Citi report:Beach Energy Limited (BPT.AX)Soft 1H result, Cooper...

Citi report:

Beach Energy Limited (BPT.AX)
Soft 1H result, Cooper Gas reserves set to grow
 We estimate 1H FY11 Core NPAT loss of A$5m � below Beach�s stated
underlying NPAT of a A$18.6m profit, largely because we do no treat the PRRT as
a significant item. The underlying A$5m loss was slightly below our estimate
A$1m loss for 1H11, largely because of 7% higher production costs. Beach�s
reported NPAT loss of A$87m included an impairment of the BMG assets which
had been flagged. We had estimated a reported loss of A$62m.
 Cooper Gas reserves set to grow � BPT has flagged that in addition to the
~12mmboe 2P reserves upgrade related to the Santos operated in-fill drilling
program, it is expecting to convert a further >10mmboe of resource (gas and gas
liquids) to reserves in CY11. The JV appears to be ahead of schedule. The
previous expectation was for 800PJ (gross) in 5 years, and it appears ~475PJ
could be booked in the first 2 years. We have upgraded our forecasts � we now
are effectively attributing value for 690PJ (gross) of the original 800PJ target, the
main reason for a 5% upgrade to DCF, now A$0.94/shr. The likely
commercialization path is the GLNG project in our view.
 EPS downgrades of 53% in FY11 and 12% in FY12 � In FY11 we have lifted
production costs by 5% given higher 1H costs, and we have increased our
exploration expense consistent with the budget for CY11. We have similarly
downgraded FY12 (higher production costs and exploration expense), but this
been offset partially by an upgraded production forecast, now 7.8mmboe, given
higher expected Cooper oil volumes derived from the current drilling program.
 Maintain HOLD recommendation � While we can potential for good reserves
growth from Cooper tight gas over the next couple of years, we remain cautious
about the economics of Cooper shale gas. We see East Coast gas prices
increasing towards A$6/GJ, but our analysis suggests marginal economics for
Cooper shale if costs remain significantly higher than in the highly competitive US
market. We see superior value in AWE.