The continuing weakness in oil prices, expectations of more to come this financial year, and lower production have seen Beach Energy (BPT) make a second round of cuts in its costs, especially exploration and investment.
The company, which is 19.7% controlled by Kerry Stokes’ Seven Group Holdings (along with rival Cooper Basin operator, Drillsearch) said yesterday in its June quarter report that it is looking at a 42% cut in its spending this financial year.
Beach said it was expecting a “major reduction” in its business spend during the 2016 financial year, forecasting capital expenditure between $240 million and $270 million.
That would be up to 42% lower (at the bottom of the range) than what the $416 million the company spent in 2014-15. Total development spending will fall from $285 million in 2014-15 to a range of $190 to $210 million this year. Exploration spending will also fall to $50 to $60 million from $131 million in 2014-15.
Beach said it was deferring the development of “lower priority projects” and that it is planning to focus on preserving cash reserves and maintaining liquidity in the expected low oil price environment.
Beach said it was aiming for an output of up to 8.6 million barrels of oil equivalent (mmboe) in 2015-16, nearly a million barrels lower than its full-year production of 9.16 mmboe.
“The recent industry-wide focus on preserving cash reserves and liquidity has seen reduced drilling across the Cooper Basin and lower expectations for near-term production profiles,” Beach said in the June quarter exploration and development statement filed with the ASX yesterday.
BPT 1Y – Beach plans “major reduction” in spending
But while lower production is forecast over the coming 12 months, Beach said gas volumes in this financial year are expected to be higher year-on-year, resulting from a likely draw down from the firm’s storage.
At the end of June, Beach said it had cash on hand of $170 million, with loan facilities of $300 million, of which half was unused. Beach said it would be looking to preserve this level of liquidity over the coming financial year. That could mean cuts to dividends and other payments to make sure the reduced funding program is fully covered.
For the three months ending June 30, Beach said sales volumes rose to 2.6 mmboe, a 16% increase on the prior quarter, thanks to increased customer demand for gas (early winter was very cold in southeastern Australia).
This brought Beach’s full-year sales figure to 10.5 mmboe, a slight decline from its record high result in 2013-14.
Beach realised an average oil price of $A83.5 a barrel during the June quarter, 18% above the March quarter, but 31% down on a year ago, when the group sold oil at $A122.6 a barrel.
This led to sales revenue during the June quarter of $A170.2 million, which was up 30% on March, but down 35% from a year earlier.
Beach shares edged up 1.1% to 92 cents yesterday.
