Shares of oil and gas producer Beach Energy Ltd (ASX: BPT) have traded mostly flat this morning despite the announcement of a big profit downgrade for the six months to 31 December, 2014.
In the first half of financial year 2015, Beach reported a net loss of $79 million, down from a $160 million profit in the prior corresponding period, on the back of $431 million in revenue, down 23%.
The poor revenue result came despite the group achieving record sales of 5.7 million barrels of oil equivalent during the half. The group said lower oil and liquids prices were the catalysts behind the falling revenues.
Indeed during the half, Beach had an average realised price of $101 per barrel which, along with lower third party sales, took total oil sales revenue down $130 million. Gas and gas liquids sales climbed marginally higher to $111 million.
Whilst costs decreased 1% to $312.8 million, it was a $224 million impairment which sunk group profits.
As a result of plummeting oil prices, Beach's Cooper Basin assets, on an area of interest basis, suffered impairments to the tune of $194 million, whilst the value of the group's Romanian interests have been reduced to nil, from $30 million, with no exploration scheduled.
Underlying net profit after tax (which excludes impairments as well as unrealised and non-recurring items) fell 54% to $158 million. Operating cash flow fell 51% to $135 million.
Despite the obvious headwinds and its cash balance falling 40%, from $411 million to $248 million year over year, Beach's board resolved to declare a dividend of one cent per share, down from two cents per share last year.
Looking ahead, the company revised up its full year production guidance, from 8.6 to 9.4 million barrels of oil equivalent, to 8.9 to 9.4 million barrels of oil equivalent.
Should you sell your Beach Energy shares?
Using simple ratios like price to earnings (P/E), price to book (P/B) and price to sales (P/S), Beach shares look very cheap. However, as shown in Beach's results today, it's important to understand that it's not just share prices which can change rapidly. Company earnings/profits, sales and even book values frequently change for the worst.
So although Beach shares look cheap using conventional metrics, with the headwinds it faces now probably isn't the time to buy its shares.
