Beach Energy Ltd (ASX: BPT) shares are lower on Monday after the oil and gas producer announced a new deal in the Otway Basin.
At the time of writing, the Beach Energy share price is down 2.04% to $1.107.
The move adds to a weaker stretch for shareholders. Beach Energy shares are down around 7% over the past month and 14% over the past year.
Let's dive right in.
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Beach sells part of its Otway position
According to the release, Beach Energy has agreed to sell its 60% operated interest in licence VIC/P35, which includes the Artisan gas discovery.
The buyer is Amplitude Energy Ltd (ASX: AEL), which will pay $70 million in cash when the transaction completes.
Beach will also receive a production royalty of $3.75 per gigajoule on all gas produced from the licence before 30 June 2036.
Based on the current 2C resource booking, Beach said the royalty payments are expected to total about $140 million over the life of the field.
The company said the transaction has an implied value of about $130 million after tax, or roughly $3.50 per gigajoule of 2C contingent resource.
The deal remains subject to several conditions, including regulatory approvals.
Where the capital is going instead
Beach is also changing how it wants to spend capital in the Otway Basin.
The company said it will no longer drill and complete the La Bella 2 development well, or pursue the development of Artisan through the Otway Gas Plant.
That decision frees up more than $500 million of capital that had previously been expected across Artisan and La Bella.
Management said the money can now be directed towards opportunities with stronger returns and lower development costs.
Beach is effectively cashing in part of its Otway portfolio instead of spending heavily to develop every asset itself.
It still keeps exposure through the royalty, while Amplitude takes on the development pathway.
Beach said Amplitude intends to develop Artisan through the Athena Gas Plant.
What comes next
The company said the Otway Gas Plant still has backfill options through lower-cost nearshore prospects and longer-dated offshore opportunities.
Managing Director and CEO Brett Woods said the deal reflects Beach's focus on capital discipline. He said it turns development value into cash while leaving the company with royalty exposure.
After a difficult year for the share price, investors now have something practical to weigh up.
Beach gets cash from the sale, avoids more than $500 million in expected capital spending, and still has a way to benefit if Artisan is developed.
The next question is where that money goes.
