Beach Energy Ltd (ASX: BPT) joins the crowd of oil producers reporting major impairments and falling revenues in recent weeks thanks to sustained low oil and gas prices.
There's just no escaping the impact of weak commodity prices on a commodity producer, and impairments (reflecting the loss in value of an asset) can make an unpleasant report look extremely ugly to the novice investor:
- Revenues fell 30% to $735.5m
- Statutory Net Loss After Tax of $514.1m
- Underlying* Net Profit After Tax of $90.7m
- Total dividends of 1.5 cents per share
- Produced 9.15 million barrels of oil equivalent (Mmboe), 51% oil and 49% gas + gas liquids
- Drilled 122 wells with success rate of 88%
- Oil reserves of 8Mmboe 'proven' and 19.4Mmboe 'probable'
- Gas reserves 24mmboe 'proven' and 55mmboe 'probable'
- $170m cash at bank, $148.5m debt
*the difference is mostly due to non-cash impairments (changes in the value of exploration tenements, etc)
So What?
Beach's results weren't really surprising in the context of recent reports from the likes of Santos Ltd (ASX: STO) or Woodside Petroleum Limited (ASX: WPL), both of whom recorded falls in revenues, profits and dividends.
Management has trimmed costs back, slicing 12% from operating expenses compared to the previous year. Additionally, 2016 is expected to be a year of mediocrity with the capital expenditure and well-drilling program cut basically in half. Capital expenditure in 2016 is expected to be fully funded from available cash + sales receipts.
Production is estimated to be between 7.8mmboe and 8.6mmboe for the year, which is some 7-15% lower than it was in 2015. Cash-flow is also likely to fall if oil prices remain subdued, and Beach faces heavy investment in future years to get its production back on track if its well-drilling operations stay constrained.
Now What?
Along with most other oil/gas producers, an investment in Beach right now depends on your view of the oil market over the short to medium term. Beach looks to be trading on a forwards Price to Earnings (P/E) ratio of around 9 but that could prove to be higher in reality once lower production and profits catch up.
On the one hand, Beach could prove to be quite cheap if oil prices are headed back to US$100 per barrel. On the other, if prices stay lower for longer, Beach's situation could rapidly deteriorate as cash flow fails to keep up with capital expenditure and production continues to fall.
Given the short term outlook is for oil prices to fall further I would wait for more clarity on the market's direction before jumping into Beach Energy.
