The Bright Side Of 2 Energy Stocks – CVN, BPT

Australia is the leading exporter with abundant energy resources. Additionally, the government of Australia is executing reforms to encourage security and reliability of supply. There is an anticipation of entry of new gas flows from the northern territory to the market. Let’s look at the two energy stocks with their recent progress.

Carnarvon Petroleum Limited (ASX:CVN)

Carnarvon Petroleum Limited (ASX: CVN) is an Australia registered company involved in the production and exploration of oil and gas. The company was officially listed on ASX in 1984. Today, on 24th July 2019, the company released its Investor Presentation, highlighting its operational performance and update related to the equity raising. Carnarvon Petroleum Limited is conducting a fully underwritten institutional placement in order to raise around $79 million along with non-underwritten share purchase plan to eligible investors in ANZ to raise up to around $5 million. The company further added that it will issue around 202.6 million shares at an issue price of $0.39 per share for institutional placement and share purchase plan. The new shares issued by the company will be ranked on equal footing with its existing shares. The issue price of new securities demonstrates a discount of 8.2% to the last closing price of $0.4250 per share as at 23rd July 2019, as well as 9.2% discount to the five-day volume weighted average price of $0.4294 per share, up to and including 23rd July 2019.

Moreover, the institutional placement of the company is fully underwritten by Joint Bookrunners, Joint Underwriters and Joint Lead Managers, including Euroz Securities Limited and J.P Morgan Securities Australia Limited.

Utilisation of Proceeds

The proceeds from the institutional placement and share purchase plan, including cash balance on the company’s balance sheet and existing cash will finance 1) Dorado discovery’s ongoing appraisal, which includes 3D seismic and well costs; 2) Front-End Engineering Design studies for the initial Dorado development; and 3) Contribution towards the equity component of the initial Dorado development. In addition, the funding will also be used for general corporate purposes, working capital requirements and contingencies.

Dorado Oil Project

Carnarvon Petroleum Limited’s major oil and gas field Dorado is situated in Australia’s prolific North West Shelf in water depths of 70 to 100 metres and the resource was discovered via Dorado-1 exploration well. Moreover, the field was evaluated through Dorado-2 appraisal well. Looking at the Dorado-2 results. The well was drilled down-dip around 2Km from the Dorado-1 well. Furthermore, the oil and condensate-rich gas was appraised throughout multiple reservoirs in every single target. The company analysed the oil samples at approximately 50° API with negligible impurities in the Dorado field.

In the June 2019 quarter, the company wrapped up the Dorado-2 appraisal well and confirmed major resources. In addition, the company’s Roc South-1 exploration well in Caley and Baxter found no producible hydrocarbons and it has also begun Keraudren 3D seismic survey over Dorado and nearby exploration prospects. In the June 2019 quarter, the cash balance of the company amounted to $73.8 million as compared to $93.3 million of the prior quarter. In the same quarter, the company expensed $18.9 million on exploration in the North-West Shelf, including Roc South-1 drilling costs and Dorado-2.

The company received $0.6 million in interest in June 2019 quarter and spent $1.8 million on corporate costs and business development. The net cash used in the operating activities for the period stood at $20.1 million, including the exploration and evaluation and administration of $18.8 million and corporate costs of $0.541 million. The cash balance of the company amounted to $74 million as at 30th June 2019. Importantly, Carnarvon Petroleum Limited is a zero-debt company as at 23rd July 2019.

Trading Halt

The company requested ASX to put its securities in a trading halt on the back of pending announcement in relation to the capital raising. The securities will be in a trading halt until the earlier of the commencement of normal trading on 26th July 2019 or when the announcement is released to the market.

Outlook

In terms of the company’s Buffalo project, the product sharing contract has been drafted and implementation of the same is to be anticipated in quarter 3/4 of FY2019. The company has concluded the planning and approvals in order to drill the first well in 2020 and is planning to lease some of the infrastructure to keep the upfront capital to a minimum.

The stock of Carnarvon Petroleum Limited last traded at a price of $0.425 per share, with a market capitalisation of $574.1 million on 23 July 2018. The stock has produced returns of -24.78%, -4.49% and 19.72% for the period of one month, three months and six months, respectively.

Beach Energy Limited (ASX:BPT)

Beach Energy Limited (ASX: BPT) is an Australia registered company involved in the production, development and exploration of oil and gas, along with the investments in the resource industry. It was officially listed on ASX in 1972. Today, on 24th July 2019, the company reported its Q4 FY19 results. The company stated that it witnessed another successful year with a drill bit along with the to be done production tests of Haselgrove-4. In FY19, the company participated in drilling 134 wells, reflecting a rise of 40% as compared to FY18, with an overall success rate of 84%. The company drilled 1,438 metres with 84% net reservoir of the longest lateral segment to date at Kalladeina-4. Western Flank and expanded asset portfolio together have delivered a record 29.4 MMboe full year production. In Q4 FY19, the company reported production of 7.0 MMboe, which was highlighted by a further rise of 5% in Western Flank oil output. The company’s FY19 drilling activities comprised of 23 exploration wells at a success rate of 57%, 50 appraisal wells at an 82% success rate and 61 development wells at a 95% success rate

Additionally, the company reported an annual sales revenue of $1.9 billion in FY19 and posted sales revenue of $501 million for Q4 FY19, representing an increase of 7% on the previous quarter. Looking at the capital expenditures of the company, the CapEx for FY19 stood at $447 million, as the CapEx increased 53% from the March 2019 quarter to $161 million. The increase in capital expenditure was primarily driven by the beginning of drilling in the SA Otway Basin, long lead items for upcoming drilling campaigns in the Perth and Victorian Otway Basins and a rise of 100% in the number of operated Western Flank wells drilled as compared to the previous quarter.

The company closed the June quarter in a net cash position with no drawn debt and cash reserves of $172 million. BPT reported undrawn revolving credit facilities amounting to $450 million. At the end of Q4 FY19, BPT posted a total liquidity of $622 million. The material cash flows for the quarter were operating cash flow of $288 million, which comprised of cash receipts of $262 million from the 40% Otway Sale, cash capital expenditure of $158 million, debt repayments of $375 million and cash tax payments of $13 million. In addition, the company reported a quarterly free cash flow of $130 million, which is in accordance with the previous quarter.

The company reported a gross margin and EBITDA margin of 43.0% and 68.1% in 1H FY19, reflecting a Y-o-Y growth of 3.0% and 6.6%, respectively. BPT posted net margin of 26.8% in 1H FY19 against the industry median of 19.5%. This implies that BPT is effectively converting its top line into the bottom line. Looking at the shareholder returns, the company posted return-on-equity of 14.3% in 1H FY19 as compared to the industry median of 6.5%. This indicates that Beach Energy Limited is providing better returns to its shareholders when compared to the broader industry.

Perth Basin Agreement

Mitsui E&P Australia also known as MEPAU, subsequent to quarter end, was agreed to buy 17% of Beharra Springs and associated infrastructure. Currently, Mitsui E&P Australia and Beach Energy Limited have 50-50 interest throughout all shared Perth Basin assets. The company further stated that FID was reached on Waitsia Gas Project Stage 1 expansion to 20 TJ/day, which includes connection to Dampier Bunbury Natural Gas Pipeline with capacity enough for Waitsia Gas Project Stage 2 potential volumes.

Recently, in another announcement, the company updated the market that it has changed its registered office address to Level 8, 80 Flinders Street, Adelaide SA 5000, effective from 1st July 2019.

As per the release dated 14th June 2019, S&P Dow Jones announced changes in the S&P/ASX indices. The release stated that Beach Energy Limited will be added to the S&P/ASX 100 Index, effective from 24th June 2019.

The stock of Beach Energy Limited at market close on 24th July 2019 traded at a price of $2.040 per share, with a market capitalisation of $4.65 billion. The stock has produced returns of 5.15%, -8.52% and 23.64% for the period of one-month, three months, and six-months, respectively.

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