Beach Energy (BPT) is an oil and gas exploration and production company based in South Australia. BPT has oil and gas reserves of 92 million barrels of oil equivalent (mmboe) equivalent and contingent resources of 466.6 mboe.

The company holds interests in more than 300 exploration and production tenements in Australia, New Zealand, Papua New Guinea, Tanzania and Egypt among others.

FY12 and 1Q13 results

BPT reported an FY12 net profit of $164 million, a massive swing from FY11’s net loss of $97.5 million. A solid underlying profit figure of $122 million was posted, up a staggering 190% on the prior year.

Sales revenue was up 25% to $619 million, driven by higher oil and gas prices and increased sales volume. FY12 production was 7.5 mmboe, up 14% from FY11 due to better operational access and the first oil production in Egypt.

The group has more recently reported its quarterly results, with production increasing 2% on the previous quarter to 2.1 mmboe. BPT’s quarterly results put it on tract to reach its forecasted FY13 production of 8.5 – 9.0 mmboe.

Oil outlook

The chart above shows oil prices (white line) compared to BPT’s stock price (yellow line). As is evident from the chart, oil prices and BPT’s share price are highly correlated.

China accounts for over 10% of the global oil consumption and is one the fastest growing consumers of the liquid. The country’s recently released October import figures revealed that its demand for oil increased 6.6% on the prior year, to 9.76 million barrels per day.

This is the third highest level of Chinese demand on record, and as China’s economy recovers this should translate into further demand and thus an increase in the oil price.

Looking ahead

The group is in the process of expanding its current wells and exploring potential development. To that end the company has forecasted  for around $155 million in development expenditure and $195 million in exploration expenditure for FY13.

These developments and explorations are more or less funded, as the company has $352 million cash on its balance sheet and access of another $150 million via a financing facility.

We see limited risk to the groups FY13 production of 8.5 – 9.0 mmboe, given the 1Q result and in our view conservative forecast.

Given the strength of oil prices over the last month and the potential upside from its current capital expenditure program we feel that BPT share price has further appreciation ahead.

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Whitehaven Coal Limited (WHC) mines and sells metallurgical and thermal coal to the global steel power generation and metallurgical industries.

The company is a coal producer in the Gunnedah Basin and has an interest in tenements covering the Gunnedah, Werris and Ashford Coal Basins of New South Wales.

Earlier this year WHC completed a merger with Aston Resources and Boardwalk Resources, which made it Australia’s largest independent coal company. The group has been in the headlines as of late, after largest shareholder Nathan Tinkler failed to have company directors ousted.

FY12 results

WHC’s FY12 results were not good, but not exactly a surprise given the well publicised weakness in the coal industry. Revenue over the year slipped 1% to $618.1 million, whilst NPAT before significant items dropped 21.1% to 57.8 million.

The most worrying part of the results was the significant increase in average cash cost of sales, which rose 15.6% to $69.93 per ton. This saw EBITDA margin contract from 41% to 33%, which is obviously not a good sign as the company attempts to ramp up production.

Coal prices

Coal prices have endured a dramatic fall since the start of the year. The price has fallen from a little under $120 a ton to now be trading around the $85 mark. This represented a 36.3% decline.

If the trend continues WHC could face continued pressure and the possibility of some of their planned ramp-ups becoming economically unviable.

The International Energy Agency (IEA) this week said in its World Energy Outlook that although coal would remain the world’s leading fuel for power generation in the next two decades, its share would drop.

The IEA also outlined another scenario which could see coal’s share of global energy crash to 16%, from its current 30%. This scenario could occur in the next 10 years if the demands by current climate change scientists are met that there be no more than 450 parts per million of carbon dioxide in the atmosphere.

Outlook

WHC FY12 results were disappointing, but besides form the fall in profit it was the increase in the average cash cost of sales that was the most alarming factor.

The report by IEA this week did not provide a good outlook for the coal market especially if the more unlikely climate change scenario comes into play. Overall we see further declines in the coal price and we see this translating into further share price deterioration for WHC.

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Origin Energy (ORG) is involved in gas and oil exploration and production, power generation and energy retailing.

As a leading Australasian integrated energy company, ORG participates in most segments of the energy supply chain, including natural gas and oil exploration and production, electricity generation, and energy retailing.

The group has significant operations in New Zealand through its 52.8% interest in Contact Energy, New Zealand’s largest energy provider. ORG and Conoco Phillips each hold a 37.5% stake in the Australia Pacific LNG Project (APLNG), which supplies gas to power stations in South East Queensland.

ORG also has a 42.5% stake in the Victorian BassGass project (AWE owns 57.5%), which supplies gas to Victoria from the Yolla gas field in Bass Strait.

Weak start to FY13

It was a disappointing September quarter for ORG, which reported a 3% year-on-year on fall in revenue to $224.5 million.  This was despite a rise in average selling prices.

Production of 33.1 petajoules (pj) was 10% lower than the same period the year before as BassGass was shut down due to the Yolla Mid Life Enhancement project.

Whilst BassGass has come back on line, it has been a major headache for ORG.  The project’s cost has blown out from the original $345 million estimate in 2009 to up to $580 million.

The September quarter production numbers followed a solid FY12 result that included a 33% lift in underlying profit to $893 million. The Energy Markets business experienced strong 33% growth in underlying EBITDA, with electricity volumes rising 26% following the acquisition of NSW’s power assets.

Offsetting this, however, gas volumes in Victoria and NSW fell during the year due to mild weather.  Also, ORG was forced to pay more for natural gas and electricity, which impacted gross margins.

Poor FY13 guidance

ORG’s FY13 guidance was disappointing to say the least. The group forecast no growth in underlying profit, citing fewer new capital investments, volatile commodity prices, regulatory uncertainty and changing demand patterns in Australia.

Capital spending plans have been curtailed, with ORG instead focussed on the delivery of APLNG. As a result of this change in strategy, ORG recorded significant impairment of projects in FY12 including Transform Solar, wind and geothermal developments and other upstream assets.

ORG’s share of APLNG underlying EBITDA fell 25% on-year, driven by the group’s sell-down of its stake to 37.5% following an agreement with Sinopec, which upped its share from 15% to 25%.

ORG failed to provide clarity on the timeframe for the remaining divestiture of its APLNG stake.

Outlook

For ORG, the significant scale back of its capital spending plans signals a diminished growth outlook. Sentiment towards ORG has worsened considerably since the FY12 profit release in late August, with investors taken aback by the weak FY13 outlook.

We expect the negative sentiment to continue in the near-to-medium term, which is likely to further weigh on the stock price.

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Karoon Gas Australia (KAR) is an energy exploration company and is a member of the S&P ASX200. The company is focused on identifying, exploring and developing acreage that is highly prospective for oil and gas.

KAR currently has four focus areas – the Browse Basin (Western Australia), the Santos Basin (Brazil), Tumbes Basin (Peru) and the Maranon Basin (Peru).

Santos Basin

KAR has a 100% equity interest in five oil blocks in the Santos Basin, offshore Santa Catarina in Brazil.

The Basin has a history of oil discoveries, and importantly, KAR anticipates that new fields within its acreage can quickly be brought to production due to relatively shallow water depths and their proximity to existing infrastructure.

Recently KAR announced that it had reached a farmout agreement with Pacific Rubiales Energy (PRE) for the Santos Basin. The agreement was for 35% equity of its 100% interest in four offshore exploration blocks, with options for a fifth.

KAR will receive $40 million in cash and PRE has agreed to pay for the first US$70 million of the costs for each of the first two wells in KAR’s upcoming 3-well Santos Basin exploration program.

PRE will also share its 35% of the costs and KAR will remain the operator.

Browse Basin

KAR’s Browse Basin drilling campaign holds long-term promise for the group. It owns 40% of the project with the remainder being owned by joint venture

KAR will begin drilling at the Browse Basin in Western Australia in the coming weeks. The drilling will begin at the Boreas-1 well, the first of up to an eight well exploration and appraisal project.

Outlook

KAR is an exciting oil and gas explorer, with several promising drilling campaigns about to get underway.

In particular, drilling at the first well, Kangaroo 1, at the Santos basin will commence in November this year and will take anywhere between 60 to 80 days. The company is also beginning drilling at the Boreas-1 well, which has some very promising targets.

Overall we think the company has plenty of near-term catalysts on the horizon with the aforementioned drilling projects likely to drive KAR’s share price.

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Caltex (CTX) is Australia’s leading transport fuel supplier and convenience retailer and the only integrated oil refining and marketing company listed on the ASX.

CTX operates two major refineries, at Kurnell in Sydney, and Lytton in Brisbane. The company’s products include petroleum motor oil lubricants diesel and jet fuel.  Caltex also operates convenience stores, fast food stores and service stations throughout Australia.

Caltex supplies approximately 35% of all transport fuels in Australia, and is a net importer of petroleum products.

1H Results

CTX’s 1H12 results were a marked improvement on the first half in 2011. On a replacement cost, basis EBIT was 329 million, a jump of 70%. EPS was 74 cents a share, compared to 43 cents per share in 2011.

The result was underpinned by CTX’s marketing division which supplies and distributes transports fuels. The major drag on the result was its refining business, specifically the Kurnell refinery.

Closing down Kurnell

On July 26 2012 CTX announced that following a major review of its operations it would be closing down refining at its Kurnell plant. The site will be converted to a major import terminal, which is expected to begin by the end of 2014.

The new terminal will be supported by a long-term product supply agreement with Chevron. As Chevron own 50% of CTX we believe this agreement will be on beneficial terms to CTX.

The conversion is expected to cost approximately $430 million, of which the company has already raised the cash via a subordinate notes issue. We like this decision as it reduces the company’s exposure to refining earnings volatility and asset concentration risks.

Outlook

Last Friday the group reported an increase in August refining margins. The un-lagged margin increased to US$17.35 a barrel, 42.33% higher than July’s figures.

Margins were supported by strong regional demand, whilst supply continued to be impacted by continual regional shutdown activity. We believe that the improvement in margins and the de-risking of its earnings via the shutdown of the Kurnell refinery will continue to drive the share price.

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Oil Search (OSH) explores, develops and produces oil and gas in Papua New Guinea (PNG) and Australia.

OSH’s major producing operations are the Kutubu and Gobe oil fields and the Moran development.

However, much of OSH’s perceived value is in its substantial PNG gas resources, which have been given a boost by partners such as Exxon Mobil investing huge amounts of money in the project.

The company is poised to enter a major new growth phase, driven by its 29% interest in PNG LNG. The gas will be sourced from the Hides, Angore and Juha gas fields, as well as the Kutubu, Agogo, Moran and Gobe Main oil fields.

1H12 results

Although OSH’s 1H12 results showed a 6% fall in net profit to US$107.5 million, much of the fall was attributable to a jump in exploration costs. An interim dividend of US$0.02 a share was declared.

The increase in exploration costs came as OSH seeks more natural gas to underpin an expansion of PNG LNG.

Whilst an increase in costs is generally not desirable, in OSH’s case, the payoff from finding more gas is worth it if this leads to a third LNG train (plant) at PNG.

A positive takeout from the result was a 7% lift in revenue, which occurred amid stronger sales prices and production volumes.

Nearing first PNG LNG production

The PNG LNG project is the big driver of OSH’s share price, as it has the potential to transform the company into a major energy producer.

The project has an expected life of 30 years, a resource estimated at over nine trillion cubic feet of gas and over 200 million barrels of associated liquids.

The project’s two trains will produce close to 6.6 million tons per annum (mtpa), with OSH’s 29% stake yielding approximately 2 mtpa.

There is also the possibility that a third train could operate in the field, which may increase the project’s production to over 8 mtpa.  OSH is currently looking for the gas needed to support the third train, and we are confident of exploration success.

There is around 20 trillion cubic feet of gas in Gulf of Papua and OSH holds significant acreage in the area.

Demonstrating how significant the step change in production will be, OSH’s output is expected to increase to over 16 mmboe in FY14, with that figure then jumping again to just below 25 mmboe in FY15.

This compares to FY12’s production estimate of 6.2-6.7 mmboe, thus implying a significant boost to earnings and cash flow in coming years.

Outlook

With second half production expected to remain strong, OSH stuck to its previous guidance for FY12 production to be within a range of 6.2 – 6.7 million barrels of oil equivalent (mmboe).

