Beach Energy : Quarterly report for the period ended 31 December 2018

Quarterly Report for the period ended 31 December 2018

31 January 2019

Ref: #003/19

Key Highlights

Quarterly production 7.4 MMboe; oil output +6%, strong gas demand

• •December quarterly production of 7.4 MMboe was 4% below the September quarter. A 17% increase in ex PEL 91 oil production combined with Otway gas sales 30% above prior year levels, largely offset seasonally lower gas demand.

• •Sales volume of 7.7 MMboe was 7% below the September quarter, primarily due to lower seasonal sales gas. Sales revenue of $441 million declined 14% from the September quarter despite a 17% reduction in realised oil price.

Bauer appraisal and horizontal development campaign completed successfully

• •Appraisal drilling at the Bauer Field has confirmed an easterly extension to the structure, warranting future follow up appraisal and infill development drilling.

• •The Bauer horizontal development campaign exceeded expectations. Bauer-29 is producing on pump at up to 1,300 bopd.

FY19 production guidance increased to 28-29 MMboe

• •FY19 production guidance is increased from 25-27 MMboe after better than forecast H1 FY19 production and revised output for the remainder of FY191.

• •FY19 capital expenditure guidance has been narrowed from $440-520 million to $450-500 million1.

Integration complete, synergy and cost reduction targets on track

• •Transitional Services Agreement with Origin was discharged on 31 December 2018, seven months ahead of schedule, signifying the completion of the integration of Lattice.

• •Realised synergy run rate was tracking at $56 million at 31 December 2018 well on track to our target of $60 million by the end of FY19.

• •Additionally, direct controllable operating costs have been reduced by an annualised rate of $8 million as at the end of Q2 FY19. Beach is targeting a reduction of $30 million per annum by the end of FY20.

Financial position continues to strengthen

• •Net debt at 31 December 2018 was $331 million, a reduction of $155 million from 30 September 2018. Net gearing is now under 14%.

• •Beach is targeting to be debt-free on completion of the proposed 40% Otway Sale, expected by the end of the March 2019 quarter. This is more than two years ahead of the original debt-free target date2, assisted by the proposed Otway Sale.

Rigs secured for offshore and onshore Otway Basin programs

• •The Ocean Onyx semi-submersible rig has been contracted for the offshore Otway drilling program, with drilling scheduled to commence in late CY19/early CY20.

• •Onshore Otway drilling comprising two South Australian Otway wells and two Victorian Otway extended reach wells is scheduled to commence in the March 2019 quarter using the Ensign 931 rig.

• 1Please refer to ASX announcement ref: #002/19 dated 31 January 2019 for more information.

• 2Please refer to ASX announcement #049/17 dated 28 September 2017 for more information.

Beach Energy Limited | ABN 20 007 617 969

25 Conyngham St, Glenside 5065, South Australia | GPO Box 175, Adelaide 5001, South Australia beachenergy.com.au |[e-mail]

Snapshot

December	September	December	Qtr on Qtr
Q2 FY18	Q1 FY19	Q2 FY19	Change	YTD
Production (MMboe)	2.63	7.76	7.42	(4%)	15.18
Sales Volumes (MMboe)	2.80	8.26	7.70	(7%)	15.96
Sales Revenue ($ million)	208	5143	4413	(14%)	955
Realised Oil Price ($/bbl)	97.4	109.93	91.23	(17%)	100.4
Realised Sales Gas/Ethane Price ($/GJ)	6.5	6.7	6.6	(0%)	6.6
Net Cash/(Debt) ($ million)	552	(486)	(331)	32%	(331)
Free Cash Flow ($million)	(8)	152	145	(5%)	297
Lattice integration complete

Success with the drill bit, strong facility reliability and the completion of the Lattice integration were the highlights of a robust December quarter for Beach Energy.

Beach Chief Executive Officer Matt Kay said the quarterly results are evidence that Beach is delivering on its promises to the market as outlined at its Investor Day in September 2018.

"The December quarter wasone of increased activity and continued delivery for Beach, being ourbusiest ever with the drill bit," Mr Kay said.

"Beach participated in 39 wells during the quarter with an overall success rate of77%.

"This was also astrong quarter on the reliability front, with our facility reliability averaging over 97%.

"This was particularly importantto production, as stronger than expected east coast customer gasdemand meant that we exceeded our gas sales projections for the quarter."

The December quarter also marked the final milestone in the Lattice acquisition, with Beach discharging the Transitional Services Agreement with Origin at the end of December 2018 - seven months ahead of the original schedule.

Mr Kay said discharging the TSA signifies completion of integration and has advanced realised synergies to a run rate of $56 million per annum at 31 December 2018, with the target of $60 million run rate by end of FY19 in sight.

"Although integration is complete and synergy targets within sight, our focus on additional efficiency continues. At the end of the December quarter, run rate direct controllable cost savings were approximately $8 million, well on track towards realising our targeted reduction of $30 million per annum by the end of FY20," Mr Kay said.

From a commercial perspective, the December quarter provided the first opportunity to display the robustness of the Beach business and particularly cash flow generation during periods of oil price volatility, supported by fixed price gas contracts.

Mr Kay said the combination of higher production and tight cost control meant Beach continued to generate strong free cash flow and de-gear at a rapid rate.

"At 31 December2018 our net debt was $331 million, a reduction of $155 million from 30 September.

Net gearing at the end of December was under 14%, down from 20% at 30 September," Mr Kay said.

3Includes the impact of $4.6 million and $11.6 million in realised hedging losses in Q2 and Q1 FY19, respectively. It should be noted that these losses are expected to be largely offset by unrealised mark-to-market hedging gains of $13.5 million in the H1 FY19 accounts.

