This is an extract from the Feb-12 Euroz broker report on the Beach Energy website. I think this is timely, because some of the figures will be relevant when we start to get back flow results from the unconventional program!
Analysis
The large upside potential remains with BPT’s emerging Cooper Basin
unconventional gas play and the realization of higher east coast gas
prices supported by domestic and export demand growth.
We believe that should BPT’s shale project demonstrate economic
viability, the Company – given the size potential of its Cooper Basin
interests – is the best placed to attract corporate attention.
We are of the view that the shale/tight sand qualities will drive some
exceptional (+10mmscf/d) flows from the horizontal wells in time and
that opex of <$4/mcf will be achievable in a development scenario.
We also flag that the cost-benefit equation may yet see large swaths of
the Cooper Basin Shale (in a development scenario) be developed
with vertical drilling given the consistency (in terms of productivity),
pressure support and thicknesses of the Roseneath-Murderee-Epsilon
and Patchawarra unconventional sequences.
This would obviously dramatically lower well capex cost hurdles,
providing for compelling economics, should vertical flows of 5mmscf/d
be established: We believe this highly probable.
Our price target set is ahead of our $1.83/sh valuation reflecting the
huge upside to the unconventional 2Tcf gas resource we foresee with
the upcoming 10+ well programme: The revised resource (Dec H’12)
could several orders of magnitude higher. In the interim we believe
that substantially more flow data will highlight the economic viability of
the play which could elicit a corporate outcome within the next couple
of years.
Thus huge optionality exists in BPT for its shale project (>$2/sh
additional value) - we factor a nominal shale value of only $0.20/mcf
for a conservative 4 Tcf of recoverable gas from the CBJV - $800m.
This compares with implied 3P reserve metric range for Australian
CSM transactions of $0.53-1.88/mcf over the last 5 years. Our
valuation without any value for the CBJV is $1.15/sh.
As a sense-check, we highlight the value potential BPT clearly see
through the implied $0.47/mcf paid for ADE’s 200Bcf vs the $0.20/mcf
we assume in-ground.
With long term east coast domestic gas contracts rolling off over the
next 5yrs, projected demand growth, coupled with potential supply
draw from GLNG is suggestive of a contango in gas pricing that can
realize +$6/mcf.
Whilst Exxon-BHP are making noise regarding the potential for
currently stranded Gippsland gas molecules to meet some of this
demand, we are a little more circumspect that an offshore gas
development can be sanctioned within this 5yr window of opportunity.
We’d argue that an onshore unconventional gas resource is more
nimble to incrementally meet the growing demand because:
1) The capex to establish new supply is incremental ie well
by well vs offshore that requires a large appraisal drilling
capex hurdle (say $20m/well) before capex for
development and landing ashore is considered
2) Capital commitment is therefore much easier for a well by
well development on that basis as relative gas pricing
uncertainty vs large capex to first production will slow offshore
development traction
3) Ease of access to takeaway capacity for the Cooper
Basin due to existing network of infrastructure
underpinning short tie-back
4) Sufficient existing ullage: Moomba is already short gas
with Santos already committing purchase of a substantial
portion of BPT’s existing conventional gas reserves
In any event, we foresee that significant landholder opposition and
environmental regulatory hurdles (beyond which back-fill gas for rampup
CSG gas if at all) exist in the CSG to LNG sector that will drive
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