Beach Energy Limited

Thank you for standing by and welcome to the Beach Energy Limited FY24 full year results briefing. 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 will 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 Brett Woods, Managing Director and Chief Executive Officer. Please go ahead.

Hello and welcome to Beach Energy's FY24 Full Year Results webcast. My name is Brett Woods and I'm the Managing Director and Chief Executive Officer at Beach. Joining me today on the call is Anne-Marie, our Chief Financial Officer, and she will take us through the financials. For today's webcast, I'll provide an overview of the full year results, including progress over the past six months and an update on the outlook for FY25. Anne-Marie will go through the financial results and we will finish the webcast with some Q&A. But before I begin, I would like to take a moment to address the enterprise reserve revisions as highlighted through the announcement this morning. It goes without saying that I'm extremely disappointed to have to convey this news, particularly after flagging reserve revisions two months ago at our strategic review. The strategic review presentation occurred only four days after the enterprise field was bought online with strong production rates. Since then, we have accumulated sufficient pressure data to reassess our pre-production reserve estimates. In normal practice, well pressure performance would be monitored for a significantly longer period before assessing any updates to reserves. However, with the excellent quality of reservoir sands and high production rates observed at enterprise, We have observed a declining reservoir pressure trend over the past few weeks. We have rapidly moved to analyze this outcome and engage two independent experts to confirm our evaluation. So what has happened at Enterprise? Enterprise is single well development and when the exploration well was drilled, the well did not intersect the gas water contact. The location of the gas water contact was the primary risk with regards to the in-place gas volumes. The gas water contact was inferred from seismic interpretation in the mid-case 2P assessment. And as a consequence, it had a very wide range of uncertainty from a water contact just below where the gas was intersected in the well to a maximum extent supported by amplitudes and velocity modelling. This interpretation and range was supported through independent third-party reserve orders. Now that we have production, the well performance data to date indicates that the likely contact is on the shallower side of our original expectations and thus is not in line with our 2P mid-case scenario. It is, however, well within the range of our uncertainty. Despite the revision, it is important to note that this change will not impact our FY25 production guidance or impact our ability to deliver the enterprise gas sales agreements. Enterprise fuel remains a valuable asset within Bench's portfolio. Since arriving at beach, I've been working hard on further strengthening the team systems and process across our technical disciplines. I'd like to emphasize that I am proud of what we're currently delivering as a beach with our focus on lowering costs, rapidly making organizational structural changes and our strategic refresh and operational performance. This is underpinned by discipline and an accountable organization with an owner's mindset. Outside of the result at enterprise, our FY24 results are broadly in line with market expectations and as reflected through our strategic review update. On the next slide, you'll see our compliance statement, and I'll leave you to observe that at your time. We move forward. At the year end results in February, I set out my near-term priorities and key focus areas, which included Delivery production from Waitsia, Enterprise and Thales and West projects. Reducing the operating costs of the business. Instilling that owner's mindset and drive high performance and margin growth. And maintaining our strong financial position. While we've made good progress against these priorities, it is fair to say that the past six months have proved more challenging than I anticipated, due to both internal and external factors. Those challenges aside, the value proposition which attracted me to BEACH remains compelling. In fact, the intrinsic value of our portfolio is becoming more evident with continued acceleration of the energy transition and increasing recognition of the critical role that gas will play. This slide shows why we firmly believe BEACH is uniquely positioned to play an increasingly important role in the gas-supported energy transition. First, we have completed our strategic review implemented a new organisational structure and identified material cost savings with more to come. We are resetting our foundation as we position for sustainable growth and earn the right to grow. Second, Beech has exposure to key markets with strong fundamentals which will continue for decades to come as the energy transition plays out. Third, our financial position is strong and we are committed to disciplined CAPEX and OPEX deployment. Fourth, our outlook for increasing cash flow provides flexibility to balance sheet high dividends for shareholders in line with our capital management framework whilst retaining optionality. Fifth, we have several near-term value catalysts as we deliver current projects and progress organic growth opportunities. Lastly, our emissions reduction project at Moomba CCS will be a major contributor to our decarbonisation and sustainability objectives. Further material investment in sustainability or new energy opportunities by BEACH is not required to meet our 2030 targets. Turning to slide four, which summarised keel milestones from the year, I will touch on some of these in more detail a bit later, but for now it's worth calling out just a few. Completion of the strategic review and implementation of our new organisational structure was an important step for BEACH in resetting base business. The detailed review allowed us to establish the pathway for returning beach to being a low-cost operator while earning that right to grow. The weighty LNG and condensate cargos were good outcomes. Our strategy to mitigate committed LNG processing costs by using surplus gas from Xyrus and entering time swaps for third-party gas allowed us to lift two LNG cargos through last financial year. We continue to progress opportunities to deliver another Koga before start-up of the Waitsier gas plant. Speaking of which, progress of the plan is continuing. You'll recall that detailed review of schedule and cost undertaken by the joint venture during the year resulted in a capex increase and a delay to first gas. This was obviously very disappointing to me as well as to shareholders. We are targeting first gas from the Waitsier gas plant in early calendar year 2025. followed by a three- or four-month production ramp-up period. The beach-operated Perth Basin drilling campaign delivered gas discoveries at Ribback Deep, Tarantula Deep, and a development well at Bahara Springs Deep. Those results are encouraging for future drilling in the central fairway. In the western flank, a 16-well oil and gas exploration and appraisal campaign was completed with mixed results. All discoveries were made at Bangalee South and Kalawonga North, and successful appraisal drilling was undertaken at the Martell Hill. I remain confident that there is further exploration potential to pursue in line with our disciplined approach to capital deployment. In the Otway Basin, the enterprise development was completed with a nearshore gas field connected to the Otway gas plant. With Enterprise Online, the East Coast market received an injection of new gas supply at a time when it was desperately needed. We saw our first uptick in production following the connection to the enterprise field in which supported a 31% increase in our Otway Basin production for the fourth quarter. We also progressed the connection of the Thighlights End West 1 and 2 wells, the two wells in the offshore Otway Basin campaign. We're targeting first gas from these wells in the first half of FY25, which will provide further well deliverability for the Otway gas plant and another new source of gas supply for the East Coast market. On the commercial front, key Otway Basin agreements were struck during the year. We concluded negotiations for the Otway Basin price review, and a new agreement was signed for the sale of the enterprise gas. Lastly, the Moomba CCS project reached a mechanical completion shortly after the year end, and first CO2 injection in the first half of FY25 is targeted. Moomba CCS plays an important role in our climate transition action plan, which we released in April. The CTAP outlines our target of reducing scope one and two equity emissions intensity by 35% by 2030 and our ambition to achieve net zero emissions by 2050. Thanks to our significant investment in Moomba CCS, beach can rightfully be considered industry leading in terms of decarbonisation. Turning now to slide five for a quick overview of headline results. It was a solid set of results for FY24 and we maintained a strong financial position while we progressed our major projects. Production of 18.2 million barrels of oil equivalent was 7% below the year prior due to lower customer nominations in the Otway Basin, delays in project delivery, and weather events in the Cooper Basin. Despite lower production, revenue was up 9% to $1.8 billion, driven in part by the weightier cargoes and higher realized oil and gas prices. Our realized gas price of the year was up 8% to $9.50 per gigajoule thanks to new contracts, repricing of the Otway Basin GSA, and higher spot prices over the winter. Underlying EBITDA of $950 million was broadly in line with the prior year, and underlying NPAT of $341 million was 11% lower than the prior year. Free growth, free cash flow was $163 million and allowed the board to declare a final dividend of $0.02 per share resulting in a full-year dividend of $0.04 per share. We ended the financial year in a strong financial position with $437 million of available liquidity and gearing of 15%. Slide 6 sets out our reserves position with the enterprise revision announced today and the revision slated in June with the strategic review. A detailed subsurface review was undertaken, which assessed recent drilling results, reservoir performances, and various data interpretations. Reserved revisions flagged in June were due to outcomes of the Coupe South 9 development well and Coupe reservoir depletion from existing wells, outcomes from Bahara Springs 2 deep development well and revised reservoir mapping, bath of an anticipated decline from Thylacine North wells, and some minor reservoir performance just across the Cooper Basin joint venture. Turning to slide seven, which details our health, safety, and environmental outcomes. Our personal safety performance in FY24 was a story of two halves. In the first half, safety was not where it needed to be, so we promptly initiated Stand Together for Safety campaign. The campaign included company-wide stand-downs, toolbox talks, executive leadership site inspections, and a special purpose contractor forum and implementation of new life-saving rules. Surprisingly, we did not experience a single recordable injury in the second half of the year. We have now achieved over eight months of recordable injury free. This is our best run of safety outcomes since 2018. And this is during a period of significant change within the organization. Plant process safety performance was strong throughout the year. With no Tier 1 or 2 incidents, we also had no environmental spills of more than one barrel. We're determined to continue our strong momentum through FY25 and beyond. Slide 8 sets out progress on the sustainability front. There were enough highlights through the year, including release of BEACH's first Climate Transition Action Plan, good progress at MUBA CCS, which reached mechanical completion shortly after year-end, progress towards our inaugural Reconciliation Action Plan, which we expect to release in FY25, a readiness assessment for the upcoming implementation of the Australian Sustainability Reporting Standards, which we expect in FY26. You'll find a lot more detail in this year's Sustainability Report, which is now incorporated in our annual report, which was released today. Turning to slide nine, and a quick recap of the strategic review. Six months ago it was clear that change within the organisation was required. I initiated a detailed strategic review which looked at our organisational model, asset portfolio, operating and capital cost structures and growth opportunities. The review sought to establish the pathway for returning Beech to being a low-cost operator while earning the right to grow. I'll come from the reviewer announced on the 18th of June. And if you haven't done so yet already, I would encourage you to have a review of that presentation. Our vision is to become Australia's leading domestic energy company. To achieve this, we are guided by a very fresh three pillar strategy. The core hubs recognises beaches established in diverse portfolio of strategically valuable infrastructure servicing the east and west coast markets. We will focus on these core hubs to optimise our assets as we grow our market share. High margins fills an owner's mindset into our day-to-day operations and our capital allocation decisions. Low-cost operations and pursuing the high failure for our molecules underpins this pillar. Sustainable growth captures our desire to lengthen the duration of our portfolio and deliver sustainable value creations for our shareholders. Our emissions reductions target and CTAP underpin this pillar. Our first priority is delivering profitable and a resilient-based business. In doing so, we believe that enables us to earn the right to grow through inorganic and organic opportunities. Today, we have identified roughly $135 million of costs and sustaining capex to come out of the business at FY25. We're targeting to increase this over $150 million by the end of FY26 and to lock in the structural savings. It is worth noting that savings to date have largely come out of our operated assets. We're still in the early stages of pursuing cost savings with joint venture partners for our non-operated parts of our business. On that note, I'll hand over to Anne-Marie for a look at our financial performance.

Thank you, Brett. Good morning, and thank you again for joining us today. Our headline financial metrics are set out on slide 11. Beach reported a solid set of results for FY24 and maintained a strong financial position while delivery of major projects continued. Our results in FY24 were influenced by a 7% decline in production, driven by lower Otway Basin customer nominations, weather events in the Cooper Basin, and natural fuel decline. Despite lower production, sales volumes were up 3% to 21.3 million barrels of oil equivalent, and revenue was up 9% to 1.8 billion, supported by two early weight tier LNG cargoes and a one-off condensate cargo lifted during the financial year, coupled with higher realised oil and gas prices. The earlier weights year cargo saw our product mix shift more towards liquids, which accounted for 61% of sales revenue, with gas accounting for 39%. For reference in FY23, the split was 58% liquids and 42% gas. Underlying EBITDA of $950 million was broadly in line with the prior year, An underlying NPAT of $341 million was 11% below the prior year, mainly due to higher depreciation. Not shown on this slide is our net asset position. Net assets reduced by $565 million to $3.3 billion, with non-cash impairment charges for producing and exploration assets, being a material contributor to this reduction. The impairment charge of approximately $1.1 billion before tax related to the following. Producing assets in the Cooper Basin, largely driven by increasing Cooper Basin joint venture operating and capital costs. Producing assets in the Taranaki Basin, following results from the Coupe South 9 development well. Producing and development assets in the Bass Basin on the decision not to develop trefoil. And exploration assets across the Western Flank, SA Otway and Bonaparte Basins. It's important to note that the impairment charges are non-cash and do not impact our underlying earnings, which I'll now touch on. Slide 12 steps out our underlying NPA, which as mentioned was 11% below the previous year. We've touched on a number of the elements here, so I'll just briefly mention a number of the key drivers. Revenue was higher due to the two weights year LNG cargoes and a one-off condensate cargo lifted during the financial year. in addition to higher realized oil and gas prices across the portfolio. These were partly offset by lower production. Cash costs were higher due to higher third-party purchases, tariffs and tolls, and inventory movements, largely associated with the weightsier cargoes, and higher operating costs, which were mainly attributable to our interest in the non-operated Cooper Basin joint venture. Lastly, we reported higher depreciation in FY24, with higher Cooper Basin JV costs in the first half of FY24 and a change to methodology for our Cooper Basin assets from 1 January, accelerating depreciation during the second half of FY24. Slide 13 shows movements in cash during the financial year, which resulted in closing cash reserves of $172 million. Operating cash flow of $774 million was 17% below the prior year. Impacts from lower production and unavoidable weights year LNG processing costs were partly offset by cash receipts from the weights year LNG and condensate cargoes. Debt drawdowns of $370 million were made as we continued to progress through a capital intensive period. Capital expenditure cash flows of $1.1 billion included growth capital expenditure of $499 million for major projects and sustaining capital expenditure of $609 million. As announced as part of the strategic review, through structural cost savings and operating efficiencies, Beach is targeting a reduction in sustaining capex to less than $450 million. For FY25, our guidance for sustaining capex is $420 to $480 million. Free growth free cash flow was $163 million, and the Board declared a final dividend of $0.02 per share, resulting in full-year dividends of $0.05 per share. On slide 14, you'll see that our balance sheet remains strong. We ended the year with net debt of $583 million, net gearing of 15%, and $437 million of available liquidity. A maturing $250 million debt facility was refinanced during the year by our new three-year $350 million tranche. There was strong lender support across domestic and international banks, and competitive market terms were secured. A strong financial position allows us to maintain flexibility as we balance investment and growth with increasing dividends to shareholders. As we move towards strengthening free cash flow from our major growth projects in the Otway and Perth basins, we have the capacity to pay high dividends to shareholders while continuing to invest in sustainable growth. Supporting these objectives are our strict operating principles, capital management framework and discipline investment framework, which were articulated as part of the strategic review. I'll finish on slide 15 with a quick recap of our operating principles and capital management framework. Our operating principles are underpinned by key financial targets, including a free cash flow breakeven of less than $30 a barrel, field operating costs of less than $11 per barrel of oil equivalent, and sustaining capex of less than $450 million per annum. Throughout the business, there is strict focus on compliance with these targets. The capital management framework outlines our gearing and shareholder return targets. On gearing, we're comfortable with increasing gearing for the right growth opportunity, noting that any investment must demonstrate a path to timely pay down of debt. On shareholder returns, our dividend framework of 40 to 50% of pre-growth free cash flow for frank dividends will see us delivering higher returns to shareholders once our major growth projects are complete. Ultimately, our objective is to deliver higher returns for shareholders through disciplined operations and capital allocation. On that note, I'll hand back to Brett.