Beach Energy Limited

BPT Details

Alternate Director Appointed: Beach Energy Limited (ASX: BPT) Beach Energy Limited (ASX: BPT) is engaged in mining and exploring hydrocarbons operating in South Australia and Western Australia, Victoria, New Zealand. As of 18 May 2021, the market capitalisation of BPT stood at ~$2.92 billion. On 3 May 2021, BPT announced the appointment of Ms Margaret Hall as an alternate director for Mr Ryan Stokes for a year or until her termination as per the constitution of BPT.

Increase in Top-Line for Q3FY21: For Q3FY21, BPT registered $393 million of revenue, up by 14% due to a better average realised pricing across all products. It reported decreased oil production to 5.9 MMboe, down by 5% QoQ due to Western Flank 2P reserves downgrading and lesser Victorian Otway customer nominations. The Perth Basin production reported was up by 10% QoQ to 190 kboe. BPT’s Waitsia JV Gas Project has reached Final Investment Decision (FID) for Stage 2 development in the Perth Basin.

On 1 March 2021, BPT acquired Senex Energy’s Cooper Basin assets for $87.5 million from its available cash and drawdown of loan facilities. In Q3FY21, BPT executed a contract with Santos to conduct FEED activities for its Moomba Carbon Capture and Storage (CCS) project in the Cooper Basin. BPT completed the drilling at the top holes at the Geographe 5 (second well) and four after the quarter close at the offshore Otway Basin. BPT reported reduced net debt to $20 million, down by $26 million with net gearing at ~1% during Q3FY21. It declared a cash reserve of $190 million as of 31 March 2021.

Q3FY21 Highlights (Source: Company Reports)

Key Risks: The company faces the risk of changes in the production levels and oil and gas prices. It bears the risk of acquisition synergies from the assets purchased and the impact of the pandemic uncertainties on the business. 

Outlook: BPT has revised the FY21 production guidance to 25.2–25.7MMboe versus the previous forecast of 26.5–27.5MMboe due to the downgrading in Western Flank 2P oil reserves and reduced customer nominations for the Victorian Otway project. The management reported its Kupe compression project is on schedule and budget and slated to commence in 1HFY22 in New Zealand. At the offshore Otway Basin, BPT is currently drilling the rig at Geographe 4 well and targeting undeveloped 2P reserves. It expects maiden production from the wells in FY22. BPT has reported the production growth developments from the Perth Basin and Otway Basin are progressing on track.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of BPT gave a negative return of 20.06% in the past three months and a negative return of 20.78% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $1.15-$2.035. The stock of BPT has a support level of ~$1.208 and a resistance level of ~$1.447. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). For calculating the above target Price, we have taken the debt and cash figures from the Interim Report as of 31 December 2020. We believe that the company can trade at some discount than its peer average, considering its decline in production and sales volume in 1HFY21, a downgrade of FY21 production estimates, and the risks associated with the underperformance of the Western Flank 2P oil reserves and lower customer nominations for the Victorian Otway Basin. For this purpose, we have taken peers like Karoon Energy Limited (ASX: KAR), Cooper Energy Limited (ASX: COE), New Hope Corporation Limited (ASX: NHC) and others. Considering the current trading levels, increase in top-line in Q3FY21, expanded portfolio with the acquired assets, ongoing drilling at Geographe 4 well, gas discovery at the Artisan well 1 and Enterprise 1, the targeted gas production from Kupe project in 1HFY22, and valuation, we give a ‘Buy’ rating on the stock at the current market price of $1.315, up by 2.734% on 18 May 2021.

BPT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Oil Search Limited

OSH Details

Growth in Q1FY21 Top-Line: Oil Search Limited (ASX: OSH) is engaged in mining and developing oil and gas fields both as an operator and non-operator participant. It holds 51% interest in the Pikka oil field in Alaska and is the 100% operator of Papua New Guinea (PNG) oil fields. As of 18 May 2021, the market capitalisation of OSH stood at ~$7.99 billion. OSH posted operating revenue of US$301.5 million in Q1FY21, up by 16% QoQ due to higher realised prices for oil and gas. The total sales volume and production from the PNG LNG project fell to 6.68MMboe and 6.86MMboe for Q1FY21. The decline in production was due to the unplanned shutdown at the Hides Gas conditioning plant. During the quarter, OSH and ExxonMobil entered a Fiscal Stability Agreement with the PNG Government and received a five-year licence extension for Papua LNG JV.

For its Pikka project in Alaska, OSH is advancing well on its FEED activities and undertaking engineering activities on all critical components. During the quarter, OSH incurred US$24.2 million of exploration and evaluation expenditure associated with the lease purchases in Alaska, pre-FEED and FEED activities for the Pikka project and pre-FEED activities for LNG expansion in PNG. OSH reduced its net debt to US$2,241.1 million, down by 5.7% on a QoQ basis. OSH held US$676 million in cash as of 31 March 2021.

Revenue Highlights, Q1FY21 (Source: Company Reports)

Key Risks: The company faces the risk of COVID-19 led logistical uncertainties, oil and gas production changes, and their realised prices. 

Outlook: The company has maintained the production forecast at 25.5-28.5mmboe with a production unit cost between US$10.50-11.50 per boe. It has submitted a revised range of US$250-US$350 million for the total investment expenditure in FY21. For Papua LNG JV, OSH is now reviewing markets and completing modified pre-FEED engineering before making a Front-End Engineering and Design (FEED) decision in FY2022. For the Pikka project, OSH is looking for divestment and funding options simultaneously to retain 36% ownership in the long term.

 Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

** 1 USD = ~ 1.28 AUD

Stock Recommendation: The stock of OSH gave a positive return of 26.60% in the past nine months and a positive return of 31.67% in the past year. The stock is currently trading slightly higher than the 52-weeks’ average price level of $2.5-$4.62. The stock of OSH has a support level of ~$3.717 and a resistance level of ~$4.231. We have valued the stock using the Enterprise Value to Sales based illustrative relative valuation method and have arrived at a target price of low double-digit upside (in % terms). We believe that the company can trade at a slight discount than its peer average, considering its lower production and sales volume in Q1FY21 on a pcp basis, and the risks of supply chain disruptions due to pandemic restrictions. For this purpose, we have taken peers like Santos Limited (ASX: STO), Contact Energy Limited (ASX: CEN), Karoon Energy Limited (ASX: KAR) and others. Considering the current trading levels, increase in the top line, better prices for oil and gas, an agreement signed with the Independent State of PNG and five-year licence extension, advancement on Pikka project, production estimate for FY21, valuation, we give a ‘Hold’ rating on the stock at the current market price of $3.950, up by 2.597% on 18 May 2021.

OSH Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

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