Beach Energy Limited

Thank you for standing by and welcome to the Beach Energy Limited FY23 half year results call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you'll need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Mornay Engelbrecht, Chief Executive Officer. Please go ahead.

Thank you, Darcy. Morning and welcome to the FY23 half-year results presentation for Beach Energy. My name is Morne Engelbrecht and I'm the Chief Executive Officer here at Beach. Joining me on the call today is our Chief Financial Officer Anne-Marie Barbaro, also joined by the Beach Executive Team. For today's presentation, I will first provide an introduction on the recent activities at Beach as we progress towards our step change in production and free cash flow. Then it will be over to Anne-Marie, who will give an update on the financials, including the new dividend policy that we announced this morning. And then I'll provide some insight into the forward outlook for our portfolio as well. Following that, we will open the lines for Q&A. Slide two is our compliance statements, which I will leave to you to read in your own time. On to slide three, we have been working hard in the first half of FY23 to progress and de-risk our major growth projects. I want to highlight the following key messages from today's update. First of all, Beach is growing its gas and LNG business. There's been good progress during the first half in FY23 on this front. Over on the east coast, we are planning for the connection of our Otway thylacine wells in the coming months, which will allow the Otway gas plant to produce at its main plate capacity of 205 TJs per day. This milestone will be the first catalyst for the uptick in our production and cash flows that we have been forecasting over recent years. Furthermore, the enterprise nearshore well has been connected to the plant, and we now expect to be ready for first gas mid FY24. On the west coast, the weight share development drilling campaign is now complete, plant construction progressing, and agreement reached with WeBuild to take over the construction of the project from the administrator. Webult and Najavi are targeting first gas by the end of this calendar year. Second, Beaches is growing strong free cash flow. Once we complete the Whiteshare gas plant, we will have eight gas plants supplying local and international markets. Strong and diversified cash flow will position us for enhanced, disciplined capital management, delivering increasing returns to shareholders while continuing to fund future growth. Third, our strong balance sheet allows us to invest in future growth beyond our major project pipeline. With $609 million in available liquidity and increasing free cash flow, we are able to fund new gas projects and other growth opportunities that are necessary beyond FY24. Today we are planning drilling in each of our operating basins. This includes our much anticipated Perth Basin Exploration Campaign, which has already delivered one success from two Mitsui Operated Wells, while the Beach Operated Campaign begins in Q4 this financial year. Finally, as we all know, the energy transition is on the way globally. We've been supporting this through our investment in gas, CCS, and other abatement and new energy initiatives. We know that demand for natural gas is not going to disappear soon. We also know that our industry must decarbonise. We're just doing this today primarily through our investment in Moomba CCS, but this is just the beginning. We have a 35% emissions intensity reduction target for our portfolio, We are investigating new energy opportunities that will support our business as those new markets emerge. I hope you will see today that Beaches' plans are progressing, and as our free cash flows and production increases materialize, Beaches is looking forward to the future while rewarding our shareholders for their loyalty. Moving to slide four, and there's nothing more important to me than the safety of our people. Beaches' HSE performance in the first half began with a few minor safety incidents, however, I'm very pleased with how the team has responded. Pleasingly, two of our sites have just recorded major milestones. Upper Gas Plant achieving eight years and Bahara Springs achieving four years recordable injury free. We've also just clocked up three years without a lost time injury in the western flank. Well done to those teams. We've also seen a strong period in our environmental performance to date. I also want to give a shout out to the Dongby survey team who received the South Australian Premier's Award for Energy and Mining in the Environmental category. This was for their approach to using new technologies to eliminate the need for land clearing during the Dombe Seismic Survey and the SA Artway. Congratulations to the seismic team. Energy Site 5 and our first half financial results. Beach performance was largely driven by low production and sales volumes. while sales revenue were up 3% at $813 million. EBITDA was down slightly at $491 million, while underlying impact was down 10%. In line with our nearly announced dividend policy, you will notice today that we have implemented the policy and confirmed a $0.02 per share interim dividend, a doubling of the $0.01 per share dividend we just paid for many years, and with more than half a billion dollars in frankie credits available, There's still more to come. Turning to Site 6, and less than two weeks ago we provided our FY23 second quarter update. Since that time, there have been two important milestones achieved on our key growth projects. First of all, the beach environmental plan was approved by NOFSEMA for our offshore upway well connection activities. This EP allows for the remaining subsea work to be completed with the DOF subsea vessel now on location. Once the thylacine wells are commissioned and connected to the off-way gas plant, it will allow for an additional 100 terajoules a day to be available for the East Coast gas market. The second major development of the last two weeks was the news that we both will take over construction of the Waitseer Stage 2 project. This is part of a broader acquisition of CLUT. We provided an update to the market at the time, including a modestly increasing CapEx guidance range. When you consider the possible alternatives from the voluntary administration process, this is the best outcome for all involved in the project could have hoped for. This news and the filings in EP approval move both projects closer to completion, which will allow for beach to deliver the state change in production and free cash flows from FY24. which provides a further summary of the milestones achieved across the business so far in FY23, Perhaps most notably, back in July, we completed its largest ever drilling campaign, the largest ever in the Otway Basin's history, with gas now flowing from the geographic wells. And as mentioned, we are now progressing the thylacine well connections as well. In New Zealand, negotiations are progressing for a rig for our forthcoming Coupe development well, which we aim to drill at the end of 2023 calendar year. We also announced a new emissions intensity reduction target of 35% by 2030 as we progressed the Moomba CCS project with operator Santos. And I've already touched on the WeBuild transaction with development drilling complete and our SBA in place with customer BP. Our Perth Basin Exploration Campaign has also already delivered one discovery within the TUI operated genotrix well, and we have some exciting prospects ahead in the beach operated phase of the campaign which kicks off in early April this year. It has been a productive period for the first part of FY23, and that is despite some of the headwinds that Beech and our industry has faced. We look forward to continuing this momentum as we move towards the end of FY23. Moving to slide eight, today Beech has unveiled a new dividend policy, which Anne-Marie will speak to in more detail shortly. Over many years, Beech has demonstrated financial discipline through our philosophy of diversifying revenue streams, brilliantly managing the balance sheet, and ensuring sufficient liquidity for growth and dividend payments. This philosophy is reflected in our capital management framework, which, put simply, has three objectives. Maintain balance sheet strength by targeting to keep net gearing below 15%. Reward shareholders through our new dividend policy, which will recognize increasing cash flows and utilize our substantial balance of ranking credits, currently more than half a billion dollars, and continue to invest in growth, both from within our existing portfolio and other opportunities. We trust this framework and the dividend policy provides more transparency as to how Beach will manage capital and how we will fund growth and higher returns to shareholders going forward. On slide nine, and looking to the second half focus areas for Beach, In the Cooper Basin, we are focused on clearing the backlog of western flank oil connections, and we are then also focusing on development drilling for the remainder of the year. This should see us delivering an uptick in western flank oil production with oil prices on the up as the second half progresses. Connecting the thylacine wells into the pathway gas plant is also key. As I said, the Duff vessel is now in location, and we remain on track for first gas mid-year. Meanwhile, we look to make an investment decision on the next phase of Otway Basin drilling as well. We look forward to sharing details once the investment has been sanctioned. At Waitier stage two, we are working towards keeping the project on schedule towards first gas by the end of this year. A beach operated exploration campaign at the third basin is expected to commence in early Q4 of this financial year with the starting of trip one. We'll go into some further detail on that campaign a bit later. In New Zealand, we look forward to signing up the rig for the Kerbe Development Well, which we are planning to drill before the end of the year as well. Turning to slide 10 in our FY23 guidance update. Today we've lowered our production guidance from FY23 to 19 to 20 and a half million barrels of oil equivalent. Narrowed capital expenditure guidance of $900 to $1 billion and increased our operating cost guidance of $13.75 to $14.75 per BOE. The low production guidance reflects unplanned challenges that occurred in the first half when then impact production in the second half of the year as well. We remain confident that the materials step change in production and cash flow will arise in FY24. But we will no longer be referencing the FY24 production target as the production target remains subject to the timing of major project delivery, which has in recent times been impacted by the CAF administration process and regulatory approval uncertainty. FY24 production guidance will be provided for full year results in August 2023, as it's normally the case in which time we will have greater certainty and clarity on both weight shear startup and the outlay well connections. Capital expenditure guidance reflects high estimates for waste year stage two, offset to a degree by efficiencies achieved in other programs. The outlook for operating costs reflects industry-wide cost inflation, as well as high super-basin JV costs as advised by the operator, with the increased work over activities and unplanned maintenance. On slide 11. I want to give you a clear picture of what we expect to deliver on the East Coast gas market as we complete the thylacine well connections. Beach is uniquely positioned as a domestic focus producer on the East Coast, and we will increase our market share to 16% in FY24, up from 12% currently. This is underpinned by production from thylacine wells, which will enable our gas plant to meet its main plate capacity of 205 terajoules per day. We also have the enterprise well to connect with FY24 and further opportunities both nearshore and offshore, including the existing artisan and labella discoveries that can be developed. Our message here is the auto gas plant will become a core driver of Beaches' production and cash flow step change, and we have a plan to maintain high production levels for many years into the future. FY12 and moving to the west coast, Beaches is already contributing to the WA domestic market to our Bajara Springs and Zyrus gas plants, which together delivered a 22% production increase in the half. We are committed to WA domestic gas market, evidenced by our investment in exploration, which we hope will provide more supply certainty to the market in future years. At our Q2 results, we reported the needs of our reserve provision, but that does not change our commitment towards LNG or domestic gas. Like you, we are of course eager to see the first LNG cargo delivered to our customer VP. Our JKM Brent pricing structure will deliver the type of revenues that you would expect from the current market conditions. We appreciate that many of you would like further detail on the pricing structure for our LNG contract, but as we stated previously, for confidentiality reasons, we can't disclose details. What we have done here is provide illustrative pricing ranges based on Brent and JKM prices over the past year. Hopefully, what this chart demonstrated is that there's a premium pricing ahead for LNG cargoes, with this revenue stream to continue through to the end of 2028. On the Perth Basin, my message is that no one else has the reserves, the assets, the prospectivity, and the capability to deliver like the Beech and Mitsui JV. Beech intends to capitalize on the dominant accurate positions in the Perth Basin, for the full benefit of our shareholders and our gas customers, both domestically and overseas. Turning to slide 14 and the beach's progress on emissions reduction, first a quick mention of the proposed changes to the safeguard mechanism. While there is still more detail required before beach can fully understand any direct impacts to our business, its focus on emissions intensity reduction is broadly consistent with beach's ambitions to drive down intensity by 35% by 2030. They are already actively pursuing the policy objectives through emissions reduction activities across our portfolio. Beaches commenced the select phase on off-way basement CCS proposal. This would be Beaches' first operated CCS facility. Meanwhile, in the Cooper Basin, we are near completion on a pre-feasibility study on ammonia production. While at Cooper, we are participants in a study on wind power generation using our offshore facility to gather data. As you know, we are investing in one of the nation's biggest emissions reduction projects in Wimber CCS. Operator Santos tells us the new facility is about 40% complete, the first CO2 injection currently anticipated in 2024. Finally, it was pleasing to see the federal government's CHAP review highlighting the important contribution that CCS could make to limiting climate change. Let's hope this is a sign of more things to come as the CCS skeptics start seeing the growing evidence base for this important technology. Now we'll hand over to our Chief Financial Officer, Anne-Marie Barbaro, who will provide an update on our financial performance for the half. Anne-Marie?

Thank you, Mornay. Good morning, everyone, and thank you again for joining us today. This morning, I'll take you through the financial results for the first half of FY23. and provide an overview of the new dividend policy, which we're pleased to announce today. Beginning with slide 15 and our key financial metrics, our first half FY23 results were influenced by a reduction in production and sales volumes as we continue to deliver our key growth projects. During the half, Beach recorded higher sales revenue of $813 million, up 3% on the first half of FY22. with higher realized prices offsetting lower sales volumes. Underlying EBITDA and NPAT were down with an increase in cost of sales in part the result of the current higher cost environment. Gas sales accounted for 41% of our sales revenue mix with liquids accounting for 59%. We also ended the half in a net cash position. Moving to slide 16, which shows the comparison of the first half FY23 underlying NPAT to the corresponding prior period. The 10% reduction in underlying NPAT was driven by a few factors, including lower production and sales volumes, which includes a one-off non-cash impact on sales volumes and revenue in the first quarter of FY23, driven by a change in contractual terms on cooper base and liquids. which resulted in a revised revenue recognition point. This is not expected to have a material impact on full-year FY23 earnings. Higher cash costs are primarily driven by an increase in third-party purchases, both through increased volumes and higher prices, as well as a 14% increase in field operating costs, which were mainly the result of the heightened inflationary pressures, as well as higher creeper basin JV costs. as advised by the operator due to additional work over activity and unplanned maintenance. And higher financing costs were driven by a non-cash increase in the unwanted discount on restoration provision as a result of increased long-term bond rates. These impacts are partly upset by stronger gas and liquids commodity prices and higher third-party sales realized in the first half of FY23. Slide 17 outlines our cash flow movements for the period with cash reserves of $189 million at the end of the half. Operating cash flows were $404 million for the first half of FY23 and included within operating cash flows were income tax payments of $97 million compared with $29 million in the prior corresponding period. We also saw elevated levels of capital expenditure continue in the first half of FY23 as we progressed our major growth projects. Of the $527 million cash spend, $217 million of this expenditure was to fund our major growth projects. Free growth, free cash flow for the first half was $84 million. This figure forms the basis for our dividend payment this period in line with our new dividend policy. On slide 18, you'll see our balance sheet remains in great shape. we entered the half in a net cash position with $609 million in available liquidity. This strong position enables Beach to maintain balance sheet flexibility, invest in growth projects and deliver higher returns to our shareholders. As we move towards a period of strengthened free cash flow in FY24, once major growth projects in the Otway and Perth basins come on stream, we have the capacity to deliver growth and pay higher dividends while retaining optionality when it comes to other growth opportunities. Turning to slide 19 and following on from Mornay's comments earlier about our capital management framework, which aims to balance our growth objectives against improved shareholder returns. A core component of the capital management framework is our new dividend policy. After considering various capital management initiatives, Beach decided that a free cash flow based dividend payout ratio would be the best way to provide increased returns to our shareholders. The policy has been designed to provide transparency, utilise our franking credits, which are in excess of half a billion dollars, and reward our shareholders for their ongoing commitment to our strategy as we yield the benefits of our major investment period. The dividend payout ratio targets a range of 40 to 50% of pre-growth free cash flow. This is defined as operating cash flow, less investing cash flow, excluding acquisitions, divestments and major growth capital expenditure, less lease liability payments. The board will retain discretion to ensure the broader capital management framework is preserved, in particular, target gearing levels during heightened periods of investment. The new dividend policy has been implemented and will take effect as of FY23 which results in a $0.02 per share interim dividend announced today. We expect the dividend to grow in FY24 as our free cash flow step change is delivered. With that, I'll now hand back to Mornay.