Oil and gas stocks are set to be amongst the ASX’s big winners in the years ahead as prices rise and discoveries and production throughout Australia’s plentiful energy regions accelerate.
Many of these companies will make a valuable addition to long-term portfolios. As Warren Buffett’s 2IC Charlie Munger has said: “Oil is absolutely certain to become incredibly short in supply and very high-priced.”
One of the top oil and gas plays available right now, in my view, is Australia’s sixth biggest oil and gas explorer; Beach Energy Limited (ASX: BPT). Beach Energy stands out for its dominant strategic position in the Cooper Basin and for its cheap share price given the company’s growth potential.
Beach had a stellar result for the first half of FY14, growing sales revenue 63% and underlying net profit after tax (NPAT) of $158 million. Over the next five years the company is in a position to continue to produce results for shareholders as it leverages off its dominant strategic position.
Beach is the largest oil producer in the Cooper Basin and is in the rare position of growing both organically through production and reserve growth, as well as via acquisitions. The company owns a 4.9% stake in Drillsearch Energy Limited (ASX: DLS) and a 18% stake in Cooper Energy Ltd. (ASX: COE), both of which are focused on the Cooper Basin region.
Beach also recently announced the purchase of a $1.5 million operating base from Geodynamics Limited (ASX: GDY) to support its growing operations.
This strategic position can be bought for a very reasonable price. The current low price to earnings ratio (around 8 on forecast FY14 earnings) reflects investors’ expectations of weaker short-term growth, but with growing reserves and prices for gas set to jump over the long term, now could be the perfect time to buy.
Beach Energy is a well operated company with significant room to grow. Its exposure to the Cooper Basin and rising east coast gas prices are a big draw card for investors with a longer-term view, while its strong strategic position and current price make it one of the top oil and gas plays around.
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Motley Fool contributor Regan Pearson does not own shares in any of the companies mentioned in this article.