The Beach Energy Ltd (ASX: BPT) share price has risen 48.8%, year to date, and is currently trading for $1.91 at the time of writing. At the beginning of 2019, you could pick up a share of Beach for $1.29, but by April, shares were going for over $2.25. Since they have now pulled back about 15% from these April highs, is now a good time to pick up some Beach shares?
What does Beach Energy do?
Beach Energy is a mid-cap oil and gas exploration and production company, and Australia's second largest oil producer. It was founded in Adelaide in 1961 as Beach Petroleum. Beach provides approximately 15% of the east coast's gas demand, which it supplies from a network of five oil and gas producing fields across Australia and New Zealand, the largest of which is Cooper Basin in South Australia. The company has grown rapidly over the past 15 years – in 2004, you could have picked up some beach shares for just 15 cents.
Are Beach shares a buy?
The strong run in the Beach share price from January to April can be explained by the price of crude oil appreciating by around 55% during this time. Since the price of a barrel of West Texas Intermediate (WTI) crude peaked in April at around US$65 and has since pulled back, this has put a price ceiling on Beach shares and explains why the share price has retreated from its April highs.
As Beach is completely exposed to the currency fluctuations between our Aussie dollar and the US dollar (oil is sold in US dollars), our dollar depreciating against the greenback over this year has also given Beach a boost. Beach currently has a cost per barrel of oil equivalent of $9.40, proving that this is a company that has what it takes to stick out any price slumps in the future.
When looking for resource stocks, I personally like to look at the company's cost base, as it is one of the best indicators of the company's future viability. Beach passes this test with aplomb.
Foolish takeaway
Although I think Beach is a quality company with a low cost-base, I would be on the lookout for a significant dip in the crude price before considering buying in. Resource shares are best played when prices reach a low point in the cycle and oil (and therefore Beach) is not quite there yet. I'll be waiting a little longer on this one.
