQ joint ventures have diverse Cooper Basin acreage position of about 26,800 km (~6.6 million acres) having major gas processing infrastructure, which connects to major energy markets. The Delhi based joint venture delivered a gas / liquids production of 997 kboe in third quarter of FY16 (net), oil production of 198 kbbl (net) in which active drilling program across basin is undergoing. Moreover, the group is controlling its capital expenditure by improving its flexibility and focusing on value optimization.
 

Cooper Basin substantial acreage (Source: Company Reports)
 
Leveraging Cooper Basin infrastructure: The Cooper Basin infrastructure is ideally located to service southern, eastern and LNG markets, and has an about 6,000 kilometres of flowlines into Moomba in which there is gas processing capacity of 375 TJ (~80% utilised). Moomba / Port Bonython daily processing capacities have 35 kbbl oil / condensate (~85% utilised), 600 tonnes LPG (~45% utilised), and 48 kbbl daily flowline capacity (Moomba to Port Bonython). Gas storage capacity is over 75 PJ for which Moomba is processing plant accessible for new discoveries. In addition, 2P oil reserves would increase materially based on the merger with Drillsearch.
 

Oil & Gas Reserves after Merger (Source: Company Reports)
 
Improving production: The Western Flank core production is the main source of Beach oil production and delivered a net production of 1.0 MMbbl and has field operating cash costs less than $5/bbl in operated permits for the third quarter of fiscal year of 2016. Beach gas and gas liquids production has net production of 124 kboe during the third quarter of 2016 and the compression of the project is underway. In addition, the Operator and part owner of flowlines and pipelines linking fields from Lycium to Moomba have a daily capacity of greater than 21,000 bopd. On the other side, Drillsearch merger provided significant acreage to Beach and accordingly expanded the Western Flank footprint. Western Flank has seven ex PEL 513 discoveries from eight wells in FY15 and three wells were online in ex PEL 513. However, Vanessa discovery in PEL 182 is awaiting infrastructure connection as FY16 drilling and testing program is finished in ex PELs 513 and 101 while the detailed review of portfolio and test results are underway. On the other side, the group’s production reached 7.0 MMboe for nine months ended on March 31, 2016, which is an increase of 1% on pcp driven by higher ex PEL 91 oil production from new wells and infrastructure upgrades, continuing strong gas production and Drillsearch contribution from March. Moreover, Western Flank has average gross daily oil production of 18,916 barrels during the third quarter of 2016. Accordingly, Beach has increased their FY 16 guidance to the range of 9.5 MMboe – 9.8 MMboe from 43 wells drilled with a success rate of 91%.
 

Actual and Forecast Production (Source: Company Reports)
 
Strong balance sheet: Beach has a strong cash reserves of $242 million by the March third quarter end, which comprises drawn debt of $150 million and remaining convertible notes on issue of $86 million. The group has been aggressively controlling capital expenditure during the third quarter of 2016 which was 51% lower than the prior quarter. Accordingly, for FY16, the group is making efforts to minimize or defer expenditure and forecasts a capital expenditure in the range of $180 – $210 million. Expenditures associated with its Drillsearch permit interests during the period March 01, 2016 to June 30, 2016 are estimated to be offset by further reductions and deferrals identified for the second half of 2016. Beach issued 557,826,555 fully paid ordinary shares during the third quarter during Drillsearch merger implementation.
 

Liquidity to be deployed for relevant growth opportunities (Source: Company Reports)
 
Stock performance: The shares of Beach delivered strong returns of 18.27% during this year to date (as of July 05, 2016) and the company has well positioned itself to withstand the lower oil prices environment. The group continued to adapt its operational processes and procedures to offset its top line performance pressure. Accordingly, Beach forecasts to generate an annual cost savings of up to $7 million (pre-tax) which are incremental to the $19 million of operating cost savings and royalty reductions since the first half of 2016. With the Drillsearch merger completion, the group forecasts an annual cost savings of up to $40 million (pre-tax) which would be fully realized by FY17. Consequently, the organization review and Drillsearch merger would lead to a 29% headcount reduction since 30 June 2015. Beach even improved its top line in the third quarter of 2016, and its sales volumes rose 5% to 2.6 MMboe driven by Drillsearch merger, better gas volumes, which partially offset by timing of crude oil shipments. Third quarter production surged 8% to 2.4 MMboe on the back of Drillsearch merger and constant oil production from ex PEL 91. Artificial lift campaign finished in ex PEL 91, leading to incremental production of 440 bopd. On the other side, Beach has revised agreement for sale of its Egypt assets to Rockhopper and exited from BMG joint venture in the Gippsland Basin. BPT stock surged over 6.03% (as of July 05, 2016) in the last five days and we believe that the positive momentum in the stock would continue in the coming months. Based on the foregoing, we give a “Buy” recommendation on the stock at the current price $0.61
 

BPT Daily Chart (Source: Thomson Reuters)

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