Is it time to sell Beach Energy Ltd (ASX:BPT)?

Oil and gas exploration company Beach Energy Ltd (ASX: BPT) shares have pushed higher off the back of a recent investor day, revealing its growth plans through to FY23.

Beach has had a good year in terms of share price – up 149% from its price point of 86c per share at this time last year to sit at $2.14 at the time of writing.

But is it time to take some profit from Beach if you’re holding?

I think it could be prudent.

Macquarie has an underperform rating on Beach right now, with its $1.75 price target a fair way below where the stock is currently sitting and warnings that Beach’s planned production growth is not promised.

Beach reported plans to grow production to between 34 million and 40 million barrels of oil equivalent in FY23.

To put this in perspective, Beach’s total production for FY18 was 19 million barrels of oil equivalent, and that was already an 80% uptick on FY17.

While Beach CEO Matt Kay said in the briefing he wants Beach to be known as a company which delivers on its promises, such heights will be hard to reach.

Performance is dependent on drilling outcomes and reservoir performance.

Kay also said the company is targeting delivery of more than $2.3 billion free cash flow over five years, again, no small feat.

Beach reported strong results for FY18, that much is for certain, with sales revenue growth of 92% to $1.25 billion, underlying NPAT up 86% to $302 million and operating cash flow up 108% to $663 million.

Beach is tipping FY19 to be its “biggest ever investment year” with capital expenditure expected to be in the range of between $460 million and $540 million which the company says is “reflective of attractive organic growth opportunities”.

Its strong results were due, in part, to the successful acquisition and integration of Lattice Energy and FY19 will be a transformative year for Beach as it operates on its expanded portfolio as a multi-basin oil and gas explorer.

On fundamentals, Beach has more than $850 million in liquidity and a strong reserves position and is dedicated to paying down debt with net gearing forecast to fall below 20% by the end of FY19.

Beach certainly looks strong, but there are lots of variables that could affect its production growth and they shouldn’t be ignored by investors.

With oil prices rising to their highest levels since 2014 to kick off October, other energy shares have also had a good run alongside Beach.

Cooper Energy Ltd. (ASX: COE) shares sitting up 1% to 46c per share at the time of writing off the back of an announcement it has signed a new gas sales agreement with Origin Energy Ltd (ASX: ORG) for 2019 as part of the Casino Henry Joint Venture.

Oil Search Limited (ASX: OSH) shares have also been on the up, at $9.05 at the time of writing with Santos Ltd (ASX: STO) shares also in the black at $7.33.

Foolish Takeaway

While I do think Beach appears committed to creating shareholder value, investors shouldn’t get too ahead of themselves and certainly shouldn’t be buying on these highs. Despite Beach’s best-laid plans to achieve significant production increases, their success is dependent on exploration drilling, most of which won’t even take place for years yet – lots can happen in that time.

While I think keeping some Beach shares in the kitty as a hold option is a good idea, selling off some for a profit sometime soon would also be on my To Do list.

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Motley Fool contributor Carin Pickworth 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 Scott Phillips.

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