Comment

Beach's production to increase 160% post Origin gas assets acquisition

Following the announcement of Beach Energy's US$1.25 million acquisition of Origin Energy’s subsidiary, Lattice Energy, our Australasia senior analyst Chris Meredith, weighs in on the deal:

This deal will transform Beach Energy, in terms of production increase and diversification. Beach is an onshore operator that has historically been focused on oil exploration and development. Beach currently produces 28,000 boe/d, and will acquire assets producing around 46,000 boe/d, bringing up production by 160% . The company will become much more gas focused, with gas production increasing from 45% of total production to 66%. It will also give Beach overseas and Western Australian production for the first time.

The sale will reduce upstream costs and enable Origin to pay down debt and focus on its flagship APLNG CSG-to-LNG project and its gas and power business. It is part of a wider restructuring by Origin, which has raised capital as well as selling Contact Energy in New Zealand for A$1.6 billion.

The sale will be positive for the eastern Australian gas market. Beach is a domestic focused player, and without LNG to distract it, we expect to see increased investment in exploration, development and production in these assets. This will enable Beach to capitalise on the high east coast gas prices. The company is selling under long-term contracts and average portfolio price for 2018 will be above A$6.10/GJ.

Although Lattice has a declining production profile, we see this investment leading to additional gas becoming available from the Otway and Cooper basins in what remains a tight domestic market.

The long term gas contracts that Lattice has entered into with Origin Energy will provide a base cash-flow that is not linked to oil price. Once these contracts begin to expire from 2021, Beach will have the freedom to sell gas into either the domestic market, or to one of the LNG export projects. Producing from the Cooper Basin also allows Beach to participate in gas swaps between the Queensland and southern markets.