Beach Energy (ASX:BPT)

Matthew Kay
CEO & MD
Market Cap (AUD): 4.56B
Sector: Energy
Last Trade (AUD): 2.18 +0.2 (+9%)
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1. About

Beach Energy is an ASX listed, oil and gas, exploration and production company headquartered in Adelaide, South Australia. It has operated and non-operated, onshore and offshore, oil and gas production from five producing basins across Australia and New Zealand and is a key supplier to the Australian east coast gas market. Beach’s asset portfolio includes ownership interests in strategic oil and gas infrastructure, such as the Moomba processing facility, as well as a suite of high potential exploration prospects. Beach is highly focused on maintaining the highest health, safety, and environmental standards.

2. Business model

 

The Company operates the following divisions:[1]

 

Division

Revenue ($’M)

% of Revenue

% of Profit (before Int & Tax)

Profit drivers[2]

SAWA – South Australia and Western Australia

$955.5

76.4%

74.2%

The Group has identified its operating segments to be its South Australian and Western Australian, Victorian and New Zealand interests based on the different geographical regions and the similarity of assets within those regions. This is the basis on which internal reports are provided to the CEO for assessing performance and determining the allocation of resources within the Group. The Group operates primarily in one business, namely the exploration, development and production of hydrocarbons. Revenue is derived from the sale of gas and liquid hydrocarbons. Gas sales contracts are spread across major Australian and New Zealand energy retailers and industrial users with liquid hydrocarbon product sales being made to major multinational energy companies based on international market pricing

Victoria

$208.2

16.6%

15.6%

New Zealand

$87.1

7.0%

10.2%

3. Strategy

 

Key strategies include:[3]

 

Optimize its core in the Cooper Basin

  • Cooper Basin production increased to 12.3 MMboe
  • Cooper Basin 2P oil and gas reserves increased 71% to 128 MMboe at 30 June 2018 § 14 MMbbl of 2P oil reserves added in the Western Flank driven by successful application of horizontal drilling technology and continued excellent production at the Bauer oil field
  • Broad ranging operating and cost efficiencies including the introduction of the fit-for-purpose shallow-well drill rig in the Cooper Basin JV
  • Completion of major infrastructure expansion projects such as the phase-one expansion of the Middleton facility to 40 MMScfd raw gas capacity
  • Addition of a third Cooper Basin JV drill rig and focus on faster drill times saw participation in 96 wells, up from 58 in FY17

 

Build a complementary gas business in east coast basins

  • Beach now supplies approximately 15 percent of the east coast domestic gas demand
  • Lattice acquisition adds an expanded development and exploration opportunity set
  • GSAs in place with attractive price and structure: annual step-ups and CPI adjustments and market price resets every 3–4 years

 

Pursuing compatible growth opportunities

  • Lattice acquisition was a unique fit against all of Beach’s strategic pillars and acquired at an opportune time in the cycle
  • Beach moved to strategic 100% ownership of the Otway Basin assets and commenced a process for the proposed sell down of these assets
  • Frontier exploration opportunities in three basins
  • Agreed potential farm-in to Ironbark exploration prospect in the Carnarvon Basin, WA

 

Maintaining financial strength

  • $301 million entitlement offer undertaken
  • Arranged $1,475 million in credit facilities, including $450 million revolving credit facility
  • Net drawn debt reduced by $221 million since financial close of Lattice acquisition to $639 million at 30 June
  • Net gearing ratio under 26% is well ahead of initial targets § Available liquidity of $761 million at 30 June 2018 § Free cash flow of $349 million generated in FY18
  • Interim plus final dividend of 2.0 cents per share

4. Markets

 

The Group operates in the following industries:[4]

 

Industry (Australia)

Industry Revenue (2018)

Growth rate

Oil and Gas Extraction

$55 billion

5.8% ( (annual 13-18)

Financial Asset Investing

$13 billion

2.4% (annual 14-19)

Petroleum Exploration

$930 million

(28.8%) (annual 14-19)

