CREST OF THE WAVE
Beach Energy has made another big play. By picking up Origin’s Lattice Energy assets, Beach is transforming itself into an important Australian gas player with a range of world class offshore and overseas producing assets.
IT may not seem like it, but the Asx-listed oil and gas majors have enjoyed a strong 12 months. Boosted by a strong oil price, the big players all made notable year-on-year share price gains to November this year.
Woodside surged to $33.29 in early November, up from $29 one year ago.
Origin Energy has jumped from about $5.50 to $8.09 year-on-year.
Santos went from $4.06 in November 2016 to 2017 highs on $4.78 one year later, while Beach Energy has gone from $0.77 to year-highs of $1.16 in in the same period.
On 14 November the IEA said that the oil price rally – from lows of $Us45/bbl (brent) in late June to around $Us63/bbl recently – was the result of supply disruptions, geopolitical concerns, and growing expectations that the OPEC/NON-OPEC output accord will extend through 2018. And with demand growth also still robust, firmer prices could be here to stay.
In Australia, AEMO’S September Gas Statement of Opportunities update reiterated that in eastern and south-eastern Australia, there is potential for an annual energy shortfall in the domestic gas market of 54 petajoules (PJ) in 2018 and 48 PJ in 2019.
Enter Beach Energy, which has positioned itself to become a major supplier to Australia’s gas famished east coast with the $1.58 billion ($US1.25 billion) buyout of Origin Energy subsidiary Lattice Energy.
The Lattice deal is transformational one; turning the company into a significant Australian gas player with offshore and overseas producing assets.
Post-acquisition, Beach east coast gas sales and ethane production will increase by some 310 per cent to 95PJ equivalent — representing about 15 per cent of east coast demand in 2016 – from three core gas processing hubs.
A strong Q3
Beach Energy Q3 production of 2.6Mmboe, was up 2 per cent from the prior quarter.
Continued strong cash generation saw sales revenue of $178 million – up 17 per cent from the prior quarter – mainly due to a 12 per cent increase in the average realised oil price to $78/bbl, and a 9 per cent increase in oil sales volumes.
The average realised sales gas and ethane price also increased by 3 per cent to $6.38/GJ.
Beach Energy boosted net cash by $32 million, with quarter-end reserves of $230 million. Material cash flows included net operating cash flow of $90 million, capital expenditure of $46 million, dividend payments of $18 million and receipt of proceeds from asset sales. The company also utilised existing cash reserves to repay $150 million in outstanding debt.
“Beach has continued its strong momentum from FY17 into the new financial year with success in the field, $90 million of operating cash flow generated, and announcement of the company transforming acquisition of Lattice Energy,” Beach Energy chief executive Matt Kay said.
“The multi-year Cooper Basin capital program commenced and delivered early success. Active field development works saw seven new Western Flank oil wells commence production and six artificial lift installations commissioned.
“Incremental production from these activities contributed to a 2 per cent increase in production to 2.6Mmboe, consistent with our objective to sustain production levels.”
Lattice: a game changer
On 28 September 2017, Beach Energy announced that it had entered into a binding agreement to acquire Lattice Energy for $1.585 billion.
The acquisition of Lattice Energy is transformational for Beach, significantly augmenting the company’s scale and creating a leading Asx-listed upstream oil and gas mid-cap with diverse production and growth options.
The combination will expand Beach’s footprint across multiple basins, production hubs and jurisdictions, and increase Beach’s 2P reserves by about 200 per cent to 232 Mmboe1. FY18 pro forma production guidance will increase by about 150 per cent to between 25Mmboe2 and 27Mmboe2.
Lattice Energy will also deliver a step-change in operatorship capabilities and expertise, including gas processing and offshore production.
“On 28 September 2017, we announced the acquisition of Lattice Energy, a significant milestone as we execute our strategy to become a premier upstream oil and gas company in the region,” Mr Kay said in the company’s Q3 report.
“The combined operations will propel Beach from a single-basin onshore producer, to a multi-basin, onshore and offshore producer with significant gas processing capabilities across Australia and New Zealand.
“A diverse portfolio of quality assets brings with it significant optionality and high impact, value creating growth opportunities. Integration planning is well advanced as we target completion in the next few months.”
On 2 October 2017, Beach Energy announced that the accelerated institutional entitlement offer had been completed with a near record take-up rate of over 98 per cent. On 19 October, Beach Energy announced that the retail entitlement offer had been successfully completed and was strongly supported by eligible shareholders.
Waitsia: exceeding expectations
In November, an independent review by Perth-based RISC increased the Waitsia gas field’s 2P reserves by a staggering 78 per cent to 811 petajoules, making it WA’S biggest onshore commercial gas field identified.
The news is validation for Beach Energy, which acquired a 50 per cent stake in the project as part of the Lattice deal.
"The [Waitsia] project remains on track for the joint venture to be in a position to make a final investment decision (FID) from the end of 2017," AWE chief executive David Biggs said.
Waitsia is believed to be one of the largest onshore gas finds in Australia in decades.
Lowry-1: a new discovery
On 2 November Beach announced a crucial gas discovery in its Western Flank gas program in the South Australian section of Cooper Basin.
The exploration well Lowry-1, in the SWP play fairway about 4km northwest of the Middleton gas facility, intersected 3.3m of net pay in the Permian-age Patchawarra formation.
The results confirmed Lowry-1 as a discovery not connected to nearby producing fields, and provided further validation for the approved expansion of the Middleton plant to 40Mmcfd from its original capacity of 25Mmcfd.
“In our 100 per cent owned gas acreage, a liquids-rich discovery at Lowry-1 confirmed this acreage as a growth engine for Beach,” Mr Kay said.
“Lowry-1 has provided the impetus needed to progress phase 1 expansion of the Middleton facility from 25Mmscfd to 40Mmscfd.
“Planning is well advanced as we continue our active FY18 gas drilling campaign.”
The acquisition will mean Beach Energy’s assets will provide about 15 per cent of east coast gas supply.