Beach Energy continues to teeter between production woes and reserve life questions to the progress of its major projects. The interim result added very little to the story other than the revised dividend policy.
Production guidance shifts, again. BPT has revised its FY23 production guidance to 19.0-20.5mmboe (from 20.0-22.5) after producing 10mmboe in 1H23. BPT has abandoned FY24f production guidance (until the full year result) as it is subject to the timing of its major project delivery. This has been muddled by the replacement of Clough by Webuild for the Waitsia Stage 2 project.
BPT introduced a new dividend policy to pay out 40-50% of pre-growth free cash flow. This is defined as operating cash flows excluding acquisitions/divestments and major growth capex. The company has $590m of franking credits available. The policy is entirely vanilla but the key aspect to focus on is the future operating cash flow. BPT has a sub 9-year reserve life (based on FY25 production) so the operating cash flow will dwindle quickly in the absence of material replacement production.
Unit operating costs have also been revised upwards to $13.75-14.75/boe (from $12-13/boe). 1H23 unit operating costs were $14.46/boe.
Investment View
We maintain our sceptical view of BPT given its long history of production guidance downgrades and the subsequent cash flow revisions. The share price continues to ignore these minor inconveniences.
BPT has a strong project at Waitsia to cajole investors and a new, more sensible CEO to execute the strategy. If the production profile can become even a smidgeon more reliable, it might be enough to assume greater confidence in BPT’s longer term forecasts. It might all hang on the veracity of BPT’s capex program where the market appears to think it will be much less than what it is evolving towards.
As always, commodity prices will play a big role, and this will be more important as Waitsia reaches its first production later in 2023.
Our view of the stock is more tepid than it was. We see the risk versus reward equation being more balanced and hence we have a Hold recommendation.
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.
