Beach Energy Announces FY21 Third Quarter Activities Report

Source: www.gulfoilandgas.com 4/30/2021, Location: Not categorized

Quarterly production of 5.9 MMboe, revenue increased 14% to $393 million on improved pricing
Western Flank oil decline reduces production outlook and results in a reserves downgrade
• FY21 production guidance downgraded to 25.2 – 25.7 MMboe (previously 26.5 – 27.5 MMboe)
• 13.4 MMbbl net downgrade to Western Flank 2P oil reserves1
• 5.0 MMboe net downgrade to Western Flank 2P gas reserves1

Enterprise success delivers additional East Coast gas 2P reserves
• Booked net 2P reserves of 21 MMboe2 (34 MMboe gross), including 97 PJ net sales gas (161 PJ gross)
• Significantly de-risks Victorian Otway production outlook and additional nearshore prospects

Positive start to Victorian Otway offshore drilling campaign
• Gas discovery at Artisan 1, in offshore Victoria, with the well cased and suspended as a future producer

Positive arbitration outcome relating to re-pricing of Otway gas price review
Waitsia Gas Project Stage 2 reaches unconditional Final Investment Decision
• Commenced active marketing of up to ~3.75 MTPA of LNG over approximately five years from H2 2023

On track to achieving our emissions reduction commitment. Moomba CCS to build on “25by25”
• Executed an agreement for Beach to undertake FEED activities for the Moomba CCS project

Mixed third quarter sees second Otway exploration success, FY21 production guidance and Western Flank 2P reserves downgraded

Beach Energy released its Third Quarter Activities Report, in which it downgraded its FY21 production guidance and Western Flank 2P oil and gas reserves.

Quarterly production reached 5.9 MMboe – a 5 per cent reduction on the previous quarter – while sales revenue increased 14 per cent to $393 million.

Beach Energy Managing Director and Chief Executive Officer, Matt Kay, said the quarter had delivered challenging results for the business.

“We are facing a number of challenges across our Western Flank oil and gas assets as a result of the unique nature of these fields,” Mr Kay said.

“The past five years has seen the Western Flank outperform our expectations, but we are now witnessing underperformance from a number of fields.

“This has had a negative impact on our production for the quarter, as well as our FY21 production guidance and Western Flank 2P oil and gas reserves.

“Previous reserves assessment across the complex Western Flank oil and gas fields have proven to be optimistic following recent drilling results. The team has been supported by three independent petroleum reserves experts to assess our work, which has resulted in a net downgrade of about 5% of our FY20 2P reserve base.”

Mr Kay said despite the performance of the Western Flank, the Third Quarter delivered sound results across the broader business.

“This quarter has highlighted how the deliberate strategic diversification of Beach in 2017 - via the Lattice acquisition - has positioned the company to navigate the negative results created by the Western Flank decline,” Mr Kay said.

“We have a strong balance sheet to support us as we deliver our two key growth projects, the Waitsia Gas Project Stage 2 and the Victorian Otway development campaign, as well as other potential developments, including Trefoil in the Bass Basin.”

Mr Kay said he is pleased with the first phase of the Otway Offshore campaign, which remains on track.

“The highlight has been a second gas discovery at Artisan 1, and we have also completed the top holes at Geographe 4 and 5, with drilling at Geographe 4 currently underway,” Mr Kay said.

“Operations to date have been executed safely and successfully, while the first well at Artisan 1 was completed below budget.

“In the west, we are actively marketing our share of LNG volumes from Waitsia Stage 2 and we have been encouraged by the strong interest from potential buyers to date.

“In New Zealand, the Kupe compression project remains on time and on budget and is scheduled to commence in H1 FY22.”

Beach reduced its lost time injury frequency rate by 65% over the past 12 months and achieved an impressive record of one million hours injury free during the quarter.

The Company also executed an agreement for Beach to undertake FEED activities for the Moomba CCS project in the Cooper Basin.

Net debt decreased to $20 million, representing ~1% net gearing, during the quarter, despite the completion payment being made for the acquisition of Senex Energy’s Cooper Basin assets.

Guidance update
Following the review into the Company’s recent Western Flank activities, Beach provides the following guidance update for FY21.

FY21 production guidance impacted by:
• Reduced reservoir performance and natural field declines within Western Flank oil fields
• Lower customer nominations for the Victorian Otway

Financial

Sales volume
Quarterly sales volumes were down 4% on the prior quarter to 6,207 kboe due to declines across the Western Flank oil assets, lower customer nominations for the Victorian Otway project, planned downtime at BassGas and unplanned downtime at Kupe. This was offset by higher volumes from Perth Basin assets, despite Beharra Springs operations pausing for tie-in of the Beharra Springs Deep well, which commenced production on 1 April 2021.

Sales revenue
Total sales revenue of $393 million was 14% higher than the prior quarter due to an increase in realised pricing across all products, offset by lower oil and gas sales volumes. Oil prices have continued to improve as global product demand recovers from the COVID-19 related downturn in 2020 and sustained compliance to production cuts from the Organisation of the Petroleum Exporting Countries and their allies (OPEC+).

