Glenside Aug 24, 2015 (Thomson StreetEvents) -- Edited Transcript of Beach Energy Ltd earnings conference call or presentation Monday, August 24, 2015 at 1:00:00am GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Derek Piper Beach Energy - Investor Relations Manager * Neil Gibbins Beach Energy - Acting Chief Executive Officer * Kathryn Presser Beach Energy - Chief Financial Officer * Rod Rayner Beach Energy - Group Executive Commercial * Matthew Squire Beach Energy - Group Executive Corporate Development ================================================================================ Conference Call Participants ================================================================================ * James Byrne Citi - Analyst * Nik Burns UBS - Analyst * Mark Samter Credit Suisse - Analyst * Tim Masters Canaccord Wealth Management - Analyst * John Young Ord Minnett - Analyst * Sean Burgess Macquarie - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by and welcome to the 2015 Full Year Results presentation. (Operator instructions). I must advise you that this conference is being recorded today, Monday, 24 August 2015. I would now like to hand the conference over to your first speaker today. This is Derek Piper. Thank you, please go ahead. -------------------------------------------------------------------------------- Derek Piper, Beach Energy - Investor Relations Manager [2] -------------------------------------------------------------------------------- Good morning, everyone, thanks, Kevin, and thanks for joining the Beach Energy conference call to discuss our Full Year Results for the FY15 year. Joining me today is Neil Gibbins, our Acting Chief Executive Officer, Kathryn Presser, our Chief Financial Officer and other executives and senior members of the management team. Neil and Kathryn will be talking through the results in some detail and then we will open the lines to q and a. So with that I will hand over to Neil to give an overview of the results. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [3] -------------------------------------------------------------------------------- Thanks, Derek, and good morning, everybody. Let us go straight to slide 4. As you all know, it has been an extremely tough environment with the petroleum industry, particularly over the second half of the financial year, with macro issues, primarily oil price driving lower revenues, NPAT and cash flows. As I have indicated during our recent quarterly releases, Beach has always run its operations in a very lean, efficient and cost conscious manner to both maximise returns on our investments but also to be prepared for any material downturns in commodity pricing. As we have done in the past, we have also reacted appropriately to maintain our financial strength by cost and CapEx reductions, aided by similar reductions carried out by our joint venture partners, in particular Santos and credit there where credit is due. This has allowed us to deliver a good technical and underlying financial performance at the end of FY15 but we will, of course, continue to monitor the situation very closely and manage the business in the most appropriate manner for the conditions. In these difficult conditions, we have maintained a strong balance sheet at 30 June 2015 with AUD170 million in cash and available funding of AUD150 million. On the technical side of the business, we recorded sales and production volumes for the year of 10.51 and 9.15 million barrels of oil equivalent respectively, broadly in line with our FY14 record levels and we continue to achieve some high drilling success rates, 88% overall, 81% for appraisal and 52% success rate for exploration. Some pretty good returns there. We have also started a reduction of exposure to international operations as per our recently completed strategy review. This review has clearly defined our ambitions in growth plans plus the focus areas and actions we will undertake to carry out that strategy. Allied to this in what has been a really active period for the company, we have also reduced our lost time injuries by 60% and are continuing to focus on reducing incidents across the business as safety really does take precedence in everything that we do. Now, if we move on to slide 5 and look at some of the fundamentals over the last five years, you can see that sales revenue for FY15 was AUD728 million, down on our AUD1 billion revenue of FY14 but higher than all preceding financial years. With broadly steady sales volumes, you can see the impact of the oil price forward to some extent has been offset by a more favourable FX rate. Underlying NPAT was AUD91 million, down 65% on FY14 but again, considering the rapid change in oil price and the material changes in CapEx programs instituted in response, it is a very solid year end result and it demonstrates the sustainability and financial strength of the business. Similarly operating cash flow was AUD229 million, down 61% on our record FY14 year but of a similar magnitude to FY12 and FY13. It should not be forgotten that our Western Flank oil business is still a very profitable business with very low operating costs and good margins, even in a sustained low oil price environment. Now, Kathryn will talk in a bit more detail on the financials in just a moment. So let us move on to slide 6 and I will just quickly run through some of our important recent announcements. As you can see, we commenced supply for the Origin oil link gas contract which is actually delivering an increased price when compared with legacy contracts. We have also announced the sale of Beach Egypt to Rockhopper for up to $22 million. It is a binding agreement subject to some conditions precedent with completion expected to occur in late 2015, early 2016. We are also continuing our approach of acquiring equity and prospective Cooper acreage with acquisition of our new 40% interest in ATP 1056 of the southeastern flank of the Basin the most recent example. We have also announced second half impairments of AUD449 million post-tax relating firstly to a downgrade in Delhi reserves, the NTNG project, that is post completion, the Stage 1 with Chevron and the sale of our Egyptian assets. Our releases on Friday dealt with these matters in some detail and Kathryn