Beach Energy (BPT) and Oil Search (OSH) yesterday took the axe to spending and other costs to meet the challenges posed by the plunge in global oil prices.
Beach told the ASX in a report separate to its December quarter production and exploration report that it will cut its capex budget for this June half year by at least $55 million, and says it will delay spending on other projects.
Beach said it would produce a final figure on the size of its cuts when it reports its interim results next month and hinted they could be bigger.
And the larger Oil Search told the ASX in its quarter and full year report that it would cut asset values by $US150 to $US200 million (more than $A180 million to around $A250 million).
Oil Search also said other cuts would be detailed when it reports its full year financial results next month.
Both companies though reported solid production and sales figures for the quarter and either half year, (Beach) or full year, (Oil Search).
Beach shares dropped 3.7% to 0.895c. Oil Search shares ended 1.4% lower at $7.68.
Beach said it would find the cuts from reducing investment in the Santos-operated Cooper Basin joint venture, and by deferring some drilling and infrastructure projects. As a result, spending for the full year to June will fall tom a range of $430 million-$470 million, down from an earlier estimate of as much as $500 million.
Exploration spending will fall from $93 million in the December 2013 half year, to between $17 million and $32 million in the current six months.
Beach says it will hack into its budget for shale gas exploration in the Cooper Basin, with spending of just $5 million to $10 million, compared with $50 million spent in the December half.
"Final 2015 calendar year guidance is yet to be received from Santos in relation to the SACB and SWQ joint venturess, with Santos continuing to flag significant cuts across its business,” Beach said yesterday.
"It should be noted that Beach has a large exposure to SACB and SWQ joint venture’s capital expenditure. On receipt of the final estimates from Santos, Beach will provide further guidance in relation to its FY15 capital expenditure. Pending this, Beach has conservatively revised its FY15 guidance range down to $430 – $470 million,” the company said.
But Beach slightly upgraded its production guidance for 2014-15 to 8.9 million – 9.4 million barrels of oil equivalent (boe), from 8.6 million – 9.4 million boe.
Output will however be lower this half from the December half, which Beach put down to “a conservative approach taken in relation to expectations for non-operated production”.
Beach reported a 17% slide in revenues for the December quarter from the September quarter to $194 million, as the drop in the oil prices was only partially offset by the weaker Australian dollar. There will be more weakness this half if the current oil price levels continue.
Beach said that at the end of December it had $249 million of cash reserves and an undrawn $300 million secured loan facility.
"The FY15 capital expenditure program remains fully funded and our low cost production in the Western Flank supports ongoing free operating cash generation in a volatile oil price environment,” the company said.
BPT 1Y – Beach energy cuts capex
In its report, Oil Search said that apart from the impairment charge, it will continue to allocate spending to its two main growth projects: an expansion of its gas-export joint venture in Papua New Guinea with partners Exxon Mobil and Santos, and the development of the nearby Elk and Antelope gas fields.
But apart from those projects, Oil search says “capital and operating expenditures, outside these priorities, are being assessed”, meaning its oil exploration efforts in other countries face cutbacks.
It said revised spending guidance would be provided next month when it releases its profit result for the year through December.
Impairment charges for the year are likely to be between US$150 million and US$200 million.
"With the majority of the Company’s production profitable even at current oil prices and a strong balance sheet and liquidity position, with which to pursue growth opportunities, Oil Search is very well placed to manage the current low oil price environment,” Oil Search said yesterday.
OSH 1Y – Oil Search also flags cost cuts
In its production and exploration report, Oil Search said its revenue for the year to December more than doubled to US$526.1 million, thanks to the PNG LNG project starting production last May.
Oil Search said oil and gas output for the year almost tripled to 19.3 million barrels of oil equivalent (boe).
It forecast a rise to between 26 million and 28 million boe in 2015.
Oil Search said that at the end of December 2014 it had cash of US$960.2 million and debt of US$4,412.2 million, comprising US$4,262.2 million drawn down from the PNG LNG Project finance facility and US$150 million from the company’s corporate facilities. The company had total liquidity of US$1,560.2 million.