Average realised price
The average realised price across all products was $63.3 per boe, up 19% on the prior quarter, primarily due to the recovery in oil and gas liquids pricing. The realised oil price increased 39% to $90.7 per barrel, while the realised gas and ethane price increased 2% to $7.4 per GJ.

Capital expenditure
Third quarter FY21 capital expenditure was $184 million, in line with the prior quarter. Development, plant and equipment spend was 17% higher due the commencement of drilling of the Otway offshore program and ramp up of construction activities at the Kupe compression project.

This was offset by a 32% fall in exploration and appraisal costs, with the prior quarter higher due to the drilling of the Ironbark 1 and Enterprise 1 exploration wells. Artisan 1, the first well of the offshore Victorian Otway campaign, was delivered below budget during the quarter.

Liquidity
At 31 March 2021, Beach had liquidity of $430 million, comprising $190 million of cash reserves and $240 million in undrawn facilities (with a maturity date of November 2022). The Company has drawn down $210 million under the $450 million committed revolving credit facility.

Net debt was reduced by $26 million to $20 million. This was reduced despite a cash outflow relating to the completion payment of $87.5 million, less the adjustment made to the price based on cash flows from 1 July 2020 to settlement date (1 March 2021) of approximately $4.5 million, for the acquisition of Senex Energy’s Cooper Basin assets, and a $22.8 million dividend payment.

Capital structure
Beach’s capital structure as at 31 March 2021 is set out below. 851,805 of unlisted employee rights issued in 2017 exercised during the March quarter 2021.

Group production
Third quarter FY21 group production of 5.9 MMboe was 5% lower than the prior quarter and down 15% on the prior corresponding quarter. This was primarily due to lower volumes from the Western Flank oil fields, which continued to be impacted by higher than expected decline rates, and lower Victorian Otway nominations.

Production volumes were also lower across the Kupe and Cooper Basin JV assets due to lower customer nominations, planned and non-planned outages and natural declines. This was offset by higher production from the Perth Basin gas assets, the acquisition of Senex Energy’s Cooper Basin assets, which has been recognised from 1 March 2021, following the completion of the transaction and the planned acquisition of Mitsui’s interest in Bass Basin assets, recognized from 1 January 2021 for reporting purposes.

SAWA
Cooper Basin
• Total Western Flank production was 2.0 MMboe, down 14% on the prior quarter, with volumes lower across oil, gas and gas liquids.
• Western Flank gas and gas liquids production was 571 kboe, down 3%, following compressor maintenance undertaken at the Middleton facility in late February, with the facility back online in early March.
• Gross average daily oil production from the Western Flank was 16.9 kbopd (down 21% on the prior quarter). Average production for the financial year to date is 20.0 kbbl. Production continues to be impacted by declining reservoir performance.
o A total of seven new oil wells were brought online during the third quarter, three of which are on artificial lift.
o At quarter end, Beach has two horizontal oil wells cased and completed, planned to be brought online in Q4 FY21, and three vertical wells awaiting stimulation for completion in mid-2021.
• Total Cooper Basin JV production was 2.0 MMboe, 2% lower than the previous quarter. Sales gas increased 4% following prior quarter outages, while oil production decreased 6% due to weather related issues and natural field declines.
• Maintenance work is planned for Munkah Wackett compression in April and Moomba North and Big Lake during May, which are likely to impact gas production during the fourth quarter.

Perth Basin
• Perth Basin production was 190 kboe, up 10% on prior quarter. An increase in production from the Waitsia field was offset by the shut-in of the Beharra Springs facility between late February and the end of the quarter due to site works to connect the Beharra Springs Deep well.
• The Beharra Springs Deep well commenced production on 1 April at approximately 10 TJ per day and is ramping up as part of commissioning activities.
• The completion of the Xyris facility expansion has resulted in an increase to the daily production above the planned 20 TJ per day. Performance trials were completed early in the quarter and have supported sustained rates above 25 TJ per day, with daily rates exceeding 28 TJ per day during March.

SA Otway Basin
• Production from the SA Otway was 57 kboe, down 23% due to natural field decline.
• Operations at the Katnook Gas Plant will be suspended during FY22 as gas volumes decline below the minimum turndown rate. Beach plans to conduct 3D seismic acquisition over the Dombey field during FY22 to assess further opportunities to re-commence operations at the plant in future years.

Victoria (Victorian Otway Basin and BassGas)
• Victorian Otway Basin production was 562 kboe, down 10%, due to lower customer nominations and planned downtime to support commencement of offshore Otway drilling activities.
• Production from BassGas was 58% higher than the prior quarter, increasing to 449 kboe, following recognition of the proposed acquisition Mitsui’s interest of Bass Basin assets from 1 January 2021, offset by planned downtime associated with Yolla compressor maintenance.

New Zealand (Kupe Gas Project)
• Kupe production was 618 kboe, down 10% on the prior quarter, due to wells being offline during the wireline intervention campaign in February, shutdown of the Kupe onshore gas facility for ~2.5 days for minor repairs during March and natural field decline.
• Production is expected to remain off plateau until start-up of the compression project, which remains on time and budget, and is scheduled to commence in H1 FY22.

