New broker report yesterday for those that may be interested. *************
Beach Energy Ltd - (BPT.ASX, $1.36/sh, Mkt Cap $1.7b) – Solid and growing conventional production base with significant leverage to the shale thematic - TRADING BUY PT $1.80/SH
Beach Energy Ltd - (BPT.ASX, $1.36/sh, Mkt Cap $1.7b) – Solid and growing production base with significant leverage to the shale thematic - TRADING BUY PT $1.80/SH
Drillsearch Energy’s (DLS.ASX) recent bid for Cooper Basin focussed junior explorer Acer Energy (ACN.ASX) continues to highlight the increasing industry interest in the Australian E&P sector and specifically within the Cooper Basin. The cash bid of $0.25/share values Acer at $118m. With Senex Energy (SXY.ASX) recently increasing its stake in ACN to 7.5%, there may be potential for a higher bid. Our preferred pick of the Australian focussed E&P companies is BPT, given its low cost and growing conventional production, substantial reserves, strong cash position and leverage to the shale thematic. BPT’s production is primarily from its Cooper Basin assets, which is forecasted to produce ~9mmboe (24.6/boepd) in FY13. The production is split between natural gas (50%), oil (37%), condensate (5%), and LPG (8%), however it’s important to note that the growth will be driven primarily from the higher liquid content production from the Western flank. As at 30th June, BPT had total proved and probable reserves of 93mmboe. With $379m cash balance as of 30 June, an undrawn A$150m debt facility and FY13 operating cash flow estimated to be ~A$300m BPT is in a strong financial position and remains well funded through its FY13 campaign which is estimated to cost $350-$450m. In addition to its low cost and growing conventional production base, BPT provides significant exposure to the Australian shale thematic, which could prove to be the company maker and place it firmly on the radar of major E&P companies looking to get a foothold into the Cooper Basin. BPT have been first movers in unlocking the value of unconventional production in the Cooper Basin, having already booked 1.3tcf of Contingent Resources from two wells (Holdfast and Encounter) drilled so far on PEL 218 in the shale formation. Appraisal activity is expected to ramp up with five vertical and 1 horizontal well expected to be completed by 2QCY13. Further success should lead to a significant increase in Contingent Resources underpinning the unconventional potential on its permits. In particular, we look forward to the first horizontal to be drilled, as this will give a true indication of production potential. Santos operated (Beach 20%) vertical shale well; Moomba-191 was also recently tied into production, marking the first production gas flow from shale well. It’s important to note, the ability to commercialise this discovery was due its location and access to existing infrastructure, given it was located only 350m from existing pipeline network and 8km from Moomba’s gas processing plant. Capital requirements and access to infrastructure will remain the key challenges in commercialising shale assets in Australia. Given the large block sizes and unconventional well costs (~$12-15m) field development in the Cooper Basin will be driven by larger E&P companies, in our view. To that end, should BPT’s appraisal program validate a sizeable and economic unconventional resource base we would expect serious interest from major E&P companies to farm-in to BPT’s acreage. Recent deal flow includes; Santos/Central Petroleum, Drillsearch/Acer, Petrofrontier/Baraka, Mitsubishi/Buru, BG/DrillSearch and Cooper Energy/Somerton Energy. Consensus estimates for FY13 EBITDA is $330m. Given the growth profile of the companies conventional production coupled with significant unconventional potential we believe BPT should be trading at least 7X FY13 EBITDA, $1.81/sh. We rate BPT a BUY with a PT $1.80/sh
(20min delay)