Along with most other oil companies on the ASX, shares in Beach Energy Ltd (ASX: BPT) have been slammed lately as the price of Brent crude has plunged 20% since the start of August.
Beach Energy has been hit worse than some as the company draws the vast majority of its earnings from oil, although a weaker Australian dollar has helped mitigate the damage.
With the company hitting a new 52-week low of $1.19 yesterday after the release of its first quarter 2015 report, it's safe to say investors were disappointed despite the shares recovering somewhat in early trade this morning.
Here are the highlights from yesterday's report:
- Total oil and gas revenue down 12% to $187.2 million on the previous quarter
- Total production up 3% on decline in oil and increase in gas volumes
- Average realised price of oil declined 7% to $114.1AU/ barrel
- Average realised gas ethane and condensate prices declined 3%
- Additional hedging entered into with 37,500 barrels per month at $70USD/barrel from April 2015 to March 2016
- Transferred 70% of its Lak Tanganyika South Block to Woodside Petroleum Limited (ASX: WPL)
There's not a lot of positives to take away from the report; with no prospect of increasing production to mitigate revenue declines, investors will have to wait until FY16 to begin seeing any increases in earnings.
This combined with the fact that Beach's expansion plans this year involve consuming most of its $343 million in cash and a good portion of its undrawn $300m debt facilities, means you have a company losing its safety blanket at the same time as global oil prices are dropping.
While Beach's additional hedging may raise an eyebrow, it accounts for roughly 4% of a single year's production and will effectively be split between two financial years, making its impact to revenue (and defensive characteristics if the oil price falls further) negligible.
Beach announced earlier this year that production was expected to be slightly lower than its bumper 2014, and my scepticism about the company's ability to turn its capital expenditure into growth led me to sell my holding.
Ultimately I haven't seen anything here in Beach's latest announcement to convince me otherwise, and the current low price is not quite low enough to lure me back.
I would be looking for prices close to $1.00 before considering a purchase this year.
These three companies are also drilling for dollars, but they're much more lucrative than Beach…
