Newly enlarged Beach Energy won't be standing still for long, with chief executive Matt Kay signalling acquisitions will come back to the table next year after the $1.585 billion takeover of Lattice Energy is bedded down.
But Mr Kay, riding high on the market's strong support for Beach and supported by cornerstone shareholder Seven Group Holdings, is not ruling out "bolt-on" deals in the meantime.
Mr Kay has his eye on new exploration acreage on offer offshore western Victoria, while other moves are also a possibility.
"You always have to have an opportunistic outlook," Mr Kay said in his first sit-down interview since wrapping up the Lattice deal with Origin Energy on January 31.
"If there was an amazing transaction in the next 12 months we'd be doing a disservice to our shareholders not to look at it, but is it priority No.1 right now? No, it's not.
"Priority No.1 is to get the most value humanly possible out of the Lattice transaction and have it running seamlessly with our organisation."
Big gains
Investors have responded enthusiastically to the deal, marking Beach's shares up 146 per cent in the past 12 months. The Adelaide-based player has easily outperformed its oil and gas rivals and is the fourth-biggest gainer on the ASX 200 in that time.
With a market cap that temporarily broke through $4 billion this month, Beach has cemented its core position in the thin mid-cap oil and gas sector. The shares closed at $1.585 on Tuesday, down from a $1.805 peak last week.
Some see the stellar gains as overdone, with JPMorgan analyst Mark Busuttil, for example, telling clients the stock price was "already factoring in blue sky success".
But Mr Kay said the market is gradually coming to an understanding of just how much cash the Lattice portfolio generates at current prices, which wasn't apparent when part of Origin Energy.
He said capturing the mid-cap gap in the market was one of the "strategic thematics" when Beach embarked on its pursuit of Lattice, which has conventional oil and gas operations across western and eastern Australia and in New Zealand.
Another was reducing Beach's risk profile, by expanding production from just the Cooper Basin to five basins in two countries, and beefing up its operational capability to include offshore as well as onshore.
Mr Kay said the "rock-throwing exercise" that Beach carried out on testing Lattice proved the deal's resilience, even under a $US40 a barrel oil price for three years, or with a production plant out for six months.
"We tried to break the transaction and see what does it take for this to go horribly wrong," he said.
"And it's very, very difficult on something like a Lattice where you have the breadth of portfolio underpinned by operational leverage, underpinned by gas price contracts to actually see that transaction break."
The acquisition has more than doubled Beach's production and reserves, and increased its share of the tight east coast domestic gas market to 15 per cent.
An upgraded target for cost synergies of $50 million, more than double the original estimate, has proved "relatively conservative" while debt reduction is ahead of schedule, with net gearing down to 29 per cent compared to a targeted 35 per cent.
Lattice's Brisbane office has been closed, while a process to sell a stake in the now 100 per cent-owned Otway gas project is expected to yield results within six months.
Mr Kay said the Otway sale process is "not just about dollars" but rather Beach is looking for a technical and commercial collaborator to take the project forward.
Expansion planned
In its core Cooper Basin, Beach has succeeded in halting the decline in output and is expecting at least flat production for three years after doubling capital investment in the past 12 months. Some 98 wells are due to be drilled in the Cooper this year, more than double two years ago.
Investment is earmarked for the Otway assets, while the Waitsia onshore gas field in Western Australia that sparked a $600 million takeover battle for Beach's 50 per cent partner AWE, is poised for expansion.
"We think we now have an opportunity set that gives us breadth and depth," said Mr Kay, who sees "still a lot of running room" within Australia and within Beach's broadened portfolio.
New Zealand, too, is an important new part of the business, despite the shock ban on new exploration permits announced by Prime Minister Jacinda Ardern last month, he added.
Mr Kay won't be drawn on his expectations for Beach five years out but pointed to the work done to adapt to a lower oil price environment, to add scale and focus on high-performance collaboration and disciplined investment.
"If we continue to do that, with the right sort of luck we should be highly successful, so I'm expecting you'll see us continue to grow," he said.
As for 25.6 per cent shareholder Seven, whose chief executive Ryan Stokes and chief financial officer Richard Richards both have director seats, Mr Kay said he is "very pleased" with the level of support.
"I see them as a very supportive and instrumental shareholder," he said.
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