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Why the Beach Energy Ltd share price gained 3%

Beach Energy Ltd (ASX: BPT) closed yesterday on a healthy gain of 3%. This morning the stock rose another 3.5% and is trading around 70c.

Coming off some very lean years, reported Net Profit after Tax (NPAT) is up 352% to $162million while operating cash flow increased 38% to $321million. Reported production of 10.6 million barrels of oil equivalent [mmboe] represents an increase of 9% over the previous year and reflects a rejuvenated exploration and development program. The company has announced a 1c per share fully franked dividend.

Beach Energy predicts further growth in the current financial year.

Beach participated in 58 wells at a success rate of 79%. The Company’s primary oil and gas interests are in the Cooper and Enomanga basins of South Australia and Queensland and the Otway Basin.  

Beach Energy has been reducing costs and consolidated its operations. The company will in all likelihood continue to operate happily at around its current value range into the medium term. Beach says that it is benefiting from improved prices from a new Crude Oil Sale and Purchase Agreements (COSPAs) with the Cooper Basin JV.  

As pointed out by other analysts, Beach’s solid cash position has been aided by some well-timed entry to and exit from coal seam gas plays. The company’s reported cash reserve of $348million and available liquidity of $689 million will enable continued exploration.

Further out there is strong potential for Beach shareholders to gain from a longer term recovery in global oil and gas prices.

Seasoned oil and gas investors should be aware of:

  • the political origins of the current global oil glut (cartels can loosen or tighten the tap or simply lose their grip on it); and
  • the insufficiency of recent oil and gas exploration and development to counter longer term production declines and projected increases in global demand.

When the supply of oil eventually surpasses demand a global oil price shock will follow. Such an event may be a few years in the coming however long-term investors may benefit from this upside.

Market speculation that a bad US hurricane season could increase oil prices temporarily and materially benefit companies such as Beach Energy is overstated. The annual hurricane season does however shift focus to the relative fragility of global supply.

Foolish Takeaway

Beach Energy’s cash position and pattern of success at the drill mitigate perceived risk and the company is priced accordingly. This stock may be of interest to investors who foresee an end to global oil and gas supply gluts.

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Motley Fool contributor Paul Ranby has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks 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 policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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