Execution Is Key | Beach Energy (ASX:BPT) Recommendation

Ord Minnett Research Recommendation:   Beach Energy (ASX: BPT)  

Beach Energy reported attributable production of 5.7 million barrels of oil equivalent (mmboe) for the September quarter, down 4% on the previous period but in line with Ord Minnett’s forecast. On an annualised basis, production for the period was 22.8mmboe, trending towards the top end of the company’s full-year guidance range of 22–23mmboe.

We note the following key points from the release:

Field decline rates at the Western Flank were at the lower end of the expected range of 35–45%. Production was affected by delays in undertaking workovers at certain fields due to COVID-19 restrictions.

Realised gas prices declined, with the previous quarter benefitting from the repricing of certain Otway Gas Project volumes following the Origin Energy gas sales agreement (GSA) price review.

Revenue for the quarter of $388m came in within 1% of our estimate, although it was down 8% on the previous period with higher realised prices only partially offsetting lower sales volumes.

Beach ended the quarter with net cash of $43m, versus net debt of $48m in June, as the company benefitted from a favourable arbitration decision following a contract dispute over a Kupe (New Zealand) GSA, as well as receiving proceeds from the sale of the Bass Basin interests to Mitsui.

Including the quarterly production report in our financial modelling has resulted in negligible changes to our earnings forecasts and valuation. We remain well above consensus for each of the next three years and we believe market forecasts will increase as higher oil prices are included.

Beach remains the cheapest exploration and production stock under our coverage, and we maintain our Buy recommendation with a $1.80 target price. The key risk, in our view, relates to execution of growth projects given the issues the company faced in CY21.