will touch on them further in her discussion. But we are certainly delivering on our strategy with a focus on Australia and nearby and that takes me on to slide 7. Now, our strategy was recently detailed for the investment community by Rob Cole after a very comprehensive review of our existing business and also opportunities that pertain to our focus area. The review really helped us define a roadmap to deliver financial strength in tough times and set the company for pursuit of growth opportunities. I won't go over too much ground that was covered in the recent review but I will reiterate the four pillars of the strategy as shown on this slide. We will look to optimise our Cooper operations. We will keep them lean, efficient and financially rewarding plus look for both organic growth within our current portfolio and review and act on any value accretive opportunities external to our business. Beach also sees the east coast gas market as short on supply for an increase in gas demand and we will look to build a business for supply in to that market. We already have assets in the Otway and Gippsland Basins and we will continue to evaluate these permits and look for additional opportunities to strengthen our position there. We will also pursue other growth opportunities in Australia and nearby via a very disciplined approach to identify prospective basins and associated opportunities. In concert with all of this, Beach will ensure we maintain our financial strength with appropriate programs, efficiencies, CapEx and cost control via prudent management of the business, including active portfolio management appropriate to the prevailing environment. At this time and for this purpose, we are assuming lower prices for longer, as Robert said on numerous occasions. Before I hand over to Kathryn for a deeper dive into the financials, I will make one more comment and that is in relation to our Managing Director, Rob Cole. As the market has been advised, Rob is currently on leave for personal family reasons and in the interim I have taken on the role of Acting Chief Executive. We all look forward to seeing Rob back again as soon as possible but have been asked to respect his privacy as he deals with these matters. He is in touch through our Chairman, Glenn Davis, and as far as we are concerned, it is business as usual. We have a very strong team here at Beach and one that most of you, if not all of you, know very well. Our strategy is in place, our direction is clear and our team is getting on with the job as it has always done. We would therefore like to focus on our results and forward plans this morning and respect Rob's privacy on the issues he is dealing with. So with that, I will now hand over to Kathryn to discuss the financials. -------------------------------------------------------------------------------- Kathryn Presser, Beach Energy - Chief Financial Officer [4] -------------------------------------------------------------------------------- Thank you, Neil, and good morning everyone. Well things can certainly change quickly in the life of an oil and gas company, as you can see on slide 9, with our results for FY15, I will be presenting you with a completely different set of numbers to the FY14 record results that I was presenting this time last year. However, as the CFO, I know that it is Beach's prudent financial management that will underpin our growth opportunities moving forward. Even at low oil prices, it is our sustainable cash flow, our low cost operations, our focus on cost cutting, our CapEx control and our low debt position that is not keeping me awake at night. This morning I will provide highlights in relation to the FY15 results and spend more time behind the supporting and underlying numbers and specifically talk you through the FY15 impairment adjustments at a high level, which will allow time for questions. Moving on to slide 10, which you have already seen in our June quarterly, our FY15 sales revenue was down 31% which is in line with current industry reporting in these turbulent times predominantly as a result of the decline in oil prices, down 35% from $115 to $74. This has been offset by gains in our FX rates. I would really like to focus now on slide 11 on our underlying NPAT. As I just said previously, the drop in oil price has been the main driver behind our drop in underlying NPAT. The drop in oil revenue has also resulted in the corresponding reduction in our royalty cost, the total operating cost down 13% from AUD263 million to AUD229 million. However, in FY15, we have seen a slight increase in our production operating costs for the full year, up 5% from AUD167 million to AUD175 million and it is only more recently that we are starting to realise the cost cutting measures that Santos have implemented to reduce the resultant Cooper Basin unit production cost. As highlighted in their presentation on 21 August 2015, their cost production costs are down 11% from AUD15.30 to AUD13.70 per boe in the half year. The Cooper Basin costs are 15% lower during this reporting period and these reductions are expected to flow through into our FY16 numbers. However, I would more importantly like to focus on Beach's operating costs. Beach continues to be a much lower cost operator with our unit product cost coming in around a further 40% lower than Santos' unit production cost. This highlights Neil's earlier point that Beach always runs its operations in a very lean, efficient and in a cost conscious manner. In FY15 we also recorded a 20% increase in depreciation and amortisation charges, up from AUD184 million to AUD220 million as a result of an increase in asset base and declining reserves, particularly in relation to our Santos operated Cooper Basin assets. With the resultant impairment adjustments to these assets, it is expected that these charges will reduced in FY16. Moving on to slide 12, you can clearly see the comparison of our underlying profit year on year as a result of backing out of the impairment adjustments which I will talk to on the next slide and the net mark to market movement on our convertible notes, this has now been replaced with our corporate debt facility. FY15, having ended the year with a AUD90.7 million underlying profit as compare to a AUD72.4 