Is it time to grab a bargain in the oil sector?

Small and mid-cap oil producers like Beach Energy Ltd (ASX:BPT) are cutting capex spending and selling assets to make up for falling earnings.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Cooper Basin-based Beach Energy Ltd (ASX: BPT) is looking to sell and monetise assets in the face of falling world oil prices. The collapse in oil affects LNG markets since pricing is based on oil benchmarks like Brent crude, still down about 49% from June 2014 highs.

Following Chevron Corporation's decision in March not to participate in the second stage of Beach Energy's Nappamerri Trough natural gas project, the energy producer will now have to look for other venture partners to help fund the project. The first stage did achieve primary technical objectives and a large gas reserve was confirmed to exist.

Beach Energy has put its Egyptian assets up for sale and in a presentation this week listed other assets that more value could be realised from, such as its 20% stake in the Moomba gas processing facility, which is operated by Santos Ltd (ASX: STO).

Other oil producer problems

Beach's loss of external funding partners like Chevron when its half-year sales and underlying net profit were down 23% and 54%, respectively, illustrates the current problems junior energy producers in the Cooper Basin are facing. Senex Energy Ltd (ASX: SXY) saw interim underlying net profit fall 95% despite production levels rising 14% in the first half.

Oil major Santos also may need to beef up its own capital funding as it prepares to start LNG production at its GLNG project in Gladstone. Lower LNG prices could reduce the profitability of the project and total production capacity hasn't been locked into long-term contracts, exposing it more to spot market fluctuations.

Beach Energy outlook

Beach Energy remains a stable oil and gas producer with new discoveries still being made. Once the three major LNG projects in Queensland are all online after 2015, domestic gas prices are expected to rise from increased demand and insufficient supply. This could benefit Beach Energy's bottom line.

Until then, analysts expect full year 2015 earnings to be way down. Crude oil prices could stay low or drop even more for some time, so I would not suggest trying to pick bottoms with junior oil producers. Investors would be better off sticking to well-capitalised, low-cost producers like Woodside Petroleum Limited (ASX: WPL) that could even take advantage of depressed oil asset prices with its deep pockets for acquisitions.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned.  We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policyThis article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »