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.

The Australian Energy Review - - FRONT PAGE - REUBEN ADAMS

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.”

Im­age: Beach En­ergy.

The ac­qui­si­tion will mean Beach En­ergy’s as­sets will pro­vide about 15 per cent of east coast gas sup­ply.

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