Beach Energy Ltd. (BPT), the best- performing Australian energy stock this year, expects natural gas prices on the east coast to surge this decade as well as increased investment in the shale industry.
Gas prices in eastern Australia will likely jump to A$6 to A$9 a gigajoule in the “next few years,” driven by demand from liquefied natural gas export ventures being built in Queensland state, Reginald Nelson, managing director of the Adelaide-based company, said in an interview. Domestic prices averaged about A$4 a gigajoule in September, according to Morgan Stanley.
“There’s clear evidence the market is short gas and demand is increasing,” he said yesterday. “It’s a great opportunity. If you don’t have large reserves committed to any particular project, you can meet the opportunities as they arise.”
Beach has advanced 49 percent this year, putting the company at the top of the S&P/ASX 200 Energy Index ahead of Aurora Oil & Gas Ltd.’s 43 percent gain. The company, which has stakes in more than 300 exploration and production blocks in eight countries, has climbed on anticipation of increased development of shale projects in Australia following investments by companies such as ConocoPhillips and Hess Corp.
Regulatory hurdles for the coal-seam gas industry on the east coast and concerns that an increase in drilling may harm water supplies are likely to drive additional spending and mergers in the shale gas industry, Nelson said.
“There’s a probability we’ll see more of that, particularly as restrictions on coal-seam gas development and production cause people to look elsewhere,” he said in a telephone interview.
‘No Hurry’ on Partner
Beach has held talks with potential partners to help develop shale fields in central Australia’s Cooper Basin, Nelson has said. Beach has had “numerous inquiries,” he said July 21.
“I don’t think we’re in a hurry to farm out, but should we choose to do so we would do it selectively, with partners we feel could accelerate the development,” he said yesterday.
Seven analysts have “hold” ratings on Beach shares, which rose 0.8 percent today to A$1.285, and three have “buy” ratings on the company, according to data compiled by Bloomberg. One analyst has a “sell” on Beach.
“While we can see potential for good reserves growth” from the Cooper Basin “over the next couple of years, we remain cautious about the economics of Cooper shale gas,” Mark Greenwood, a Sydney-based analyst at Citigroup Inc. who rates Beach shares “neutral,” wrote in a Dec. 13 report.
Beach expects the start of output at its Egyptian oil project with partner BP Plc by early next year after at least 12 months of delays, Nelson said. The company’s share is likely to start at “several hundred” barrels a day and “increase substantially” with development of nearby fields, he said.
The partners plan to develop another discovery in the Gulf of Suez area, he said. London-based BP has 50 percent of the North Shadwan venture, while Tri-Ocean Energy has 30 percent.
The Australian oil and gas producer, seeking to expand next year in Egypt and Tanzania, also expects to drill four more wells at its Abu Sennan project about 300 kilometers (185 miles) west of Cairo after two discoveries, Nelson said.
“We’ll see some good news coming out Egypt, with new discoveries and imminent production,” he said. “Our aspiration is to become a specialist in East Africa.”
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