Moomba CCS And Thylacine West Projects Will Streamline Operations

Key Takeaways

• Successful project completions and initiatives are expected to boost production, reduce emissions, and enhance operational efficiency and future revenue.
  
• Strategic cost reductions and LNG agreements are likely to improve cash flow, net margins, and future growth potential.
  
• Delays and complexities in projects, high-risk exploration reliance, and market uncertainties strain Beach Energy's costs, liquidity, and future production growth prospects.

Catalysts

Operates as an oil and gas exploration and production company.

• Successful completion of major projects, such as Thylacine West wells and Moomba CCS, which are expected to drive production growth and reduce emissions, positively impacting future revenue and operational efficiency.
  
• Increased gas production from the Bass Basin through low-cost wellbore descaling initiatives, boosting gas flow significantly, which will likely enhance sales revenue.
  
• Strategic LNG swap agreements have been realized, providing substantial upfront revenue and demonstrating the potential for a step change in cash flow and earnings once Waitsia is fully operational.
  
• Reduction in field operating costs by 20% due to strategic organizational restructuring and supplier renegotiations, likely leading to improved net margins.
  
• Upcoming drilling campaigns in the offshore Victoria project, including the Hercules exploration well which, if successful, could extend production and impact future growth positively, sustaining revenue and earnings.

Beach Energy Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Beach Energy's revenue will grow by 4.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.0% today to 26.4% in 3 years time.
• Analysts expect earnings to reach A$556.1 million (and earnings per share of A$0.24) by about May 2028, up from A$92.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$774 million in earnings, and the most bearish expecting A$415 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 7.3x on those 2028 earnings, down from 29.7x today. This future PE is lower than the current PE for the AU Oil and Gas industry at 13.1x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.89%, as per the Simply Wall St company report.

Beach Energy Future Earnings Per Share Growth

Risks

• The complexity and delays in commissioning the Waitsia Gas Plant, particularly issues with valves and introducing fuel gas, could lead to increased costs and delay revenue streams from gas production and LNG sales.
  
• Planned investment and expenditures in the Offshore Victoria P&A and Western Flank development could pressure cash flow and affect the company's ability to pay higher dividends, impacting liquidity and shareholder returns.
  
• A significant portion of Beach Energy’s production growth relies on successful outcomes from high-risk exploration activities, such as the Hercules well, which if unsuccessful, could lead to reduced future reserve growth and impact medium-term production and revenues.
  
• Challenges in the global supply chain, as evidenced by delays in valve deliveries, could affect project timelines and increase costs, potentially impacting operational efficiency and project profitability.
  
• The company's reliance on successful selling of gas via time swaps could introduce financial uncertainty, and if market conditions change unfavorably, Beach Energy might face difficulties in maintaining current revenue and cash flow projections.
  

Valuation

• The analysts have a consensus price target of A$1.46 for Beach Energy based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$2.55, and the most bearish reporting a price target of just A$1.15.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$2.1 billion, earnings will come to A$556.1 million, and it would be trading on a PE ratio of 7.3x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of A$1.2, the analyst price target of A$1.46 is 17.8% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.