million underlying profit of a half year continues to confirm our ongoing underlying business, again despite a much sustained lower oil price environment. On slide 13, I would like to talk to our impairments and particularly our full year impairment adjustments. These adjustments have been made in FY15 as a result of the sustained low oil price environment, our revised strategy to focus on Australia and nearby and substantially exit our overseas asset portfolios and as a result of Chevron not committing further to Stage 2 of the NTNG program. Firstly, the Cooper Basin. Beach looks at all of its assets on an area of interest basis and take into account the revised oil price assumptions at December 2014 and subsequently the reserves right down at year end, we have taken a full year AUD345 million, AUD241 million post tax write down to our Cooper Basin assets. These are predominantly in relation to the Santos operated oil and gas assets, made up substantially in the first half of the year by reduced oil prices which result in a AUD193 million impairment to our Cooper Basin assets and a further AUD152 million in the second half as a result of the Delhi reserves revisions. Our NTNG exploration assets have been impaired by AUD238 million as a result of Chevron not committing to Stage 2 and as such, we have impaired these exploration assets to reflect the resultant 2P resources and Beach's commitment to further develop these assets in the long term. Egypt assets as a result of the sale of the Beach company to Rockhopper, an impairment of AUD174 million, we have realised down to the resultant sale value. Romania, as a result of our exit from Romania, we have recognised an impairment of AUD30 million in the first half and a subsequent AUD2 million to complete and impair our exit from Romania. In summary, as you can see on slide 14, Beach has concluded the year in an exceptionally strong cash position in this tough oil price environment. Our prudent cash management and lean operations have formed the basis to commence FY16 with AUD170 million of cash and a strong expectation that Beach will be able to fully fund our exploration development program through FY16. With only AUD150 million of undrawn debt and a very healthy gearing level at only 11%, Beach has also a further AUD150 million of undrawn debt facilities and strong support from existing and new banks to provide support for any potential external growth opportunities. The Board have continued to reward shareholders with a prudent but ongoing dividend stream and have agreed to pay a AUD0.01 per share fully franked dividend based on the underlying results with a record date of 4 September 2015. Sorry, it is AUD0.005 per share fully paid dividend. This will result in Beach continuing to pay dividends since our first dividend paid on the back of our FY02 results which is 14 years of ongoing returns to shareholders and as such sets us apart from our peers. Beach continues to maintain its commitment into the FY16 financial year to monitor all costs (technical difficulty), both corporate and operational costs, and as such Beach is well placed to ride out this low oil price storm. Therefore in presenting these results, I hope I have articulated the sound base for Beach to move forward and on that note, I will hand back to Neil to talk more about our current and future operations. Thank you. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [5] -------------------------------------------------------------------------------- Thanks, Kathryn. Let us move on to slide 16 and take a look at actual and forecast production. As we stated for FY15, it was another excellent year with production of 9.15 million barrels of oil equivalent, again split roughly 50/50 oil versus gas and gas liquids. This compares actually quite favourably with our record year in FY14 of 9.6 million barrels of oil equivalent and exceeded our FY13 production by over 1.1 million barrels of oil equivalent. Plus we maintain our position as the leading on-shore oil producer in Australia. The production performance in FY15 was driven by a combination of solid gas production through the year and western flank oil production, in particular production from the Bauer Field. During the year we completed the Bauer facility upgrade, we drilled two full well pads and now have six of the 10 new field development wells actually online. So flow lines are currently at capacity and we are trucking excess crude with three to four loads daily at this time. One hundred and twenty two wells were drilled in the FY15 program and as I mentioned earlier, we had an overall success rate of 88%, a 52% exploration success rate and I think that was for around 17% of the wells and an 81% success rate on appraisal drilling. Again I think that was around 17% of the total number of wells. As we have indicated previously, our guidance for production in FY16 is in the range 7.8 million to 8.6 million barrels which is lower than FY15 due to a combination of natural field decline, a reduction in drilling activity and to some extent reflective of equity differences between permits. I will talk a bit more about the forward program in a minute. But first, if you move on to slide 17, we can see the split in production for FY15 and a comparison of that production against the record FY14 performance. Oil was down 11% but the performance of pool 91 and particularly the Bauer Field was strong and will remain so as we progressively bring the next four pad wells online in the first quarter of the financial year. Total gas and gas liquid is slightly up on FY14 at a 3% increase overall. Sales gas was up 5% and the condensate and LPG is down and that is really reflective of the leaner gas in the system at the moment. This is still an excellent years performance and looking ahead to our forecast production outcome this financial year, I will just reiterate my commentary on the FY16 production. Even though our gas production will be slightly down this financial year against last year, our sales are likely to increase through the use of storage within the basin. We certainly mentioned this in our last quarterly call. This is an excellent outcome where a major reduction in CapEx expenditure on drilling and that seven rigs to three is