Mid-level oil and gas driller Beach Energy Ltd (ASX: BPT) today reported its fourth quarter 2015 results and offered guidance on how much it expected to earn in 2016.
Here's what you need to know:
- Total yearly production of 9.1 million barrels of oil equivalent ('Mmboe')
- Total sales of 10.5Mmboe (of which 8.6Mmboe belongs to Beach)
- Average oil price of $89/barrel
- $170m cash at the end of fourth quarter
- Total capital expenditure of $416m for the full year
From this Beach looks to have performed better than expected, with received prices for its product remaining quite high thanks partly to hedging policies. Production and capital expenditure all came in more or less as forecast at the end of the prior financial year.
While more details will be available in the full annual report which should be released in another month or so, Beach shareholders will be most interested in the company's outlook for 2016.
According to management, Beach will:
- Produce between 7.8 and 8.6 Mmboe in 2016
- Spend $240-270 million on capital works (drilling and the like)
- Use some of its stored volumes to drive gas sales higher
- Assumption of continued low prices leading to conservative business operations (eg capital expenditure is lower than 2015's $416m)
I sold my Beach shares in early 2014 as I felt that field decline combined with high capital expenditure would simultaneously lead to lower output and a lower cash balance. 2015 and 2016 look to be proving that thesis true.
Capital expenditure of $240-270m forecast in 2016 is more than Beach's $170m cash at bank and I will be interested to see if the company funds its projects from earnings or with debt. Either way Beach looks to be facing the erosion of most of its remaining cash in 2016.
While I feel that there is plenty of upside in the company, especially if oil prices recover and capital expenditure leads to higher production, I'm not confident enough to buy it just yet.