Complementing its output, OSH is also likely to benefit from the price of oil, which has risen around 15% since the latter part of June. The key value driver, however, remains PNG LNG.

As we head closer to first output in 2014, and barring no unexpected cost overruns with the project, we expect PNG LNG to become a bigger factor behind OSH’s share price strength.

We anticipate these factors will continue to underpin OSH share price and as such think it’s a stock to watch in the near-to-medium term.

 

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Elders Ltd. offers rural services.  The Company brokers and processes wool; buys and sells grain; retails seed, fertilizer, animal health and other farm products; offers banking and insurance services; brokers and manages real estate; and markets meat.

Elders announced that the commercial conditions on the sale of some of its remaining forestry assets to U.S.-based Global Forest Partners have been satisfied.

The sale which is expected to be completed by July 18 is worth 60 million Australian dollars, with the proceeds being used to reduce the group’s debt.

It should be noted that the agreement is still subject to regulatory approval.

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Santos Limited explores for and produces natural gas, crude oil, condensate, naphtha and liquid petroleum gas.  The Company conducts major onshore and offshore petroleum exploration activities at oil and gas fields in Australia (Cooper/Eromanga Basins), the United States (Gulf of Mexico), Indonesia and Papua New Guinea. The Company also transports crude oil by pipeline. The company is Australian based and is member of S&P/ASX 200.

Santos reported first-quarter revenue of $754 million a 50% jump compared to the prior corresponding period.

CEO David Know said that “Higher production, combined with strong oil and gas prices, has delivered a solid first quarterly result, setting a strong foundation for 2012”.

The company maintained its annual production guidance of between 51 million and 55 million barrels of oil.

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Linc Energy (LNC) is an Australian Small Cap energy company that produces ultra-clean diesel and jet fuels.

Linc Energy announced that Hong Kong-based Golden Concord will buy 5% of the company for about $120 million.

The investment equates to about $4.50 a share, a significant premium to Linc’s last close of $1.07.

The deal forms part of a new venture in which Linc holds a 33% interest and Golden Concord the rest.

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Karoon Gas Australia (KAR) is focused on identifying, exploring and developing acreage that is highly prospective for oil and gas.

The company currently has three focus areas – the Browse Basin (Western Australia), Tumbes Basin (Peru) and the Santos Basin (Brazil).

Santos Basin

KAR has a 100% equity interest in five oil blocks in the Santos Basin, offshore Santa Catarina in Brazil.

The Basin has a history of oil discoveries, and importantly, KAR anticipates that new fields within its acreage can quickly be brought to production due to relatively shallow water depths and their proximity to existing infrastructure.

A three-well drilling campaign will begin later this year, and KAR is currently in the process of farming out some of its equity interest. KAR expects to complete the farm-outs in the coming quarter.

A farm-out will not only help fund KAR’s drilling campaign, but the strong interest it is receiving from prospective farm-in partners appears to validate the significant production potential of the block.

Browse Basin

KAR’s Browse Basin drilling campaign holds long-term promise for the group, this despite a year of contending with regulatory and operational delays.

KAR’s joint venture partner is ConocoPhillips, which holds a 60% stake in the project and is its operator.

The drilling campaign, likely to start this month, will see five to eight wells drilled initially.

The campaign will attempt to define the size of the resource, but pre-drill estimates of proven reserves (P-90) are 3 trillion cubic feet of gas.

Although funding risk is always a concern with gas explorers, KAR had $266.6 million at the end of the December quarter.

When factoring in the proceeds from likely farm-outs of its various projects, KAR expects to have sufficient capital to complete all drilling activities.

This implies a very low likelihood of KAR having to sell down more equity in the Browse Basin Project and/or announce a capital raising.

Outlook

KAR has emerged as an exciting oil and gas explorer, with several promising drilling campaigns about to get underway.

The group is sufficiently funded to complete its Browse Basin drilling campaign, and there is hope the drilling will lead to a sizable defined resource in the near future.

Regarding its South American operations, KAR anticipates reaching a farm-out agreement in the coming quarter.

This will not only improve its cash position but pave the way for the commencement of its Santos Basin drilling campaign.

We expect KAR to be a stock to watch in 2012, and see further upside for its share price.

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