What: After record 2014 results, Beach Energy Limited (ASX: BPT) has indicated subdued production in 2015 despite its strong cash position and sizeable reserves.
Highlights:
- Revenue up 51% to $1,057 million
- Net Profit After Tax down 34% to $101.7 million
- Underlying profit up 84% to $259 million
- Total dividends of 4 cents per share (including 1cps special dividend)
- Net Asset Backing of $1.45 per share
- Cash position of $411 million (plus $300 million in undrawn available finance)
- Total 2P reserves of 85.6Mmboe (million barrels of oil equivalent)
- Total contingent (not immediately commercialised) resources of 466.5Mmboe
So What?
Net profit was reduced as a result of significant impairment costs relating to the group's Egyptian exploration assets ($149 million) and the Paralana geothermal project ($13 million).
Overall it was an excellent year for Beach, which announced increased capital expenditures and an extended drilling program for 2015 to create further development wells and explore new potential resources.
Despite this, the real potential upside lies in Beach's potential to commercialise its contingent resources and thus become one of Australia's most attractive oil producers.
However such a path would require significant capital expenditures and given that Beach is already predicted to spend $450-500 million this financial year, I have become uncomfortable with the company's ability to rapidly turn new wells into cash.
Now What?
A cash position of $411 million was one of the primary drawcards for Beach over other small producers, and the proposed removal of it convinced me to sell my investment and start looking for other oil producers with greater immediate upside potential.
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