csm reserves now worth around one billion

Benefits of deals break on Beach Petroleum

Michael Sainsbury | June 03, 2008

ADELAIDE'S "other" oil and gas group Beach Petroleum believes that coal-seam methane (CSM) reserves on its books at $40 million are now worth about $1 billion, thanks to a flurry of deals and attempted deals in the sector.

The action in the CSM market hit fever pitch in last week's spectacular deal between Santos and Malaysia's Petronas and continued yesterday as Arrow Energy sold some of its deposits to Shell.

Long the poor cousin in the oil and gas sector, CSM's sharp re-rating in recent weeks has taken many by surprise.

Valuations have pumped up so much since the beginning of the year that Queensland's Origin Energy felt able to turn down a $13.6 billion takeover offer from British gas giant BG.

"Four or five years ago they were seen as having very long rates of return," Beach managing director Reg Nelson told The Australian. "If our reserves were valued against last week's deals they would be worth between $41 million and $1.2 billion," he said. But he added that "prices might have been blown out of proportion".

Beach holds a 40 per cent interest in some of the reserves sold by Arrow to Shell.

"We have to decide what to do -- to exercise our pre-emptive rights or join Shell as credible partner," Mr Nelson said.

The comments came as Beach kicked off an investor roadshow aimed at raising about $190 million to pay for a raft of oil field assets in Egypt and a handful of new acquisitions expected to be announced as early as next week.

The company will offer shares to existing shareholders and well as institutions. The company's shares, which surged last week to a new high of $1.67, have been suspended until after the bookbuild. Beach now has market value of almost $1.5 billion.

The largest of its new acquisitions in Egypt was the purchase of 20 per cent of North Shadwan from Tri-Ocean Energy, which has three undeveloped oil discoveries.

"The Gulf of Suez is the highest yielding reserve anywhere in the world in terms of barrels per square foot," Beach Petroleum staff geologist Simon Brealey said.

The new Egyptian sites came about through contacts of Mr Brealey, who was poached from Santos 18 months ago.

Along with potential sites in Albania, Spain and Tanzania, Beach is developing a higher-risk international strategy to go with its existing Australian reserves.

Mr Brealey said large parts of Africa remained largely untapped and the group may add to its 100 per cent-owned opportunity in Tanzania with purchase in adjacent countries along the Rift Valley.

Over the next 12 months, Beach is planning to expand its reserves from 90 million oil equivalent barrels to 170 barrels.