Beach Energy targeting a break-even free cash flow level of US$30 per barrel by 2026

About Beach Energy Limited

Beach Energy Limited, (Beach, or the Group) is an oil and gas exploration and production company headquartered in Adelaide that was formerly known as Beach Petroleum Limited. Beach has been listed on the Australian Securities Exchange since 1961.

Beach supplies Australia’s East Coast gas market, operating the Otway Gas Plant and the Lang Lang Gas Plant in Victoria. All the gas Beach produces on the East Coast of Australia is sold to retailers within Australia.  Beach also provides gas to the Western Australian domestic market and is currently developing its first LNG project in the Perth Basin.

Beach operates an oil business in the Cooper Basin and is today Australia’s largest onshore oil producer and is a joint venture partner on the Moomba Gas Project. The Group has a suite of exploration permits and is undertaking active exploration drilling programs in the Perth and Cooper Basin.

Break-even free cash flow level at US$30 per barrel  

A key aspect of Beach Energy’s fourth quarter activities report is the cost-cutting program that management consider necessary to return Beach to being a low-cost operator. Management is targeting a reduction in the free cash flow break-even price from US$54 per barrel of oil to US$40 per barrel by 2025 and US$30 per barrel by 2026.

Beach is also targeting a 20 percent reduction in capital expenditure to $750 million for the 2025 financial year. The current CEO has been in the role for six months and is clearly focused on generating positive shareholder returns with a deliberate focus on higher margins and longer-dated, resilient cash flows to balance the current portfolio of core gas hubs on the East Coast and West Coast. This partly explains the $1.1 billion in asset write-downs to be taken up in the 2024 financial year. The write-downs include gas assets in New Zealand and in Bass Strait that failed to meet the CEO’s disciplined return and net present value criteria for existing and proposed assets. This is consistent with the ‘owner’s mindset’ philosophy of Kerry Stokes, the controlling shareholder of Beach Energy’s parent entity.

FY24 production and sales volumes

Production and sales for the June quarter were 6 percent and 10 percent higher respectively, compared to the previous quarter. June quarter production was 4.8 million barrels of oil equivalent (MMboe), compared to 4.5 MMboe for March. Sales revenue for the June quarter was $433 million, up from $392 million for March.

Full-year production volume for the 12 months to June 2024 was 18.2 MMboe. Production guidance for FY2025 is at a wide range of 17.5 to 21.5 MMboe. This wide range is because

the Waitsia Gas Plant is experiencing quality issues during its pre-commissioning phase and so the timing of the Watsia start-up and ramp-up remains uncertain. First gas from this plant is targeted for early calendar year 2025 with a 3-to-4-month ramp-up expected.

Gas to remain an important energy source to 2050 

Gas is crucial to Australia’s future as it supports manufacturing, food processing and refining of critical minerals which will help Australia and the world to a lower emissions outcome. Gas supplies 27 per cent of Australia’s energy needs and represents 14 per cent of Australia’s exports.

The Australian Government’s Future Gas Strategy report has reaffirmed the crucial role gas will play in the transition to net zero by 2050. The report stated that gas must remain affordable for Australian users throughout the transition to net zero and that households must continue to have a choice over how their energy needs are met. The Government report also stated that new sources of gas supply are needed to meet demand during the economy-wide transition to net zero. West Coast gas demand is expected to grow by 15 percent by the early 2030s and East Coast gas supply is going to decline by 30 percent from the early 2030s. In response, Beach Energy have advised the Australian Government that regulatory support is urgently required to encourage investment in new gas supply.

These circumstances are positive for large scale gas producers and suppliers like Beach Energy because the switch from coal to renewables and to gas is likely to create a sustained, long-term structural deficit of gas supply in Australia, without additional sources of supply.

Beach with 12 percent market share of the East Coast gas market and 2 percent of the West Coast gas market has the infrastructure and acreage to grow its East and West Coast gas market share.

An increasingly tight East Coast gas market and with new industries and new demand opportunities emerging in the West Coast gas market, and given that decarbonisation is an irreversible mega-trend, Beach Energy shareholders can reasonably expect positive share value accretion at least over the medium-term.