The Beach Energy Ltd (ASX: BPT) share price is charging higher on Friday.
In morning trade the energy producer's shares are up 6% to $1.17.
Why is the Beach Energy share price charging higher?
Investors have been buying the company's shares this morning after it followed the lead of rival Woodside Petroleum Limited (ASX: WPL) by releasing a business update. Woodside's update is available here.
Beach Energy's update revealed that it has taken rapid and decisive action in response to the lower oil price environment. This includes deferring up to 30% of its FY 2021 capital investment relative to prior planning.
Positively, the company is in a strong financial position. At the end of February it had $151 million net cash and access to over $600 million in liquidity. This was via a $450 million committed revolving credit facility.
Another positive is that the revenues from Beach's gas business cover all group operating and stay-in-business costs. This essentially means that it has a projected FY 2021 free cash flow break even oil price of less than zero U.S. dollars per barrel before growth investments.
In addition to this, it notes that its crude oil sells at a material premium to Brent crude oil and the declining Australian dollar provides a further buffer against lower US dollar oil prices.
Finally, more than 97% of forecast East Coast gas sales in FY 2020 and FY 2021 are expected to be sold under term contracts, with less than 25% of these volumes oil-linked.
Guidance downgrade.
Nevertheless, the decline in oil prices will still have an impact on its earnings.
According to the release, management now expects its FY 2020 underlying EBITDA to be in the range of $1.175 billion to $1.250 billion. The midpoint of this guidance represents an 8% decline on its prior guidance range.
Beach Energy's FY 2020 production, capital expenditure, and DD&A guidance remains unchanged. However, the company is now guiding toward the lower end of the range for each metric.
The company's Managing Director and Chief Executive Officer, Matt Kay commented: "Beach is in a fortunate position where our prudent financial management over the last three years places us in an incredibly strong position to handle the current market disruption."
"Our investors can rest assured that Beach is focussed on ensuring our business continues to perform strongly in this period of disruption and the board and all staff are committed to continuing to sustainably deliver energy to the communities we serve," he concluded.
