Downside For Beach Energy

This story features BEACH ENERGY LIMITED. For more info SHARE ANALYSIS: BPT

Bottom Line 06/06/18

Daily Trend: Neutral
Weekly Trend: Up
Monthly Trend: Up
Support levels: $1.19 – $1.15 / $1.01 – $0.98
Resistance levels: $1.815 (All-time highs)

Technical Discussion

Beach Petroleum ((BPT)) is an oil and gas explorer which runs right through to the development and production stages. The company has interests in around 300 exploration and production tenements both locally and overseas. It has several subsidiaries including Beach Petroleum N.Z, Beach Production Services and Beach Petroleum (Cooper Basin) to name just a few. The company is based in Adelaide, South Australia. It has oil and gas reserves of 92.7 million barrels. For the year ending the 30th of June 2017 revenues increased 16% to A$649.3M. Net income was A$387.5M against a loss of A$588.8M. Revenues highlight the Crude Oil Production (Barrels)-Cooper increase of 12% to 10.6M barrels. Net Income reflects Impairment of petroleum assets decrease from A$469.7M. Broker/Analyst consensus is “Sell”. The dividend yield is 1.2%.

Reasons to be more optimistic (caution short term):
→ September quarter numbers were above consensus.
→ Capital discipline now apparent.
→ Cooper basin looks to have more opportunities and could shake off its “high cost” label.
→ Free cash flow whilst replacing reserves.
→ Trading on undemanding valuation metrics.
→ Reserves have been upgraded across operated oil acreage.
→ A good alternative mid-cap choice in Australia for investors wanting energy exposure.
→ Cost savings meant results came in above consensus.
→ Incrementally increased production over the coming years.

A better session overnight for crude oil, plus today’s monthly drilling report resulted in a good session for BPT although this doesn’t mean the prior uptrend is back in motion. Although it doesn’t look too severe on this chart, clear rejection transpired at the all-time highs just a couple of weeks ago which resulted in a decline of just short of 15%. This does keep the door open for a deeper retracement or at least a longer pause for breath. Rejection at those slightly higher levels shouldn’t come as a big surprise as the $1.80 region has held sellers going all the way back to 2006 which is why we can view the zone of resistance as being significant.

Volume also picked up around recent highs which is usually reason to sit up and take notice as this often occurs around highs and lows. We’ve been mentioning bearish divergence on weekly timeframes for several weeks now and unfortunately BPT hasn’t been able to dodge that bullet. Price has made a higher high with our oscillator failing to confirm that strength by making a lower high. It’s also triggered meaning its significance increases. All things being equal, the recent pivot high at $1.815 should not be overcome until our oscillator heads down into the oversold position which is going to take several weeks as opposed to days. This isn’t major reason for concern over the medium to longer term although it does open the door for a deeper retracement.

Again, we haven’t put forward a wave count on this chart which solely comes down to the lack of significant retracements. The Wave Theory is a great trend identifier although you must have retracements to work off which simply isn’t the case here. As such, we’ll concentrate on more conventional pattern analysis which brings us back to the solid zone of resistance, the bearish divergence and volume. It would take a push above $1.82 in a move that sticks to suggest our calls for caution are ill founded. This isn’t impossible, just unlikely with the information at hand.

Trading Strategy

The rejection at all-time highs coupled with the increasing volume gave us reason to tighten the protective stop recently which has subsequently been tagged. The end result has been a good percentage gain in a short period of time which is really all we can ask for, especially as price rejected from the solid zone of resistance. One thing is for sure, we don’t want to be involved until our divergence oscillator either invalidates or rotates all the way down to the oversold position. Also, crude oil has been retracing recently and it could have further to fall before the uptrend kicks back into gear.

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

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