Beach Energy : Quarterly Report for the period ended 30 September 2018

Quarterly Report for the period ended 30 September 2018

29 October 2018

Ref: #055/18

Key Highlights

Quarterly revenue reaches $514 million; drives $152 million free cash flow

•  Strong production performance in conjunction with a 6% increase in realised oil price drove a standout quarter for Beach, recording $514 million of revenue.

•  $152 million of free cash flow was generated in the quarter.

Production driven by high facility reliability and strong customer demand

•  Production increased 7% to 7.8 MMboe with improved facility performance and strong seasonal gas demand.

•  Sales volumes increased 9% to 8.3 MMboe, primarily due to higher production volumes.

•  Sales revenue increased 9% to $514 million, driven by the higher sales volume and higher realised oil price ($109.9/bbl).

FY19 production, underlying EBITDA trending towards upper end of guidance range

•  Beach has approved another drilling rig to accelerate drilling activity in the Western Flank and is supportive of Santos adding a 4th rig to the Cooper Basin JV.

•  FY19 production is expected to be towards the upper end of the guidance range of 25 - 27 MMboe following the strong start to the year and contribution from the additional rigs.

•  FY19 underlying EBITDA guidance is also expected to be towards the upper end of the guidance range of $1.05 - 1.15 billion, driven by the strong production outlook.

•  FY19 capital expenditure guidance remains unchanged at $440 - 520 million.

20% net gearing target reached 9 months early, on track to be debt-free within 12 months

•  Net gearing was 20% at 30 September, achieved more than 9 months ahead of our original target of < 25% by the end of FY19, announced at the time of the Lattice acquisition.

•  Liquidity remains strong at $664 million after the early repayment of $250 million of debt.

•  Higher production and commodity price outlook, a firm control of costs, and the expected proceeds from the Otway Sale puts Beach on track to be debt-free within 12 months. This is 2 years ahead of our original target, announced at the time of the Lattice acquisition.

Continued high drilling success rates; early Bauer appraisal success

•  Beach participated in 29 wells in the quarter, achieving an overall success rate of 83%.

•  Subsequent to quarter-end, oil appraisal well Bauer Northeast-1 successfully delineated an extension of the Bauer Field. Beach will undertake further appraisal drilling ahead of re-mapping the field to identify future development well locations.

Beach sells 40% stake in Victorian Otway interests; WA-359-P farm-in agreement progresses

•  Subsequent to quarter-end, Beach announced an agreement to sell 40% of its Victorian Otway interests, which includes its producing gas fields, Enterprise and Artisan exploration prospects and the Otway Gas Plant, to O.G. Energy for $344 million in cash ("Otway Sale"). For further information refer to "Subsequent events" in this report and ASX Release #047/18 dated 5 October 2018.

•  Subsequent to quarter-end, satisfaction of conditions precedent in Beach's WA-359-P farm-in agreement with Cue Energy has progressed. Agreements have been executed, paving the way for work to commence on preparations for drilling the Ironbark prospect, which could potentially be drilled in H2 FY20.

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

September	June	September	Qtr on Qtr
Q1 FY18	Q4 FY18	Q1 FY19	Change
Production (MMboe)	2.55	7.23	7.76	7%
Sales Volumes (MMboe)	2.88	7.60	8.26	9%
Sales Revenue ($ million)	178	4711	5141	9%
Realised Oil Price ($/bbl)	77.6	103.21	109.91	6%
Realised Sales Gas/Ethane Price ($/GJ)	6.4	6.6	6.7	1%
Net Cash/(Debt) ($ million)	230	(639)	(486)	24%
Free Cash Flow ($million)	43	149	152	2%

Comments from Chief Executive Officer, Matt Kay

Beach Energy Chief Executive Officer Matt Kay said "Beach's performance in Q1 FY19 has set the company up for a strong year.

"We've recorded a 7% increase in production on the previous quarter, sales volumes were up 9% and, for the first time, our quarterly revenue hit more than half-a-billion dollars," Mr Kay said.

"Higher output during a period of stronger commodity prices helped our revenues to reach $514 million, up 9% on the prior quarter.

"With quarterly free cash flow of $152 million, our net debt has been reduced to $486 million and net gearing was 20% at the end of the quarter, well ahead of the net gearing target of < 25% by the end of FY19 announced at the time of the Lattice acquisition.

"Operationally, our facilities operated with an average reliability of 96.7% across the portfolio, versus 94.3% average through FY18. We also had an excellent quarter from a Health, Safety and Environment (HSE) perspective.

"Positive drilling results at Bauer (via the successful appraisal well at Bauer Northeast-1) and our desire to increase output at a time of higher commodity prices has underpinned our decision to add another rig in the Western Flank by the end of FY19.

"We are also pleased to support Santos' decision to retain a fourth drilling rig in the Cooper Basin JV through all of calendar year 2019.

"Our investor day at the end of September provided Beach with an opportunity to run through our five-year outlook, including the Company targets of production increasing to 30 - 36 MMboe2 by FY23 and generating more than $2.6 billion in cumulative free cash flow.

"After the end of the quarter we were pleased to announce we have entered into an agreement to sell a 40% stake in our Victorian Otway assets to O.G. Energy for $344 million cash. We are fully aligned in our objective of accelerating development of our undeveloped reserves.

"The combination of higher production output, increased commodity prices and proceeds from the Otway Sale means Beach is on track to be debt free within 12 months - a remarkable achievement considering net gearing was 33% at the end of January this year. Our expectations at the time of the Lattice acquisition was to be net cash by the end of FY21, meaning we are 2 years ahead of schedule."

• 1 Includes the impact of $10 million and $12 million in realised hedging losses in Q4 FY18 and Q1 FY19, respectively.

