Cooper Basin-based Beach Energy Ltd (ASX: BPT) is looking to sell and monetise assets in the face of falling world oil prices. The collapse in oil affects LNG markets since pricing is based on oil benchmarks like Brent crude, still down about 49% from June 2014 highs.
Following Chevron Corporation's decision in March not to participate in the second stage of Beach Energy's Nappamerri Trough natural gas project, the energy producer will now have to look for other venture partners to help fund the project. The first stage did achieve primary technical objectives and a large gas reserve was confirmed to exist.
Beach Energy has put its Egyptian assets up for sale and in a presentation this week listed other assets that more value could be realised from, such as its 20% stake in the Moomba gas processing facility, which is operated by Santos Ltd (ASX: STO).
Other oil producer problems
Beach's loss of external funding partners like Chevron when its half-year sales and underlying net profit were down 23% and 54%, respectively, illustrates the current problems junior energy producers in the Cooper Basin are facing. Senex Energy Ltd (ASX: SXY) saw interim underlying net profit fall 95% despite production levels rising 14% in the first half.
Oil major Santos also may need to beef up its own capital funding as it prepares to start LNG production at its GLNG project in Gladstone. Lower LNG prices could reduce the profitability of the project and total production capacity hasn't been locked into long-term contracts, exposing it more to spot market fluctuations.
Beach Energy outlook
Beach Energy remains a stable oil and gas producer with new discoveries still being made. Once the three major LNG projects in Queensland are all online after 2015, domestic gas prices are expected to rise from increased demand and insufficient supply. This could benefit Beach Energy's bottom line.
Until then, analysts expect full year 2015 earnings to be way down. Crude oil prices could stay low or drop even more for some time, so I would not suggest trying to pick bottoms with junior oil producers. Investors would be better off sticking to well-capitalised, low-cost producers like Woodside Petroleum Limited (ASX: WPL) that could even take advantage of depressed oil asset prices with its deep pockets for acquisitions.
