Production woes continue at Beach Energy with yet another decline and a further reserve downgrade.
2Q23 production was 4.76mmboe. This was well down on consensus expectations and consequently, revenue if $405m was also below market. FY23 production guidance has not been changed at 20-22.5mmboe but may be reviewed at the interim result due 13 February.
BPT announced an 10.6mmboe 2P reserve cut at Waitsia (11% of Waitsia reserves) – another sour note.
Depreciation and amortisation will be much higher at $410-440m for the FY23f year.
During the period, the main contractor at the Waitsia (stage 2) development, Clough, was put into administration. A new contractor will take over soon, but this is yet to be formalised. Meanwhile, construction of the 250TJ/day gas plant is making progress and on completion will supply 3.75mt of LNG to bp and enough gas to meet its domestic commitments.
BPT reported sales revenue of $408m for the quarter on an average realised oil price of $141.10/bbl (-10% qoq) and a gas price of $8.40/GJ (-1% qoq).
Investment View
A little over four years ago, BPT was trumpeting its growth projects to deliver production of 34-40mmboe. Instead, newish CEO Morné Engelbrecht is grappling with the reality that cash flow will likely be ~$2.5bn less than predicted for the FY19-25 period with Reserves more than 20% lower than FY19.
And yet, the share price is roughly where it was four years ago.
There seems to be a misguided faith in the ability of this company to deliver and de-risk its projects and growth strategy. It has been a litany of misses and excuses.
Waitsia remains a strong project and, subject to its development risk, should provide a backbone to BPT’s future earnings. The rest of the portfolio remains a collection of short reserve life projects. The failed tilt at acquiring Warrego Energy recently suggests an acquisition path is not off the agenda, but BPT has limited firepower to execute.
BPT’s current plight is not irredeemable, and a new management focus is helping. We tempered our previous Sell recommendation to a Hold at the 1Q23 production announcement with a view that the bad news cannot continue forever. Low tide for BPT cannot be too far away if Waitsia can deliver.
Risks to Investment View
BPT may successfully develop its major projects and deliver on the guided free cashflow generation and production targets.
Recommendation
We have retained our Hold recommendation.
Figure 1: Quarterly Production