• 2 Five year production target provided at the investor day was 34 - 40 MMboe, which was subsequently adjusted to 30 - 36 MMboe on 5th October following the announcement of the proposed Otway Sale. Refer to ASX announcement Ref: #048/18 for more information.

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FY19 guidance

The following table summarises our FY19 guidance:

Item	FY19 guidance	Comment
Production (MMboe)	25 - 27	Trending toward upper end
Capital Expenditure ($ million)	440 - 520	Unchanged
DD&A ($ million)	395 - 445	Trending toward upper end
Underlying EBITDA ($ billion)	1.05 - 1.15	Trending toward upper end

Beach reaffirms FY19 guidance, noting the strong start to FY19 combined with the addition of 2 more drilling rigs in the Cooper Basin means the company is trending towards the upper end of current guidance ranges for production, DD&A and underlying EBITDA. FY19 capital expenditure guidance remains unchanged at $440 - 520 million.

Financial

Sales volumes

Quarterly sales volumes of 8,263 kboe were 9% higher than the prior quarter. Oil and condensate sales volumes were down for the quarter due to timing of shipments. Sales gas and ethane sales volumes were higher, driven by higher production.

Sales volumes

Own Product Third Party Total Oil Own Product Third Party Total Gas Own Product Third Party Total LPG Own Product Third Party

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

September	June	September	Qtr on Qtr
Q1 FY18	Q4 FY18	Q1 FY19	Change
1,290	1,515	1,443	(5%)
153	324	285	(12%)
1,443	1,838	1,727	(6%)
6.1	26.8	31.0	16%
0.1	(0.1)	0.1	242%
6.2	26.7	31.1	17%
20	62	70	12%
1	(1)	(0)	(100%)
20	61	70	14%
214	696	631	(9%)
4	3	1	(62%)
218	699	632	(10%)
Total Oil and Gas Sales (kboe)	2,883	7,602	8,263	9%
Total - Own Product (kboe)	2,703	7,297	7,958	9%
Total - Third Party (kboe)	180	305	305	0%
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Oil (kbbl)

Sales Gas and Ethane

(PJ)

LPG (kt)

Condensate

(kbbl)

Total Condensate

Sales revenue

Total sales revenue of $514 million was 9% higher than the prior quarter driven by higher sales volumes and marginally higher average realised pricing across all products. Average realised oil price was 6% higher at $109.9/bbl. Average realised sales gas and ethane pricing was 1% higher at $6.7/GJ, with higher pricing realised under the east coast gas supply agreements (+2.3% on prior quarter) partly offset by lower realised pricing in New Zealand due to additional quantities sold in excess of legacy contracted volumes.

Sales revenue ($ million)

Average realised prices

September	June
Q1 FY18	Q4 FY18
Oil	112	1903
Sales Gas and Ethane	39	176
LPG	12	40
Condensate	15	66
Sales Gas and Gas Liquids	66	282
Total Oil and Gas revenue	178	471
Total - Own Product	166	4403
Total - Third Party	12	31
All Products ($/boe)
Oil ($/bbl)
Sales Gas and Ethane ($/GJ)
LPG ($/tonne)
Condensate ($/bbl)

September	Qtr on Qtr
Q1 FY19	Change
1904	0%
207	18%
54	35%
63	(4%)
324	15%
514	9%
4804	9%
34	8%
September	June	September	Qtr on Qtr
Q1 FY18	Q4 FY18	Q1 FY19	Change
61.7	62.03	62.24	0%
77.6	103.23	109.94	6%
6.4	6.6	6.7	1%
566.2	653.3	776.0	19%
67.6	93.6	99.3	6%

3 Includes the impact of $10 million in realised hedging losses in Q4 FY18. Excluding the impact of hedging losses, the average realised oil price was $108.8/bbl and the average realised price of all products was $63.4/boe.

4 Includes the impact of $12 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.

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Capital expenditure

Total capital expenditure was $68 million, 10% down on the June quarter. Capital expenditure is expected to increase through the remainder of FY19 driven by the phasing of the FY19 work program, with Otway drilling and a 3rd Western Flank rig expected to commence operations in late FY19.

Capital expenditure ($ million)

September	June	September	Qtr on Qtr
Q1 FY18	Q4 FY18	Q1 FY19	Change
Exploration and Appraisal	10	17	13	(21%)
Development, Plant and Equipment	36	59	55	(7%)
Total	46	76	68	(10%)
Liquidity

Beach ended the quarter with net debt of $486 million, comprising drawn debt of $700 million and cash reserves of $214 million. During the quarter Beach retired $250 million of debt, which will result in interest cost savings. With undrawn revolving credit facilities of $450 million, Beach has total liquidity of $664 million at the end of the quarter.

Material cash flows for the quarter were operating cash flow of $227 million (which included working capital outflows of $66 million), net investing cash flow of $75 million partly offset by proceeds from a property sale of $21 million, and the $23 million payment of the FY18 final dividend.

Liquidity ($ million)

September	June	September	Qtr on Qtr
Q1 FY18	Q4 FY18	Q1 FY19	Change
Cash Reserves	230	311	214	(97)
Drawn Debt	-	(950)	(700)	250
Net Cash/(Debt)	230	(639)	(486)	153
Undrawn Facilities	500	450	450	-
Capital structure

Beach's capital structure as at 30 September 2018 is set out below. The change in fully paid ordinary shares reflects the vesting of executive short term incentive rights with an equal reduction in unlisted employee rights.

Q4 FY18 2,276,570,218 6,623,901

Fully Paid Ordinary Shares Unlisted Employee Rights

September Q1 FY19 2,277,030,477 6,163,642

Qtr on Qtr Change 460,259 (460,259)

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