Australia | Mar 23 2021
This story features BEACH ENERGY LIMITED. For more info SHARE ANALYSIS: BPT
Beach Energy has found gas in its Artisan exploration well although other fields supplying Victoria's Otway plant are considered more promising
-Otway dependent on Enterprise, Thylacine and Geographe to FY25
-Citi upgrades Artisan project risk weighting
-Diversity offsets lack of a significant 2C resource base
By Eva Brocklehurst
Will the discovery of more gas offshore in Victoria's Otway Basin make a difference for Beach Energy ((BPT))?
The company has found gas in its Artisan exploration well, but indicated this is at the “lower end of pre-drill expectations”. Hence, Morgan Stanley points out, as pre-drill expectations were not divulged, it is questionable whether this well will be developed.
In contrast, the Enterprise discovery last year exceeded pre-drill expectations so brokers expect this will fill ullage at the Otway plant along with a successful development at Thylacine and Geographe fields.
Beach Energy has a 60% interest in the Artisan field. Drilling has resulted in a gross gas column of 69.5m with 62.9m of net pay in the Upper Waare formation and 20.9m with 4.6m of net pay In the Flaxman formation.
The company is casing the well as a future producer and after completion will develop additional wells in Geographe and Thylacine. In-field wells Geographe-4 and Geographe-5 are expected to deliver first gas in FY22. Another four wells in Thylacine are proposed.
Morgan Stanley factors in an uplift to Otway production in line with guidance out to 2025 and expects, subsequently, Beach Energy will need to find more gas to keep the plant full.
Development plans for Artisan have not been outlined as yet but Ord Minnett suggests the discovery can provide options to direct future gas production from the well to the Otway plant via the offshore pipeline, which derives supply from Thylacine and Geographe fields.
As a result of the company's announcement, Citi reduces forecast recoverable gas for the Artisan prospect and more than offsets this by increasing the project risk weighting to 90% from 35%. The broker now values the project at $144m, risked at six cents a share.
Citi suspects first gas from Artisan will be pushed out to FY26, where it will provide incremental production to keep the plant at capacity until FY29. On lengthening the production plateau from the Enterprise field, earnings estimates are bolstered post FY24, and Citi concedes Enterprise may even displace Artisan on the production timeline.
Regardless of production forecasts, the broker remains unconvinced about Beach's ability to achieve its five-year free cash flow guidance, maintaining a Neutral rating. Morgans is upbeat on the sector overall and considers it not too late to add exposure although acknowledges the "easy money" has been made.
Conviction on Beach was lowered recently following the risks to its Western Flank interest and underperformance at the Bauer field. Yet, as the share price has trailed peers the broker believes the risks are now well incorporated and maintains an Add rating. While Beach llacks the 2C resource base of some of its peers this is somewhat offset by its diversity and earnings profile.
Macquarie has also pointed to the disappointment in the decline in the Bauer field, which is more rapid than previously expected and contributes 80% of Western Flank production. Still, the broker suggests weakness can be an opportunity to accumulate the stock.
Production may be disappointing for the next couple of quarters but Macquarie highlights the cash flow being driven by Otway & Waitsia amid the potential for further bolt-on acquisitions.
There are four Buy ratings and two Hold for Beach Energy on FNArena's database. The consensus target is $2.01, suggesting 15.0% upside to the last share price.
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