The Beach Energy Ltd (ASX: BPT) share price is up more than 7% in early trading after the oil company released its December 2018 quarterly report and guidance for FY19.
Beach Energy is an oil & gas exploration and production company headquartered in Adelaide. It was founded in 1961 and is now a key supplier to the Australian east coast natural gas market. Beach Energy has ownership interests in key infrastructure such as the Moomba processing facility and Otway Gas Plant.
Why Beach Energy shares are up 7%
There are two main reasons why the market has reacted positively to the announcements.
1. December 2018 quarter
The first reason is quarterly oil production came in at 7.4 Million Barrels of Oil Equivalent (MMboe). Although this was 4% lower than the September quarter it was a 17% increase in ex PEL 91 oil production, with Otway gas sales 30% above prior year levels, largely offsetting seasonally lower gas demand.
2. FY19 production guidance increased
Total FY19 production guidance has increased to a range of 28 MMboe to 29 MMboe, up from the prior guidance of 25 MMboe to 27 MMboe. The improvement in the guidance was due to better than forecast production in the first half of FY19.
Beach Energy also disclosed a number of other financial items. FY19 capital expenditure guidance has been narrowed to between $450 million to $500 million.
Net Debt at 31 December 2018 was $331 million, a reduction of $155 million from the figure at 30 September 2018. Management said that net gearing is now under 14%.
Beach Energy is targeting to be debt free when it completes the proposed sale of its 40% stake of Otway, which is expected to happen by the end of the March 2019 quarter. If the debt-free target is achieved it will happen two years ahead of schedule.
Management also highlighted that the synergy and cost reduction targets are on track. The transitional services agreement with Origin Energy Ltd (ASX: ORG) was discharged on 31 December 2018, seven months ahead of schedule, signifying the completion of the integration of the Lattice Energy acquisition.
The realised synergy run rate was tracking at $56 million as at 31 December 2018, on track to hit the $60 million target by the end of FY19. Also, direct controllable operating costs have been reduced by an annualised rate of $8 million at the end of December 2018 (the company is targeting $30 million per year by the end of FY20).
Is Beach Energy a buy?
Things seem to be going well for Beach Energy at the moment. The company is making good progress with the things it can control, so management should be commended for that.
In my mind, the best time to buy resource shares is when things aren’t going well and the commodity price is at a low point, which isn’t currently the situation.
I prefer to go for shares that have control of the pricing for their products and can reliably grow their profit year after year, such as the shares in the free report below.
3 proven ASX profit growers to consider for your portfolio
The Rask Group's top expert investment analyst has just released a free report which reveals 3 proven ASX shares. They’ve proven themselves to be reliable dividend + growth shares over a decade. Access the report now.
Of course, past performance is not indicative of future performance but as he says in his free report, there are many reasons to keep a close watch on these 3 shares in 2019 and beyond.
Click here to access the free report. Absolutely no credit card details or payment required.
Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).
The Pengana Private Equity Trust (sponsored)