Is Beach Energy (ASX: BPT) a Buy?

This article was originally published at MF & Co. Asset Management.

Beach Energy Limited (ASX BPT) is an Adelaide-based oil and gas exploration and production company. As a key supplier to the Australian east coast gas market, the flagship operations are located in the Cooper/Eromanga Basins and Canterbury Basin in New Zealand with operated and non-operated, onshore and offshore, oil and gas production from five producing basins across Australia and New Zealand. The Beach Energy share price has been on a tear lately after reporting some good numbers.

About Beach Energy Limited (ASX BPT)

Beach Energy Ltd, formerly known as Beach Petroleum Ltd, was established in the early 1960s by the late Dr. Reg Sprigg, a highly regarded Australian oilman, geologist, explorer and conservationist.

The company is an oil and gas exploration and production company that is based in Adelaide, Australia. Beach Energy’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.

Prior to founding Beach Energy, Dr. Sprigg acted as technical advisor to Santos (ASX STO), now one of Australia’s largest oil and gas companies. Dr. Sprigg was instrumental in focusing Santos’ early exploration efforts on the Cooper Basin of central Australia, now Australia’s largest onshore petroleum-producing region.

Beach Energy Share Price (ASX BPT) mines

Market cap stands at $4.4 billion at the current Beach Energy share price.

Beach Energy has Enhanced Their Offshore Production and Leadership Team

At the end of 2017, Beach Energy completed the acquisition of Lattice Energy Ltd, which is a subsidiary of Origin Energy Ltd (ASX ORG), for $1.6 billion. This acquisition transformed Beach Energy from a single basin onshore producer to one with multiple producing basins, onshore and offshore production, significant gas processing infrastructure, and operations across Australia and New Zealand.

This acquisition will act to increase production by 150% in 2018, and it will also increase oil reserves to around 232 MMboe, which is expected to triple BPT’s income.

Long-term contracts will continue to deliver gas to Origin Energy as well as AGL Energy Ltd (ASX AGL), which means stable and consistent cash flow for the company.

Lattice will bring with it a 50% stake in the onshore gas discovery project Waitisa Gas which is forecast to inject $50 million per annum into the Beach Energy books, reducing the company’s net gearing to 29%.

According to the May drilling report, the new assets are 150% higher than in the previous quarter, with sales revenue up 90% to $393 million. The product mix has also changed. Gas is now more than 60% of sales value, which previously accounted for about one-third of revenue.

In addition, the company has set up a new executive team that will lead the company following the completion of the acquisition of Lattice Energy.

Due to the new offshore operations, the new executive team members will have the necessary upstream oil and gas expertise, leading global energy company experience, and extensive offshore operations exposure that Beach Energy requires.

This change ensures that safety and process remain paramount, while development and growth plans are executed with the appropriate expertise. For example, the chief operating officer has 80% offshore work experience gathered throughout his 25 years in the industry.

Capital Program to Sustain Beach Energy Production Over the Longer Term

Beach Energy holds interests in Cooper/Eromanga Basins and operates at The Greater Western Flank development.

According to the May drilling report, the results of oil appraisal at Watkins and Minos shows that it can be implemented and Beach Energy 100% own ex PEL 106 wet gas acreage.

Beach Energy has retained licences over a number of permits, which secure tenure over these areas for up to a period of 15 years such as PRLs 136 to 150 over the former PEL 104/ 111 permits.

The campaign, Coalinga-1 is located approximately 52 kilometres northwest of the Moomba plant. Due to reservoir pressure, the information available indicated good permeability with the project able to be connected to the Brownlow Field.

A three-well oil appraisal campaign was undertaken in the Watkins and Minos fields, approximately 60 to 65 kilometres southwest of the Jackson facility in Cooper/Eromanga Basin. This involved two appraisal wells were drilled in the Watkins Field (Naccowlah JV) and the third in the nearby Minos Field (Innamincka JV).

However, the operation in New Zealand might have some obstructions that investors should be aware of including the shock ban on new exploration permits announced by Prime Minister Jacinda Ardern last month.

Beach Energy Stocks Have Strong Potential

Overall, the Beach Energy share price has high potential growth opportunity, supported by increasing operation and development for natural gas and oil. After two years of record low oil prices and negative earnings, the Beach Energy share price is now on a tear and their EPS is back in the black. Beach Energy looks to be a good oil and gas play alternative to Santos for something with more growth opportunities.

Henry Fung is a Partner Managing Director and co-founder of MF & Co. Asset Management. He is a highly experienced equities, derivatives and financial markets professional with over 12 years of experience. Henry specialises in building trading algorithms & systems, quantitative & qualitative analytics across macroeconomic, fundamental and technical disciplines and currently runs the MFAM VPAC AU/US models portfolios. The management Partners and Adviser team have decades of experience between them, with experience from major Investment Banks and Brokers. Their Advisers are highly experienced, having dealt with some of the wealthiest clients in Australia.

Categories: Australian Stocks, Featured, New Zealand Stocks

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