planned, yet we achieve a strong sales performance, meeting both legacy contracts and gas sales under the new Origin contract. So full marks for the JV on planning appropriately and reacting strongly in this tough environment. It was an approach we have favoured and full marks to the operator Santos for putting this in place. If we now move on to slide 18, this gives a snapshot of our reserves position at year end FY15. You can see our 2P reserves now stand at 74 million barrels of oil equivalent with around one quarter oil and our contingent resource is 677 million barrels of oil equivalent. We made a very detailed release on these numbers Friday and so various movements on reserves in the major asset areas of our business. For reference, it is worthwhile taking a look at the 2P reserve break down on page 2 of that release. The pleasing aspect of the reserve (outcome) is that we have increased our reserve slightly (technical difficulty) western flank after taking into account production. As you all know, the reservoirs on the flank produce at exceptionally high rates and this outcome is a real positive for the region. On the Delhi side of the business, the Permian oil and gas-gas liquid reserves were reviewed by independent auditor RISC Advisory and that was after a very detailed internal review of field data. RISC agreed with the assessment, as is stated in our release. Delhi Jurassic oil reserves were also reviewed internally. Now, on the basis of all of this, a 7.9 million barrels of oil equivalent downward revision was made to the Delhi reserve base and with around 6.8 million of that downgrade attributed to the Permian. Now, in taking into account production, the Delhi net reserve has moved from 71.9 to 58.9 million barrels of oil equivalent. Now, for contingent resources, the major movement is really associated with the NTNG project where the increase of 280 million barrels of oil equivalent is about a 50/50 result of the FY15 program and that return of equity from Chevron after Stage 1. So finally I would like to move to slide 19 and briefly update you on the components of the FY16 capital program. As you can see it is in the order of AUD240 million to AUD270 million with up to 62 wells. That is a substantial reduction from the FY15 actual expenditure of AUD431 million and the original FY15 forecast of AUD450 million to AUD500 million. But we really believe it is an appropriate mix of development expenditure to meet gas contract requirements and continue oil production at strong levels with some expenditure on appraisal and exploration work for growth in the business. The key is to maintain strong CapEx control and focus discretionary expenditure on high margin, low risk projects which of course will mostly be on the western flank of the basin. The program will consist of approximately AUD190 million to AUD210 million of development expenditure with up to 38 wells. Just over one-third of those wells will target all development opportunities across the western flank and Delhi assets. Under the key gas projects there is the connection of the (inaudible) gas fields in Queensland and this program is already underway and we have seen some good development and appraisal results in that regional already. Exploration expenditure will be in the order of AUD50 million to AUD60 million with up to 24 wells in the program. Drilling will focus on the western and the eastern flanks of the (technical difficulty) for oil and the northern fields in Queensland for gas. Some allowance has also been made for deep coal fracs in the programmed gas wells around the basin. The Santos operated drilling program is already underway. Drilling has commenced on the western flank with (inaudible) operated (Fulcrum One) well and our operating drill program will kick off in October with the Maroochydore and (inaudible) two oil exploration wells in Queensland. That operated drilling program will be predominantly connected to oil and plus there will be two gas exploration wells in (inaudible) acreage. Two conventional gas wells on the onshore Otway and a well test at (technical difficulty) are also planned but subject to the successful farm down. Expenditure for these items are therefore not included in the CapEx table shown here. No significant expenditure is planned for the NTNG project. We will collate and analyse data from Stage 1 and also look for an appropriate partner to progress through Stage 2 of that program with us. So in closing, given the tough times, we believe we still have an appropriate level of expenditure, a good mix of development, appraisal and exploration in the program. As Kathryn mentioned, with our strong financial position, we expect to fully fund the CapEx program as shown on this slide. Combined with a strong balance sheet and clearly articulated strategy and direction, Beach is well positioned to weather the current environment, even if it is depressed pricing for longer. It is also getting itself set for growth in the future. Now, the oil business is very sound, even at lower than current pricing and our gas revenue per gigajoule will increase as legacy contracts drop off. Having said that though, we will however continue to monitor the situation and prudently manage the business according to the prevailing environment as we have done over many, many years. I will repeat my comments made earlier. We have a strong team here at Beach with a clear strategy and direction. We are getting on with the job and we look forward to the year ahead and completing the work. That really takes us to the end of the presentation and of course we are happy to take any questions. -------------------------------------------------------------------------------- Derek Piper, Beach Energy - Investor Relations Manager [6] -------------------------------------------------------------------------------- Thanks for that, Neil and Kathryn. So now if you can open the lines to q and a. Thanks. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Thank you. (Operator instructions). We do have our first question from Mr. James Byrne from Citi. James, please ask your question. -------------------------------------------------------------------------------- James Byrne, Citi - Analyst [2] -------------------------------------------------------------------------------- Good morning. Given Santos' focus on realising asset value, I was hoping you could provide a comment on the JV's alignment on Cooper asset sales and following on from that, how does the reserves coverage and the need to not marginalise the asset with incremental OpEx play into the structure of an infrastructure asset sale? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [3] -------------------------------------------------------------------------------- I have just handled the first one. Look, obviously we have seen all the releases made by Santos last week and we will take the opportunity to discuss those matters with them. Of course, we will take the opportunity to also look at any assets that might be available but, of course, any approach or any action on our behalf will actually have to be value accretive from our point of view. I hope that answers your first question there, James. Sorry, if you could repeat your second one -------------------------------------------------------------------------------- James Byrne, Citi - Analyst [4] -------------------------------------------------------------------------------- Just how you would structure an infrastructure asset sale with respect to consideration such as reserve coverage and incremental OpEx from (lease) repayments potentially marginalising the Cooper at low oil prices. -------------------------------------------------------------------------------- Matthew Squire, Beach Energy - Group Executive Corporate Development [5] -------------------------------------------------------------------------------- I think that is a bit of a - I think it is early days. I think Santos will probably look at a variety of options. The two of us would always look to partner and we are not going to do anything that actually leaves the business in an unsustainable operating position. So I don't see it as a scenario that is going to happen. -------------------------------------------------------------------------------- James Byrne, Citi - Analyst [6] -------------------------------------------------------------------------------- Sure. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [7] -------------------------------------------------------------------------------- I think the joint venture is working very strongly at the moment together, just to make sure that our cost structures and our operating costs are in really good shape so that we are working in a tough environment and we are reacting accordingly. -------------------------------------------------------------------------------- James Byrne, Citi - Analyst [8] -------------------------------------------------------------------------------- Okay. Just moving onto PNG, the comment that was made a couple of weeks ago around M&A in the area, I was hoping you could perhaps expand on this. I mean, are you looking to aggregate current discoveries or do you want to have a large exploration footprints in countries? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [9] -------------------------------------------------------------------------------- In terms of PNG I think the media and others seem to focus on PNG more than they perhaps should have. I think we've got a broad ranging strategy involving Australia and nearby and PNG is one aspect of that. There are certainly other areas that we'll be looking at. We're really not in the business of telegraphing too much about what we're going to do within that broad strategy. I think I'll probably leave that there. -------------------------------------------------------------------------------- James Byrne, Citi - Analyst [10] -------------------------------------------------------------------------------- Okay thanks guys. -------------------------------------------------------------------------------- Operator [11] -------------------------------------------------------------------------------- Your next questions comes from Mr. Nik Burns from UBS. Please ask your question Nik. -------------------------------------------------------------------------------- Nik Burns, UBS - Analyst [12] -------------------------------------------------------------------------------- Thanks guys. Just a question on your FY16 CapEx program and the future of the lends, I guess of reserve replacement, from your reserve report last week as you mentioned Neil, you did a great job in replacing your oil production last year. Just looking at the 10 to 12 exploration wells you've got on the agenda there for FY16. What are your plans? Do you have enough granularity at this point to give us confidence about what level of reserve replacement you could be targeting in FY16 on the oil front? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [13] -------------------------------------------------------------------------------- Well Nik, not enough granularity at this stage, and of course there are restrictions through the ASX now on how we report the potential of the opportunities that we're addressing. It's early days on a lot of those opportunities. We actually build those up as we move through the year and we're reprocessing a lot of data at this point in time to actually look at those opportunities too. I know that that doesn't answer the question directly, but we'll just keep you informed as we build up that inventory for the year. -------------------------------------------------------------------------------- Nik Burns, UBS - Analyst [14] -------------------------------------------------------------------------------- Okay, on the -- yes, go on. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [15] -------------------------------------------------------------------------------- Having said that, the flank has been a good journey for us and hopefully we can continue that on the western flank and also pick up some oil on the eastern flank of the basin. There are some good opportunities at Maroochydore and (inaudible) too, very early in the program so we're quite looking forward to those. -------------------------------------------------------------------------------- Nik Burns, UBS - Analyst [16] -------------------------------------------------------------------------------- Okay. Just on the development drilling, you've got seven to eight wells in a non JV area. Do you have many Bauer development wells planned as a part of that seven to eight? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [17] -------------------------------------------------------------------------------- I think we have about three planned. -------------------------------------------------------------------------------- Unidentified Company Representative [18] -------------------------------------------------------------------------------- Yes we have -- g'day Nik it's Mark (technical difficulty). We have a few appraisal wells in (inaudible) that we're looking at and there'll probably be a couple of -- one or two development wells but I guess, as Neil commented before, we've got a bit of an inventory of wells available to bring online through the first quarter. -------------------------------------------------------------------------------- Nik Burns, UBS - Analyst [19] -------------------------------------------------------------------------------- Okay great. Just one final question, just to -- I think you mentioned at the start of the call around the Origin gas contract resulted in increase in realized gas prices versus legacy contracts. I'm not sure if Rod Rayner's there but just in terms of a reminder, I'm pretty sure it's an oil-linked contract. If you could just maybe tell us is that a JTC linked contract? Is there a typical three-month lag between oil price and realized gas price there? -------------------------------------------------------------------------------- Rod Rayner, Beach Energy - Group Executive Commercial [20] -------------------------------------------------------------------------------- Yes Nik I am here. Look, I can't go in to that sort of detail as you know, we've been not able to be going in to the detail of a confidential sales gas contract, but obviously what we are seeing from the results in this year is that gas prices, the average gas price has increased something like 3% against last year. That's reflective of the nature of the new gas contract. -------------------------------------------------------------------------------- Nik Burns, UBS - Analyst [21] -------------------------------------------------------------------------------- Okay so as we maybe move further in the year, I guess we'll just have to judge based on the gas prices that come through as to what the lag may or may not be. -------------------------------------------------------------------------------- Rod Rayner, Beach Energy - Group Executive Commercial [22] -------------------------------------------------------------------------------- That's right, yes. -------------------------------------------------------------------------------- Nik Burns, UBS - Analyst [23] -------------------------------------------------------------------------------- Okay great, thanks guys, cheers. -------------------------------------------------------------------------------- Rod Rayner, Beach Energy - Group Executive Commercial [24] -------------------------------------------------------------------------------- Thanks Nik. -------------------------------------------------------------------------------- Operator [25] -------------------------------------------------------------------------------- Your next question comes from Mr. Mark Samter from Credit Suisse. Please ask your question Mark. -------------------------------------------------------------------------------- Mark Samter, Credit Suisse - Analyst [26] -------------------------------------------------------------------------------- Yes morning guys. First question might be to Matt, and I asked the same question to Woodside. It'll be interesting to see if we get the same answer. You guys have been pretty public about looking at acquisitions, just what you think's happening to the bid offer spread. Obviously we are starting to see corporates with stretched balance sheets talk about asset sales. How close are price expectations to meeting where they need to meet? -------------------------------------------------------------------------------- Matthew Squire, Beach Energy - Group Executive Corporate Development [27] -------------------------------------------------------------------------------- Well Mark I think a lot of the focus is really, I don't like to use the term acquisitions, I mean for our situation we actually think it's a good -- it's the environment where we should be thinking about partnering. It's a tough environment and it's about finding partners that are willing to work together. When we can do that, I think it's the right environment for that to happen. -------------------------------------------------------------------------------- Mark Samter, Credit Suisse - Analyst [28] -------------------------------------------------------------------------------- Okay. Actually that might lead in to question to Neil on this maybe. It's a slightly unfair question, but... -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [29] -------------------------------------------------------------------------------- Thanks Mark. -------------------------------------------------------------------------------- Mark Samter, Credit Suisse - Analyst [30] -------------------------------------------------------------------------------- Sorry. If you guys were operator of the SACB JV, do you think you'd be pursuing the same operating structure? Do you think scaling back on production as aggressively as we're seeing is optimal (technical difficulty) on that occasion or do you think there's a case that is being driven more by capital preservation than NPV optimization? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [31] -------------------------------------------------------------------------------- From our point of view with the SACB and South West Queensland joint ventures, we've been talking about trying to scale back the drilling program for a number of years. We saw the best approach here to meet the contracts that we have in place was to reduce the program-utilized storage and reduce operating costs. I think I'll give credit to Santos on this one, they have done a good job in achieving those sorts of results and we think the program set for FY16 is pretty good. It achieves the results that we want to and minimizes our CapEx exposure and reduces OpEx. -------------------------------------------------------------------------------- Mark Samter, Credit Suisse - Analyst [32] -------------------------------------------------------------------------------- Perfect, thanks guys. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [33] -------------------------------------------------------------------------------- Thanks mate, it wasn't too unfair. We'll talk later though. -------------------------------------------------------------------------------- Mark Samter, Credit Suisse - Analyst [34] -------------------------------------------------------------------------------- Thanks guys -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [35] -------------------------------------------------------------------------------- All right, cheers mate. -------------------------------------------------------------------------------- Operator [36] -------------------------------------------------------------------------------- Your next question comes from Tim Masters from Canaccord. Please ask your question Tim. -------------------------------------------------------------------------------- Tim Masters, Canaccord Wealth Management - Analyst [37] -------------------------------------------------------------------------------- Hi guys, just a couple of quick ones from me. Just on the Middleton facility that, you know you're looking at bringing on about four wells there and with compression that will see production increase materially to year-end. Can you point to any guidance on that license? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [38] -------------------------------------------------------------------------------- Look, the timing of compression will actually be finalized at the end of the financial year and until we've done that work, we'll leave that guidance on the impact until that time. We are starting the planning and starting to spend some money on getting that all together to be in place at the end of the financial year. -------------------------------------------------------------------------------- Tim Masters, Canaccord Wealth Management - Analyst [39] -------------------------------------------------------------------------------- Okay no worries. On your tax payments just for FY16 -- just what you think and maybe FY17 if you've got visibility out. If you're going to continue to match your operating cash flows and CapEx, can we assume that at the forward curve you're going to pay minimal or no tax over the next few years? -------------------------------------------------------------------------------- Kathryn Presser, Beach Energy - Chief Financial Officer [40] -------------------------------------------------------------------------------- Yes that's right Tim. Obviously you would have seen the large tax payment we had in this year, over AUD74 million, which obviously included the profit and also the Chevron transaction. It'll be negligible or very small going forward in FY16 and FY17 at these current oil prices. -------------------------------------------------------------------------------- Tim Masters, Canaccord Wealth Management - Analyst [41] -------------------------------------------------------------------------------- Great. Then maybe just one final one, if you've got any comments on the deep coals and where you'll look at doing any fracture stimulation this year. Is that purely in the licenses with Strike or is that outside? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [42] -------------------------------------------------------------------------------- It's a combination of both. We've got a test program in the budget for (inaudible) 94 but there's a series of opportunities around the place and some are in the Tirrawarra field where we'll address the deep coals as part of the Santos operated program. I think it's a really interesting opportunity and I'm encouraged by what we've seen so far. Let's hope it pans out really well. It's a pretty inexpensive add-on rate from around the basin if this works you can see an impact going forward. -------------------------------------------------------------------------------- Tim Masters, Canaccord Wealth Management - Analyst [43] -------------------------------------------------------------------------------- Yeah that's what I was thinking. Is it fair enough then to say that those coals aren't just going to be the sweet spot as far as there'll be other coals around which you'll look to do similar completions and testing on? -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [44] -------------------------------------------------------------------------------- Look that would be a fair comment. I think we've got to look in the fields first and see how they perform there, but then what does that mean for elsewhere I'm sure we'll be analyzing our results with that in mind. -------------------------------------------------------------------------------- Tim Masters, Canaccord Wealth Management - Analyst [45] -------------------------------------------------------------------------------- Brilliant, okay thanks guys. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Your next question comes from Mr. John Young from Ord Minnett. Please ask your question John. -------------------------------------------------------------------------------- John Young, Ord Minnett - Analyst [47] -------------------------------------------------------------------------------- Thank you. Thanks Neil and your team. My question relates to slide five please in the pack, where there's a history provided around the sales revenue and that's been increasing and then there's one around operating cash flow. Just wondering if you could talk a little more about the operating cost structure please, because I notice that whilst the revenue is still holding up in FY15 relative to, the prior year, it's your second best year, operating cash flow had clearly come back a bit and that would tend to I think suggest that costs have climbed somewhat. I just wondered if you can talk a bit more about how you see that going forward please. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [48] -------------------------------------------------------------------------------- I can tell you a little bit about operating costs in terms of overall dollars where we're looking at a reduction in our operating costs for FY16 compared to FY15. Broadly speaking on a dollar per BOE basis, it's looking pretty similar FY15 to FY16. (Multiple speakers). -------------------------------------------------------------------------------- Kathryn Presser, Beach Energy - Chief Financial Officer [49] -------------------------------------------------------------------------------- The other one John, particularly in this year with the large tax payments that we've been paying, so when you look at it -- I mean included in that operating cash flow are the tax so when you're comparing, particularly going back to FY11, FY12 when we weren't paying any tax, so you see the margins look a bit skinny particularly for FY15 and it's mainly been swung around by that large tax payment. -------------------------------------------------------------------------------- John Young, Ord Minnett - Analyst [50] -------------------------------------------------------------------------------- Okay thanks Kathryn. I wondered if there was something else in there okay, that's helpful. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [51] -------------------------------------------------------------------------------- Thanks John. -------------------------------------------------------------------------------- Operator [52] -------------------------------------------------------------------------------- The final question for today is from Mr. Sean Burgess from Macquarie. Please ask your question Sean. -------------------------------------------------------------------------------- Sean Burgess, Macquarie - Analyst [53] -------------------------------------------------------------------------------- Hi guys. I just wanted to touch briefly on a couple of things. The first just being the impairment, particularly towards exploration -- I mean, we speak to a lot of investors that like to look at you guys on a price to book value basis, just wondering whether there'd be a likely shift towards successful efforts accounting for exploration in the future just to give greater clarity of your book value going forward? -------------------------------------------------------------------------------- Kathryn Presser, Beach Energy - Chief Financial Officer [54] -------------------------------------------------------------------------------- Yes Sean I can definitely talk to that one. Obviously with the large impairment that we've had this year there is a move to successful efforts but you just have to be wary of using the terminology successful efforts because it's just, I mean the indication is that everyone writes off their ex by people moving to, as Drillsearch have just announced, they've moved to successful efforts which assume that they've been writing off all their exploration as they occur, which doesn't actually happen. Drillsearch are still carrying forward, would still be carrying forward that AUD90 million of exploration, and Santos of course carry AUD1.2 billion, Oil Search $1.6 billion, even though they all use successful efforts. It's something we're monitoring and we have been, but even though companies are at successful efforts, they're still carrying forward, which is what we do, is that if there's still uncertainty around the reserves or uncertainty at a time where they can develop those reserves, then they carry that forward, which is even under successful efforts is what these companies are doing. -------------------------------------------------------------------------------- Sean Burgess, Macquarie - Analyst [55] -------------------------------------------------------------------------------- Thanks, okay. My second question just regarding the dividend, we've obviously seen it being pared back for the half, in context with the strategic review and with management now targeting top-quartile TSR, just wondering whether we could get a vague understanding of the Boards view on dividends going forward, and perhaps why the reluctance to establish a formalized policy? Particularly with the strategic review now more or less complete. -------------------------------------------------------------------------------- Kathryn Presser, Beach Energy - Chief Financial Officer [56] -------------------------------------------------------------------------------- Yes Sean we're just having a -- obviously the Board are keen to formalize, and that will come out obviously more with the strategic plan going forward once that's formalized with more detail. I guess it's something that the Board would like to -- seeing it's been traditionally that we've paid a regular dividend, but I mean we appreciate the adhocness of the amounts, but it's been consistently around the AUD0.015 going forward and obviously increasing based on the back of reserves increases or on the basis of increased or better results. So I appreciate that that is something that we'll be looking at articulating going forward. -------------------------------------------------------------------------------- Sean Burgess, Macquarie - Analyst [57] -------------------------------------------------------------------------------- Great okay thanks for that guys. -------------------------------------------------------------------------------- Kathryn Presser, Beach Energy - Chief Financial Officer [58] -------------------------------------------------------------------------------- No problem. -------------------------------------------------------------------------------- Operator [59] -------------------------------------------------------------------------------- There are no further questions at this time. Please continue with any closing remarks, thank you. -------------------------------------------------------------------------------- Neil Gibbins, Beach Energy - Acting Chief Executive Officer [60] -------------------------------------------------------------------------------- Okay well we're going. Thank you for joining the call. Appreciate your time and again (technical difficulty) is available for any further questions going forward. Thank you and have a good day.
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