Drilling highlights
Beach participated in 18 wells where drilling operations were completed, comprising 16 wells in the Cooper Basin, one in the Victorian Otway and one in the Carnarvon Basin. Beach achieved an overall drilling success rate of 89% (success defined as a well cased and suspended or completed as a future producer).

Four wells were drilling ahead at end of the quarter, including the top hole of the Geographe 5 development well, the first of six development wells in the offshore Otway drilling campaign.

Cooper Basin
During the third quarter Beach-operated Cooper Basin drilling program included: • Completion of the FY21 development drilling campaign with the SLR Rig 184 drilling six horizontal oil development wells, all cased and suspended as future producers.

In the non-operated Cooper Basin JV, Beach participated in ten wells, with three wells drilling ahead at the end of the quarter, at an overall success rate of 89%. Highlights included:
• Four gas exploration and appraisal wells drilled at a 75% success rate, with the successful result at Ruby 3 providing potential for further follow-up drilling.
• Six gas development wells were drilled during the March quarter at a 100% success rate.

Victorian Otway Basin
On 23 February 2021, Beach commenced the offshore Otway drilling program with the spudding of the Artisan 1 exploration well in offshore exploration permit VIC/P43. The well was drilled with the Diamond Offshore Ocean Onyx rig.

The well reached the total depth of 2,205 metres Measured Depth (MD) and was declared as a discovery on 22 March 2021 (refer to ASX Announcement #011/21), having penetrated a 69.5 metre gross column within the Upper Waarre Formation, including net gas pay of 62.9 metres. The well also intersected a 20.9 metre gross column within the secondary target of the Flaxman Formation, with a net gas pay of 4.6 metres.

Evaluation of the reserve potential is underway, with the well cased and suspended as a future producer.

On 31 March 2021, Beach commenced drilling of the second well in the offshore campaign, Geographe 5, within VIC/L23, and drilling of the top holes at both Geographe 5 and 4 was completed subsequent to the end of the quarter. The rig is currently drilling at Geographe 4. The wells are targeting undeveloped 2P reserves within the Geographe field with first production expected during FY22.

Carnarvon Basin
The Ironbark 1 exploration well was successfully plugged and abandoned, and the rig demobilised from site on 11 January 2021. An exploration expense of $25.5 million was recognised on the income statement at the FY21 half year result.

Beach submitted its withdrawal notice from WA-359-P permit to the Ironbark JV in late March. The permit term ended on 25 April 2021 and will not be renewed.

Corporate and Commercial
Waitsia Gas Project Stage 2 reaches unconditional FID
The Waitsia Joint Venture awarded an Engineering, Procurement and Construction (EPC) contract to Clough in January 2021, with detailed design engineering to support procurement activities in Q4 FY21 progressing to plan. Site construction is planned to commence during H1 FY22.

In mid-February 2021, the Joint Venture reached unconditional FID for the ~250 TJ per day Waitsia Gas Project Stage 2 development in the onshore Perth Basin. The unconditional FID was reached following the satisfaction of outstanding commercial conditions and the receipt of final regulatory approvals, including Environmental Approvals from the Western Australian Government.

Waitsia LNG marketing
Active marketing of Beach’s equity share of up to 7.5 million tonnes of LNG (3.75 million tonnes net to Beach) has commenced, which will be processed through the North West Shelf facilities in Karratha between the second half of 2023 and the end of 2028. Positive bilateral discussions with potential buyers are underway ahead of a potential tender process in late H2 FY21.

Completion of acquisition of Senex Energy’s Cooper Basin portfolio
Beach completed the acquisition of Senex Energy’s Cooper Basin portfolio on 1 March 2021. The purchase price was $87.5 million, less the working capital adjustment of approximately $4.5 million accrued since the effective date of 1 July 2020. The acquisition was funded through the Company’s existing cash and drawdown of loan facilities.

Beach is now the 100% operator of Senex’s Western Flank assets, including PEL 104/111, which includes the Growler, Snatcher and Spitfire oil fields and associated infrastructure, and has commenced integration of the assets into the Company’s greater Western Flank portfolio. Beach expects to drill further development wells in these fields during FY22.

Canterbury Basin
In February 2021, Beach and its joint venture participant New Zealand Oil & Gas applied to surrender exploration permit PEP 52717 (Clipper), which contains the Barque prospect, in the offshore New Zealand Canterbury Basin. The decision was made by the joint venture as it was determined that the project no longer met the risk profile required for frontier exploration expenditure.

Moomba Carbon Capture & Storage FEED
Beach executed an agreement with Santos for Beach to undertake FEED activities for the Moomba Carbon Capture and Storage (CCS) project. The project leverages existing infrastructure and depleted fields within the Cooper Basin to initially sequester 1.7 million tonnes of CO2 per annum (gross).

Subsequent Events
Victorian Otway contract repricing update
In April, Beach received a partial award relating to the re-pricing of certain Otway Gas Project gas volumes (refer to ASX Announcement #012/21). The revised price review is effective from 1 July 2020, with a revenue adjustment made for any gas sold between 1 July 2020 and finalisation of the review.


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