The Beach Energy Ltd (ASX: BPT) share price has had a remarkable three months. After bottoming at $1.29 on January 2, it has risen strongly since then to $2.16 at the time of writing, an all-time high and a massive 60% jump in just three months.
So what has been behind this phenomenal move? And more importantly, is Beach a buy?
Beach Energy (formerly Beach Petroleum) is an oil and gas exploration and production company founded in 1961 and based in Adelaide, South Australia. Beach is Australia's second largest oil producer and supplies about 15% of the east coast's gas demand. This stems from its interests in five oil and gas producing basins across Australia and New Zealand, including its flagship Cooper Basin in South Australia.
The company has focused on reducing fixed-costs, which is very important in the energy industry. Oil and gas prices are highly volatile and thus a low cost of production is essential for the company to ride out price fluctuations. Beach has reduced its cost-per-BoE (barrel of oil equivalent) to $9.40, a 5% reduction year-over-year and is targeting a further $30 million operating cost reduction by 2020, which is very encouraging for the company's future.
Being an oil-and-gas company, Beach's share price is obviously highly sensitive to the oil price. Brent crude oil prices have risen from around US$50 per barrel in late December to over US$67 at the time of writing, an increase of around 34%. Since Beach's cost-per-BoE is so low at $9.40, this increase would roughly translate to a 42% rise in free cash flow for the company and is behind the massive jump in the share price.
I like Beach as a company as its management team has always held a long-term outlook. Safety and environmental impacts are always discussed in the annual reports and Beach is on track to have its safest year yet as well as its cleanest, with no environmental incidents to date for FY 2019. The company also employs a hedging strategy with oil reserves in order to limit the effects of oil price volatility on its long-term earnings. I believe this outlook is respected by the market, as Beach has outperformed against other oil and gas companies like Santos Ltd (ASX: STO) and Woodside Petroleum Limited (ASX: WPL).
Foolish takeaway
If I was looking for exposure to the energy industry, Beach Energy would be my preferred option on the ASX. Its sound management team and long-term outlook are definite positives that, in my opinion, place Beach above its competitors. However, I don't think buying in when the company has just reached its all-time high is a wise strategy, so Beach will remain on my watchlist, for now.
