UBS Investment ResearchBeach Energy LimitedDec Qtr: Sales 42%...

UBS Investment Research

Beach Energy Limited

Dec Qtr: Sales 42% above production

􀂄 Sales revenue of $142m boosted by inventory and third party volumes
Sales revenue of $142.4m was significantly above our expectation. This included inventory sales plus third party volumes we did not forecast. Actual production was 7% below our forecast. The realised oil price 4% above our forecast.

􀂄 Impact: Our 2011FY EPS forecast has increased 5.6%
Our FY11 EPS forecast has increased 5.6% due to the higher than anticipated Dec qtr sales revenue, partially offset by associated higher third party oil and gas sales costs and delayed start up of Egypt production to 2Q 2011.

Adjustments to our gas sales volume and product pricing assumptions have also increased our FY 2012 and 2013 EPS forecasts by 5.8% and 6.4%, respectively.

􀂄 Action: Buy rating maintained
The 16 well Cooper Basin exploration and appraisal program is scheduled to commence 1Q 2011. In Egypt, first oil production from NS-377 is now expected 2Q 2011, plus the ZZ-4 Abu Sennan exploration well has also started drilling. A second Bakken oil shale well in North Dakota has been successfully fractured. Encounter-1 found a 393m shale section with good gas shows and has been cased and suspended for future fracture stimulation. Drilling has begun at Holdfast-1.

􀂄 Valuation: $0.76 (prior $0.70) DCF at 10%
Our NAV estimate is based on our DCF and reflects forecast cash flows over the 2P reserve life of producing assets and all committed / highly probable projects.

Our 12-month price target of A$0.97 is based largely on our NAV estimate plus project/reserve upside and potential Arrow Energy related payments.