Checked the market this morning? Then you have probably noticed the $900 million elephant in the room. That’s roughly how much has been erased from the market capitalisation of Beach Energy Ltd (ASX: BPT) as the share price suffers a devastating fall.
At the time of writing, shares in the oil and gas producer are 22.02% lower at $1.31.
What’s dismantling the Beach Energy share price?
Declining production
The substantial decline in the Beach Energy share price comes after the company provided its results for the third quarter of FY21.
Standing out like a sore thumb, Beach’s production dropped 5% compared to the previous quarter, and 15% lower compared to Q3 FY20. The company attributed this to reduced reservoir performance and natural field decline, predominantly from the Cooper Basin Western Flank oil fields.
Lower customer nominations for the Victoria Otway also dampened production numbers. As a result, Beach Energy recorded 5.89 million barrels of oil equivalent (MMboe) for the quarter.
Partially offsetting the mood in the room, the company managed to increase revenue by 14% to $393 million compared to the prior quarter. The increase in revenue was aided by a higher realised oil price during the quarter. However, on a year-over-year basis, revenue fell 9%.
Major downgrade to oil reserves
Shareholders have been startled by the sudden destabilisation in oil reserve estimates for the company’s Western Flank 2P reserve.
Beach Energy was prompted to conduct an urgent review of its 2P reserves, following production declines. The review’s findings indicate a 13.4-million-barrel net downgrade to the Western Flank oil reserves. Meanwhile, gas reserves suffered a 5.0 MMboe net downgrade.
In total, the reserve writedown equates to roughly 5% of Beach Energy’s 2P reserves. The 2017 acquisition of Lattice assets was drawn upon by the company, stating it had diversified Beach beyond the Cooper Basin.
Consequently, the company withdrew its five-year outlook – rattling the Beach Energy share price. This has led to a reduction in production guidance for FY21, falling to 25.2 to 25.7 MMboe, as opposed to the previous 26.5 to 27.5 MMboe forecast.
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Motley Fool contributor Mitchell Lawler has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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