Here's why Beach Energy Ltd looks like a bargain buy

The recent world oil price slump is pressuring Beach Energy Ltd's (ASX:BPT) share price, but that could be a buying opportunity for investors.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

What: Energy producer Beach Energy Ltd (ASX: BPT) has had a rollercoaster ride in its share price recently.

So What: Beach Energy and other oil and gas companies have been sold off because of falling world oil prices. Benchmark WTI crude and Brent crude were trading at US$75.77 and US$79.61 respectively, near multi-year lows. Since early September, Beach Energy is down about 37%.

If the recent oil price drop is only short term, then this may be a chance to pick up a strong oil and gas producer at low prices. Just as iron ore has sold off in the past year, investors may be reacting to the sudden oil price decline by selling like a herd into weakness.

Here's why Beach Energy could be a very attractive buy:

1) Beach is still producing and discovering new gas

As the largest onshore oil and gas producer, it achieved revenue of over $1 billion for the first time in FY 2014. Underlying net profit was up considerably. This was mostly due to increased production from recent discoveries. During the first quarter of FY 2015, the company reported a 3% increase in quarterly oil production and announced three new oil discoveries.

Its Western Flank area in the Cooper Basin region has been the source of a lot of new oil. Soon it will be turning to explore its Eastern Flank, where it could find new oil fairways.

2) Strong cash position and well-funded capex

Beach Energy is in a joint venture with international oil giant Chevron Corporation (NYSE: CVX), which has agreed to help fund further exploration in the Cooper Basin. Still, the company has around $343 million in cash and with good, solid cash flows, it expects it will be able to fund its FY 2015 capex in full.

3) Wide profit margins

Even with lower oil prices, the company's total operating costs including transport and royalties are around US$25 – $30 a barrel, so that still leaves a wide earnings margin with prices around US$75 – $80 a barrel. If this recent world price slump is just a temporary situation and prices head back up, Beach Energy will be even better off.

We can't say if oil prices will weaken more or soon rebound, but with the amount of discoveries Beach Energy is making combined with lower production costs, it could be generating good earnings for years to come. If the market gets scared off, then it's time for Foolish investors to move in and seek out value.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

More on ⏸️ Investing

A white and black robot in the form of a human being stands in front of a green graphic holding a laptop and discussing robotics and automation ASX shares
Technology Shares

Joining the revolution: How I'd invest in ASX AI shares right now

Advances in artificial intelligence (AI) could usher in a new industrial revolution. Here’s how you can invest in it.

Read more »

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »