BPT - Beach Energy

[Tysonboss1]

The simple fact that the BPT 'pie' is cut into so many little bits is a big fundamental issue. By the time any increase in the value of the company is spread across so many shares it doesn't make as much difference as it would with less shares on issue. The fact that they are doing something with unconventional gas is heartening but the US is oversupplied-just look at the current price. I've held BPT for a while now and am in the red, I hope they achieve something from the drill bit in Egypt shortly instead of pouring more dollars into the sand. As a counter to BPT's diverse spread around the world MPO is selling out of projects to concentrate its expertise where the highest potential gains are. As a counter to BPT's gas philosophy MOS is primarily targetting oil in the near future because until east coast LNG projects are running there will be downward pressure on gas prices due to the availability of ramp-up gas from CSG fields. That said I hope BPT's price does start climbing.

You should be looking at it's market Cap rather than the number of shares on issue. The number of shares does not really have a major impact.

For example -

If a company earned $100 a year, Some people would believe a fair value for the company was $1000.

whether the company had 100 shares on issue at $10 each, 1000 shares on issue at $1.00 each or 10,000 shares on issue at $0.10 does not matter. the company is still being valued at $1000, and a $100 investment would still buy 10% of the company regardless.

 

[oldblue]

But it does determine how much the market is prepared to pay for those pieces. The more pieces, the lower the price.

But that's fairly evident here, isn't it?

 

[Tysonboss1]

The simple fact that the BPT 'pie' is cut into so many little bits is a big fundamental issue. By the time any increase in the value of the company is spread across so many shares it doesn't make as much difference as it would with less shares on issue.

Beach profit increasing 10% and making the share price move from 80c to 88c is exactly the same as an $80 company increasing it's profit 10% and it's share price moving from $80 to $88.

 

[oldblue]

Beach profit increasing 10% and making the share price move from 80c to 88c is exactly the same as an $80 company increasing it's profit 10% and it's share price moving from $80 to $88.

No problem with that.

The fact though is that BPT issued a lot of those extra shares at $1.43 not so long ago. Since then $50m has been spent on buying out hedges at the top of of the oil market; the CSG assets ( about 50% of the company's 2P reserves) have been sold, ostensibly because the market wasn't recognising their value in the SP; the SP continues to trade sideways.

So, is it just a case of the market not understanding BPT?

 

[Alex O'Grady]

Fair enough . I am only trading it at present BUT i personally think this little oiler runs rings around a lot of the more loved overhyped oilers out there with a similar market cap on a fundamental basis.

Once it breaks out of this longer term sideways channel i think we will see this little co get a major firework up its derriere but in saying that , who knows how long it will track sideways for ........... more active investors might not view this as there cup of tea ........ I love long term sideways channels

Good luck with it and personally think on a FUNDAMENTAL basis you have invested in a solid little company

Nunthewiser - thanks for your input - yes I am looking at a longer term trade on this one - so your points are appreciated.

 

[Tysonboss1]

So, is it just a case of the market not understanding BPT?

I think so, You also have to remember that the oil price has halved since the shares were trading over $1.40.

I believe beach is worth more than it's current price, So I am holding a few.

Selling the CSG assets was not a bad move, I think they got a really good price and are in a stronger position having sold it. It's like a property developer selling off a finished project so as to finance his next 2 projects.

 

[pointr]

Yesterday around 1600 BPT announced in their weekly drilling report that a development well in Egypt had intersected a significant oil column 140mtrs?, 20 mtrs more than was prognosed. Their options did a bit of a jump on the close. Hopefully this may be the start of a return on the Egyptian investment and another positive that may start the share price moving in the right direction.

 

[Paul Ellis]

I lost patience with BPT a couple of weeks ago and got out...has gone backwards while everything has rocketed since march...not quite sure why it hasnt followed the other energy stocks up...???

 

[riverred]

Hi Paul Ellis.

I think the sharemarket is very disappointed that BPT didn't capitalise on a few excellent opportunities to make high value short-term capital gains. Recently, it proudly made a miserable 10% ($7M) capital gain on AOE when it could have made almost 40% ($28M) gain had it sold all the shares just a month later. Shortly thereafter, it made a 70% gain on disposing DLS when it could have been >300% had it sold just a couple of weeks earlier. Timing is everything, isn't it?

I suppose that's what happens when BPT’s board doesn't believe in speculative transactions. All its hedgings are taken as a form of insurance; or risk management, if you like. Hence BPT's reputation for being stable but boring. It's management style is too predictable for a market that thrives on the excitement of quick speculative profits and equates this thrill to sexy.

Not only doesn't BPT believe in speculative transactions, but I suspect it doesn't even understand the value of TA. Instead, FA would be its forte.

Despite all of BPT's predictability, we should also bear in mind that it has huge unrealised gains in its $multi-M hedging in USD and 1M boe in floor and collared oil prices.

Now that the Egypt oil drilling (BPT 20%) has returned great results and also that PTR has been granted the $67M Fed. funds for hot rocks technology development (BPT 36%?), the market should begin to re-rate BPT's sp.

But it all still depends on whether these are good enough to qualify as sexy. I believe that in the longer-term, a massive blast of Lynx sex appeal will come from Tanzania.

 

[oldblue]

Interesting analysis, rr.

There was a time of course when BPT management did take a big speculative position by paying $50m to settle hedges, largely inherited from the Delhi purchase, in order to benefit from the record PoO at the time. Unfortunately, the price dropped precipitately shortly thereafter so as well as the $50m being wasted, the hedge protection was no longer there!

I wonder if BPT management has been scarred by this experience to the extent of adopting an extremely risk-averse stance. Somehow, I don't think that the average o and g investor would want to see that.

 

[riverred]

Yes, BPT's decision to remove its Delhi oil price hedging was amusing in a frustrating way. Reg Nelson never really explained to the shareholders what had possessed the management and board to give them courage to plunge into dangerous waters without preparation or safety net. Was it the high-fee-based advices of merchant bankers? Pity, that. Anyway, I'm inclined to agree with you that BPT is now suffering from a once-bitten-twice-shy syndrome.

ILU made a similarly poor decision when it decided to hedge against the USD after years of enduring criticisms from analysts and shareholders that its unyielding unhedged stand had caused it to absorb ongoing huge unrealised forex losses. And what happened after ILU decided to implement forex risk management? The USD crashed and ILU missed out on the huge forex gains. Small wonder that ILU sp has not regained the $7-level.

So, shareholders should beware when the management and board decide to venture into areas that are beyond their depth.

 

[riverred]

Interesting that BPT has finally sold its remaining DLS shareholdings today; and on initial analysis, it seems to have done very well.

The sale of all 393,873,344 DLS shares for a total proceeds of $21,626,146 is approximately equivalent to $1.48 per BPT share. The total no. of BPT shares issued in the 1-for-27 unsuccessful takeover attempt was 14,587,902.

Ironically, BPT has made an 82% "capital gain", when compared to its market price of 81c at the time of the takeover. Good work, Reg.

 

[oldblue]

Yes, but I don't think that that was Reg's intention when the takeover bid was made.

Another way of looking at the capital gain on the transaction is that it represents less than one cent per share spread across BPT's 1b odd shares. But I guess every little bit helps!

 

[riverred]

As I see it, BPT has indicated a fairly clear approach to its operations. It doesn't seem interested in pure investment holdings, as demonstrated by the sale of all its AOE & DLS shares. But it's definitely interested in investing into expn., devn. & prodn. projects with ADE, PTR and ICN.

Analysing the rationale for the sale of AOE & DLS shares, it would appear that the board believes that BPT can achieve greater returns from its hands-on operations than can AOE and DLS. Given BPT's disinterest in pure investment holdings, capital gain would not be a major factor for decision-making by the board.

That may be a good move in the case of selling all of DLS shares. If DLS does achieve success in its exploration, then its sp is likely to touch 10c again. A modest 5% return (on sp) would require NPAT of $10M. An impressive 10% return would require NPAT of $20M. Unless they do a "Karoon Gas" act in the near future, I doubt that DLS can match BPT's return. One can say that DLS is suffering from twice the "ailment" of BPT; too many shares on issue. What is it with boards that like large qty of shares on issue? Isn't it better to have 100M shares at $8.00 each than 1B shares at 80c each? Liquidity is a double edge sword in that the shares can become subject to shorting, etc.

As for its AOE shares, despite having sold them all, BPT may still have a couple of aces up its sleeves in terms of AOE announcing upgrades for the resources purchased from BPT in the next few years.

 

[oldblue]

Both the AOE and DLS shareholdings were "accidental" in a sense.

AOE because that was part of the consideration negotiated in the sale of the Tipton West interest and DLS because BPT was left with a holding from the failed takeover attempt. So I can see that it makes sense for BPT to quit both of these in favour of cash to concentrate on their own projects.

As for the 1b plus shares on issue I would think that the market wouldn't take such a dim view of that if the SP wasn't so low and especially as a large slice was raised at $1.43 to fund the $50m paid to settle the Delhi hedges. Effectively, money wasted. A share consolidation now would probably be seen as admitting that the company has lost a lot of shareholder value in the last couple of years, so it probably won't happen.

 

[riverred]

I can't remember the source of this quip I read recently: "The market can remain irrational longer than investors can remain solvent".

But it certainly applies to shareholders of BPT if they had purchased shares at $1.43 through margin loans. The $50M raised to clear the Delhi hedges and which was seen by the market to be a waste of cash had a negative impact of 5c ps on the bottomline. BPT's sp dropped >60c. Of course, we need to factor in the 50% drop in oil prices as well. Even so, BPT had compensated for the fall in oil prices using various strategies to maintain its NPAT at a high level.

Faithful shareholders will just have to wait for the re-rating and appreciate the dividends in the meantime.

 

[oldblue]

Yes, as far as the market is concerned, perception is reality.

Incidentally, it was John Maynard Keynes.

 

[Tysonboss1]

I think the fact the BPT has a Billion + shares on issue is a complete "Moo Point" and means nothing when it comes to weighing the value in this company. I actually think it can be a positive, I think a companies shares have a much greater chance of rising from 80c to $1.60 than from $80 to $160.

Any way on a company level I think BPT has done a fantastic job recently and is the pick of the sector.

I am a value investor, and when I look at BPT I see a company that could easily grow to be worth $3.00 in coming years.

 

[prozac]

What's a "Moo Point" Tysonboss1 ,........... something you might use "down on the farm"?

L'il Abner, tell those cows to stop arguing.

 

[Tysonboss1]

What's a "Moo Point" Tysonboss1 ,........... something you might use "down on the farm"?

L'il Abner, tell those cows to stop arguing.

"Moo point" is a term used to describe something that doesn't matter or means nothing, Like a cow's opinion, it's nothing it's just "Moo".

The term comes from joey from friends.