Acquisition move to enhance reserves and production: In a transformational move, Beach Energy Ltd (ASX: BPT) has offered an all scrip deal to acquire Origin Energy’s conventional oil and gas arm, Lattice Energy for $1,585 million. This would enhance their 2P reserves by ~200% to 232 MMboe and accordingly the FY18 production guidance has been enhanced by ~150% to 25? 27 MMboe. The group would add a portfolio of producing assets driven by long term contracts which would generate a solid cash flow with development upside. Particularly, the group expects the acquisition to be more than 60% operating cash flow accretive on a per share basis in first full year of ownership. Acquisition price by BPT includes Benaris’ 27.77% interest in the Otway Basin that Origin has agreed to acquire for $190 million. The transaction is, however, subject to necessary approvals in NZ (including the approval of the NZ Minister of Energy and Resources). Overall, Beach is enhancing their exposure to the strong Australian east coast gas market via this acquisition.

Managing finances: It is understood that the group will soon launch an equity raising to finance the purchase. BPT has already given an insight about arranging the finances from about $1,575 million committed senior secured syndicated debt facilities, and about $301 million accelerated non-renounceable entitlement offer (3 for 14 pro-rata offer at an offer price of $0.75 per share).


Acquisition benefits to Beach (Source: Company reports)

It is worth noting that the group has snapped up on Lattice with a superior binding proposal over that from Questus Energy (Sydney-based private equity firm). In this scenario, the initial public offering eyed by ORG for Lattice has moved under the wraps. On the other hand, BPT now aims to have blended FY18 portfolio gas price in excess of Beach’s FY17 average realised gas price ($6.10/GJ); and aims to be a major supplier of gas to east and southern coast markets. The group is also targeting net gearing ratio of <25% by end of FY19 with support from free cash flow generation.

The shares of BPT surged over 22.2% in the last four weeks (as at September 27, 2017) and are still expected to see more upside momentum.

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