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Stock Of The Day - BEACH PETROLEUM (HOLD)

Quite recently, Beach Energy Ltd (ASX: BPT) reported its march quarter 2015 results, which witnessed a 23% decrease in sales volume to 2.2 MMboe, as compared to the 2.3 MMboe for the same period last year. The decrease is attributed to the decline in oil production and gas demand, as well as more than expected downtime at Moomba gas processing facility. Accordingly, Revenues fell 33% in year over year terms to $131 million. Moreover, the average realized Australian dollar oil price fell 18% to $71/bbl, as compared to the previous quarter of $87/bbl.


March Quarter highlights (Source: Company Reports)

Production reduced 11% to 2,122 kboe as compared to the previous quarter, mainly attributed to the decrease in Natural oil field, Commissioning delays for the Bauer facility upgrade due to bad weather and high Moomba gas processing facility downtime. Therefore, Beach decreased its fiscal year 2015 production to 8.9 – 9.2 MMboe, as compared to the previous guidance of 8.9 – 9.4 MMboe.


Actual and Future Production (Source: Company Reports)


As per the Cooper Basin operated highlights, the second Bauer Field pad drilling campaign at Ex PEL 91(Beach 40%, Drillsearch 60%) was completed during the quarter while the initial contribution from first Bauer pad was also started during the quarter. By the end of the year, the company estimates to bring the remaining wells from the first Bauer pad online, Commission Stunsail and Pennington facilities, connect second Bauer pad as well as Chiton-3, Hanson-2 and Balgowan-1 wells. Going forward, Beach Energy estimates its Bauer Field development drilling to add 2P reserves. In April, Pennington?4 well at PRL 163, was cased and suspended for future subsequent to the 2.5 metre Namur oil column intersection as well as gross oil bearing interval of 4.2 metre at overlaying McKinlay Member.


Reserves and Contingent Resources (Source: Company Reports)
 
For Ex PEL 92 project in which the company holds 75% along with Cooper Energy which holds 25%, Callawonga?10, the first well of two?well drilling program at Callawonga Field was cased and suspended as a future Namur oil producer in April. For five?well Swan Lake Field drilling program at South Australian Gas project, wherein Beach has 20.2% of stake along with 66.6% by Santos and 13.19% by Origin, the first well Swan Lake?13 reached total depth.
 
As per Cooper Basin Non-operated SACB Joint venture highlights (Beach 20.21%, Santos 66.6% and operator, Origin 13.19%), two-well pad development program at Patchawarra Formation and Tirrawarra Sandstone was completed at Narie Field. Both Narie-4 and -5 wells were cased and suspended as future producers, with regards to their positive flow rates and test results, which showed good reservoir qualities and low levels of depletion. 


Cooper Basin Wells (Source: Company Reports)
 

With regards to the Abu Sennan Concession project in Egypt, in which Beach holds 22% of stake along with Kuwait Energy holding 50% and Dover accounting 28% of stake, ASH?1X ST1 demonstrated oil exploration success in April. The well discovered hydrocarbons at Alam El Bueib Formation. ASH development lease was also granted, bringing ASH?1X ST1 online. This production is the initial one coming from the deeper targets in the Abu Sennan concession. In addition, ASA?3 ST1 oil appraisal well’s logging operations are ongoing, wherein it reached an ASA?3 ST1 oil appraisal well.


Abu Sennan Project (Source: Company Reports)
 

The exploration phase if NTNG Stage 1 was completed by complying all the technical objectives and Stage 2 scope is also planned with minimum expenditure. Meanwhile, Chevron will not participate further for the development of Stage 2 of the NTNG project. Beach will now hold the entire 100% for Ex PEL 218 project. For ATP 855 Beach will have 64.9% along with Icon which comprises 35.1%.
 
Rob Cole, is the new Managing director to the company since March 2015. Around 35 wells were completed with a drilling success rate of 91% during the first three months of 2015. During April, seven drills showed a success rate of 86%.


March Quarter Wells (Source: Company Reports)

As a part of the firm’s revised fiscal year 2015 program, the capital expenditure showed a 47% decline to $79 million, as compared to the previous quarter, Beach Energy has cut expenditure in SACB JV development, NTNG Stage 1 exploration phase, and deferred some discretionary items. The company intends to decrease capital expenditure even for fiscal year 2016, by decreasing development costs for SACB and SWQ JVs and spend less on international projects


FY2015 estimates (Source: Company Reports)


As of March 2015, Beach energy’s cash reserves decreased to $165 million due to lower sales volumes and realized oil process. Moreover the company paid dividends of $10 million during the quarter. In addition, the company redeemed Convertible Notes of $150 million during the quarter.


BPT Daily Chart (Source - Thomson Reuters)

Based on the foregoing, we give a HOLD recommendation at the current price of $1.10.