Hi Auto,
You know I respect your analysis so pleased to see you looking at BPT again.
My understanding is the 2p number is due to the SACB/SWQ Santos operated fields and Beach not happy with the reserve numbers DLS published, but I may be misunderstanding.
This is from the latest Macquarie research note:
"Reserves written down: Prior to being acquired, Drillsearch had booked
~26mmboe in 2P reserves, with ~16mmboe within the Western Wet Gas
acreage. From this, BPT added less than 50%, with ~11mmboe to 2P,
including only ~3mmboe within the Western Wet Gas acreage. Total 2P
reserves of ~70mmboe were a 6% decline from FY15 and also included
another 7.5mmboe revision to Delhi 2P reserves. The write-down of reserves
mean that BPT have had falling reserve life since 2012, and currently sitting at
7.2 years but falling to 6.9 years following completion of divestments.
Cuts to 2P reserves …: Beach cut 2P gasreserves by ~17% and gas liquids by ~5%
across FY16, almost offsetting the increase in gas reserves that had been booked by
Drillsearch. Management wrote off almost all of the 7.9mmboe of gas reserves booked in the Western Wet Gas JV acreage, with STO indicating that further production testing was still being conducted and the reserves had been moved to resources.
In addition, 7.5mmboe has been cut from the SACB JV and SWQ JV, as BPT will now
have the opportunity to elect to participate in drilling activity within the JV"
Since the ground hasn't changed, for me this reflects a different process in BPT rather than DLS. History will end up showing who was right, but I am OK with conservative estimates of reserves. It makes me confident the reserves quoted elsewhere in BPT are conservative. The Santos stuff I don't understand.
They were spruiking their reduced drilling costs a year or so ago, talking up multi-pad drilling etc. So I am curious why the 2c has changed. Is it just a change to what can be delivered commercially at today's well head price? Is it a weird artifact where they are reporting based on current oil price, because the figure is boe, even thought gas prices are higher? I have no idea, but it does seem look like an avenue for more investigation.
2c numbers took a big hit as they finally moved the unconventional gas off the contingent books. I personally think this is a sleeper, as at higher gas prices it might work, but they are right to drop it from the books.
My investment case is that Beach offers strong leverage to a recovering oil price, and the dearth of E&P investment globally mandates a higher oil price in the next two years. Beach is almost 100% local reducing risks from unstable politics, is predominantly unaffected by anti-fracking moratoriums with its Cooper focussed assets, and has a solid balance sheet.
Against this, is the need to replenish reserves cost effectively and unknown motives of our largest shareholder.
I think it balances out to a fairly low risk opportunity to double your investment over a 18 month or so timeframe.
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