"Beach is on track to be debt-free on completion of the Otway Sale, which is expected by the end of the March 2019 quarter.

"To be debt-free more than two years ahead of the timeline outlined at the announcement of the Lattice acquisition2is testament to our team's abilityto maximise output from our expanded portfolio whilst maintaining a focus on operating margins."

On the drilling front, recent appraisal results at the Bauer oil field in the Cooper Basin confirmed an extension to the field.

Mr Kay said these positive results warranted more infill development drilling and a further round of appraisal.

"Four horizontal development wells were drilled in Bauer during the quarter, with the results from the campaign exceeding our expectations from a cost, time, reservoir quality and lateral length perspective.

"For example, Bauer-29 is now on pump and is producing at up to 1,300 bopd. This horizontal well achieved a spud to online time of 21 days, with the average for all four horizontal wells 23.5 days, an excellent result.

"The strong results in the Bauer Field underpinned a 17% increase in oil production from our 100%owned ex PEL 91 Western Flank oil acreage and a 6% quarter-over-quarter increase in Beach's totaloil production.

"The better than expected Bauer drilling results, combined with strong customer gas demand and highfacility reliability, has enabled Beach to increase FY19 production guidance, from 25-27 MMboe to 28-29 MMboe. FY19 capital expenditure guidance has been narrowed from $440-520 million to $450-500 million.

"Finally, we are pleased to report thatBeach has completed key milestones as we progress towards executing on drilling programs in the SA Otway Basin and Victorian Otway Basin, with drill rigs now contracted for theseprograms. "

Beach will release its first half FY19 results and updated FY19 outlook to the market on 13 February 2019.

Financial

Sales volumes

Quarterly sales volumes of 7,701 kboe were 7% lower than the prior quarter with lower gas and gas liquids sales volumes partially offset by higher oil sales volume driven by increased oil production.

Sales volumes

Note: Figures and ratios may not reconcile to totals throughout the report due to rounding.

DecemberSeptember	December	Qtr on Qtr
Q2 FY18 Q1 FY19	Q2 FY19	Change	YTD
1,487	3%	2,930
292	2%	576
1,779	3%	3,506
28.0	(10%)	59.0
0.1	6%	0.2
28.1	(10%)	59.2
63	(10%)	132
2	NM	2
65	(7%)	135
580	(8%)	1,212
0	(54%)	2
581	(8%)	1,213
7,701	(7%)	15,964
7,368	(7%)	15,325
333	9%	639
Page 4 of 19

1,301	1,443
153	285
1,453	1,727
6.0	31.0
0.1	0.1
6.1	31.1
19	70
0	(0)
19	70
138	631
1	1
139	632
Total Oil and Gas Sales (kboe)	2,797	8,263
Total-Own Product (kboe)	2,627	7,958
Total-Third Party (kboe)	170	305

Oil (kbbl)Sales Gas and Ethane

(PJ)LPG (kt)

Condensate

(kbbl)

Total Condensate

Own Product Third PartyTotal OilOwn Product Third PartyTotal GasOwn Product Third PartyTotal LPGOwn Product Third Party

Sales revenue

Total sales revenue of $441 million was 14% lower than the September quarter, driven by a combination of seasonally lower sales gas volumes and lower average realised liquids prices as oil prices declined during the December quarter. Average realised oil price was 17% lower at $91.2/bbl. Average realised sales gas and ethane pricing was broadly flat at $6.6/GJ, as higher realised pricing in New Zealand offset lower oil-linked realised gas pricing in the Cooper Basin.

Sales revenue ($ million)

Oil	141	1904
Sales Gas and Ethane	40	207
LPG	15	54
Condensate	12	63
Sales Gas and Gas Liquids	67	324
Total Oil and Gas revenue	208	514
Total-Own Product	194	4804
Total-Third Party	14	34
All Products ($/boe)
Oil ($/bbl)
Sales Gas and Ethane ($/GJ)
LPG ($/tonne)
Condensate ($/bbl)
Capital expenditure

Average realised prices

DecemberSeptember

Q2 FY18 Q1 FY19

December	Qtr on Qtr
Q2 FY19	Change	YTD
1625	(14%)	352
186	(10%)	394
42	(23%)	96
50	(20%)	113
278	(14%)	603
441	(14%)	955
4115	(14%)	891
30	(12%)	64
December	September	December	Qtr on Qtr
Q2 FY18	Q1 FY19	Q2 FY19	Change	YTD
74.4	62.24	57.25	(8%)	59.8
97.4	109.94	91.25	(17%)	100.4
6.5	6.7	6.6	(0%)	6.6
783.9	776.0	641.1	(17%)	710.8
87.7	99.3	86.3	(13%)	93.1

Total capital expenditure was $112 million, an increase of 65% from the September quarter as work program expenditure around South Australian and Victorian Otway drilling activities accelerates.

Capital expenditure ($ million)

Exploration and Appraisal

Development,

Plant and Equipment

Total

DecemberSeptember	December	Qtr on Qtr
Q2 FY18 Q1 FY19	Q2 FY19	Change	YTD
19	43%	32
93	71%	148
112	65%	180

33

45 78

13 55

68

4Includes the impact of $11.6 million in realised hedging losses in Q1 FY19. Excluding the impact of hedging losses, the average realised oil price in the quarter was $116.6/bbl and the average realised price of all products was $63.6/boe.

5Includes the impact of $4.6 million in realised hedging losses in Q2 FY19. Excluding the impact of hedging losses, the average realised oil price in the quarter was $93.8/bbl and the average realised price of all products was $57.8/boe.