Beach Energy Ltd (ASX: BPT) shares took a beating on Wednesday.
Shares in the S&P/ASX 200 Index (ASX: XJO) energy stock closed the day down 7.55%, trading for $1.225 apiece.
That saw Beach Energy underperforming the benchmark index, with the ASX 200 ending the day down 0.6%.
It also marked the first day of losses for Beach Energy shares since the company reported its full-year FY 2025 results on 4 August.
Indeed, despite yesterday's steep sell-off, shares remain up 7.46% since market close on 1 August.
But according to the analysts at Macquarie Group Ltd (ASX: MQG), investors should expect more selling in the months ahead.
Macquarie digs into Beach Energy shares
Beach Energy shares closed up 3.5% on the day the company reported its full-year results.
Highlights included a 16% year-on-year increase in sales volumes to 24.7 million barrels of oil equivalent (MMboe). And full-year sales revenue increased by 13% to $2.0 billion.
On the bottom line, underlying net profit after tax (NPAT) of $451 million was up 32% from FY 2024.
But Macquarie wasn't impressed.
"We are surprised the market hasn't reacted more negatively following FY25 results & reserves report," the broker said yesterday.
Macquarie added that Beach Energy's final fully franked dividend of 6.0 cents per share "was a positive surprise".
Indeed, the final dividend was up 200% from the FY 2024 final dividend.
But citing expected negative free cash flow in FY 2026, Macquarie said "it appears unsustainable for now".
Macquarie was also disappointed by Beach Energy's "soft production outlook".
According to the broker:
FY26 production guidance of 19.7-22.0MMboe was disappointing, driven by (i) Otway reservoir declines & anticipation of lower (likely summer/end-CY25) nominations, (ii) Western Flank oil flood impacts and (iii) late Waitsia project start-up.
Further reserves downgrades and impairments could also drag on Beach Energy shares in the year ahead.
"We had hoped that BPT's reserve downgrade cycle was over," Macquarie said. "However another 6.5% of FY24 2P reserves were revised out (mainly the Beharra Springs Deep field following recent drilling results)."
Atop the weaker outlook indicated by the ASX 200 oil and gas stock's FY 2026 guidance, Macquarie noted, "We see BPT having less operational control over its valuation than it has historically."
The broker said that 60% to 65% of the company's value is in non-operated assets, where Beach has less control.
Connecting the dots, Macquarie downgraded Beach Energy shares to an underperform rating based on lower oil and gas reserves, lower production, and higher capital expenditures.
The broker reduced its 12-month price target by 30% to 95 cents a share. That's more than 22% below Wednesday's closing price.