5. Competition

 

Major competitors include:[5]

 

  • Aeris Resources Ltd (ASX:AIS)
  • Energy World Corporation Ltd. (ASX:EWC)
  • Linc Energy Ltd (ASX:LNC)

6. History

 

1960[6]   

Beach Petroleum Ltd was established

 

1970   

Beach grew its assets steadily, a long term revenue base from its oil and gas discoveries at the time

 

1979   

The Company's pioneering exploration in the Otway Basin of south-eastern Australia resulted in  significant discoveries of commercial gas at Port Campbell

 

1980   

A takeover by the Independent Resources Group. Resulted in a severe depletion of the Company's cash and assets

 

1990   

With a new board, the Company returned its focus to traditional oil and gas exploration

 

2009   

The Company changed its name to Beach Energy

 

2014   

New Transitional gas sales agreement with origin energy

 

2015   

Operational success continued, with capex reductions flagged

 

2016   

Beach Energy Limited signed a gas sales agreement (“GSA”) with Adelaide Brighton Cement Limited, a wholly owned subsidiary of Adelaide Brighton Limited , for supply exMoomba of processed sales gas from Beach’s 100% owned Western Flank acreage

 

2017   

Beach energy announced transformational acquisition of lattice energy and a $301 Million 3 for 14 Pro-Rata Entitlement Offer

 

2018   

Beach Completed Acquisition of Toyota Tsusho’s 5% Interest in the Otway Gas Project and 11.25% Interest in the BassGas Project

7. Team

 

Board of Directors[7]

 

Glenn Davis – Independent Non-Executive Chairman

Colin Beckett – Independent Non-Executive Deputy Chairman

Philip Bainbridge – Independent Non-Executive Director

Jim McKerlie – Independent Non-Executive Director[8]

Ryan Stokes – Non-Executive Director

Richard Richards – Non-Executive Director

Dr. Peter Moore – Independent Non-Executive Director

Joycelyn Morton – Independent Non-Executive Director

Sally-Anne Layman – Independent Non-Executive Director

 

Management Team

 

Matthew Kay – Managing Director & Chief Executive Officer

Dawn Summers – Chief Operating Officer

Morné Engelbrecht – Chief Financial Officer

Jeff Schrull – Group Executive, Exploration and Development

Lee Marshall – Group Executive, Corporate Strategy and Commercial

Geoff Barker – Group Executive, Development

Brett Doherty – Group Executive, Health, Safety, Environment, and Risk

Peter Kupniewski – Company Secretary


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8. Financials

 

2018 Full Year Results Presentation

 

Financial Year 2017/18 (ended 30 June):[9]

 

Division

Revenue ($’M)

% Change

Profit (before Interest & Tax) ($’M)

% Change

SAWA – South Australia and Western Australia

$955.5

46.4%

$309.0

(8.4%)

Victoria

$208.2

N/A

$65.0

7322.2%

New Zealand

$87.1

N/A

$42.5

N/A

Total

$1,250.8

91.7%

$416.5

23.8%

9. Risk

 

Major risks include:[10]

 

Market Risk

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency. The Group sells a portion of its products and commits to some contracts in US dollars or NZ dollars. Australian dollar oil option contracts are used by the Group to manage its foreign currency risk exposure. Any foreign currencies held which are surplus to forecast needs are converted to Australian dollars as required. The Group is exposed to commodity price fluctuations through the sale of petroleum products and other oil-linked contracts. Option contracts are used by the Group to manage its forward commodity risk exposure. The Group policy is to manage commodity price exposure by way of Australian dollar denominated oil options for up to 18 months. Changes in fair value of these derivatives are recognised immediately in the profit or loss and other comprehensive income, having regard to whether they are defined as accounting hedges.

Commodity Hedges outstanding at 30 June 2018

  • Brent Crude oil monthly average collar for $40-90-105/bbl for 65,000 bbls/month for the period July 2018 – September 2018 and 30,000 bbls/month for the period October 2018 – December 2018.
  • Brent Crude oil monthly average collar for $40-90-100/bbl for 95,000 bbls/month for the period July 2018 – September 2018, 65,000 bbls/month for the period October 2018 – December 2018 and 32,500 bbls/month for the period January 2019 – March 2019.
  • Brent Crude oil monthly average collar for $40-102.5-112.5/bbl for 60,000 bbls/month for the period July 2018 – March 2019 and 30,000 bbls/month for the period April 2019 – June 2019.
  • Brent Crude oil monthly average collar for $55-100-110/bbl for 595,000 bbls/month for the period July 2018 – September 2018 and 275,000 bbls/month for the period October 2018 – March 2019.

 

Credit risk

Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to customers, including outstanding receivables and committed transactions, and represents the potential financial loss if counterparties fail to perform as contracted. Management monitors credit risk on an ongoing basis. Gas sales contracts are spread across major Australian and New Zealand energy retailers and industrial users with liquid hydrocarbon products sales being made to major multinational energy companies based on international market pricing.

In addition, receivables balances are monitored on an ongoing basis with the result that Beach’s exposure to bad debts is not significant. The Group does not hold collateral, nor does it securitise its trade and other receivables. At 30 June 2018, Beach does not have any material trade and other receivables which are outside standard trading terms which have not been provided against.

 

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. The Group aims at maintaining flexibility in funding to meet ongoing operational requirements, exploration and development expenditure, and small-to-medium-sized opportunistic projects and investments, by keeping committed credit facilities available.

References

  1. ^ Annual Report 2018, P. 83
    https://www.listcorp.com/asx/bpt/beach-energy/news/2018-beach-energy-ltd-annual-report-2001584.html
  2. ^ Annual Report 2018, P. 83
    https://www.listcorp.com/asx/bpt/beach-energy/news/2018-beach-energy-ltd-annual-report-2001584.html
  3. ^ Annual Report 2018, P. 04 - 05
    https://www.listcorp.com/asx/bpt/beach-energy/news/2018-beach-energy-ltd-annual-report-2001584.html
  4. ^ http://www.ibisworld.com.au/industry/default.aspx?indid=62
    http://www.ibisworld.com.au/industry/default.aspx?indid=519
    http://www.ibisworld.com.au/industry/default.aspx?indid=81
  5. ^ https://www.ibisworld.com.au/australian-company-research-reports/mining
  6. ^ http://www.beachenergy.com.au/irm/content/history.aspx?RID=253
    http://www.shaleexperts.com/company/Beach-Energy-Limited
    https://www.listcorp.com/asx/bpt/beach-energy/news/new-transitional-gas-sales-agreement-with-origin-energy-649707.html
    http://www.beachenergy.com.au/IRM/Company/ShowPage.aspx/PDFs/3826-91347356/Operationalsuccesscontinueswithcapexreductionsflagged
    https://www.listcorp.com/asx/bpt/beach-energy/news/gas-sales-agreement-with-adelaide-brighton-1480830.html
    https://www.listcorp.com/asx/bpt/beach-energy/news/lattice-energy-acquisition-1692439.html
    http://www.beachenergy.com.au/irm/archive/asx-announcements3.aspx?RID=343
  7. ^ http://www.beachenergy.com.au/irm/content/director-profiles1.aspx?RID=254
    http://www.beachenergy.com.au/irm/content/management-profiles1.aspx?RID=255
  8. ^ https://www.listcorp.com/asx/bpt/beach-energy/news/retirement-of-director-jim-mckerlie-1956499.html
  9. ^ Annual Report 2018, P. 83
    https://www.listcorp.com/asx/bpt/beach-energy/news/2018-beach-energy-ltd-annual-report-2001584.html
  10. ^ Annual Report 2018, P 104-105
    https://www.listcorp.com/asx/bpt/beach-energy/news/2018-beach-energy-ltd-annual-report-2001584.html