Seven paid around $1 per share for most of its stake in Beach and Drillsearch in early 2015, however both have been below that level since June 2015, with Beach now trading around 50cps and Drillsearch just a little higher.
Seven, which has media and industrial interests that dwarf its modest energy interests – comprising about 20% of the merged Beach-Drillsearch, the former assets of Nexus Energy and US shale leases – posted steady earnings before tax of $167.2 million but that dropped to a net half-year profit after tax of just $7.1 million.
Surprisingly, much of that that was down to a $180 million impairment on Seven West Media, owner of Chanel Seven and The West Australian newspaper, and not the energy business.
SGH Energy pulled in revenue of $3.8 million for the six months to December 31, for underlying earnings of $1.8 million and posted a comparatively mild loss of $4.8 million.
The company spent some $26 million relating to its direct holdings and $27 million in other energy investments for the six months to December 31, but managing director Ryan Stokes said the company was “reasonably positioned in each of our assets”, and he said because they had been acquired “judiciously”, including paying almost no money for Nexus, the company did not need to write down the value of the assets.
Stokes said the company’s energy business was well positioned to help boost gas supplies in the East Coast gas market following the start-up of gas sales into the Gladstone LNG plants.
“In the Browse Basin, we made a discovery at Auriga in August, which is currently under assessment, and we successfully completed the Crux plug and abandonment work significantly below budget,” he said.
“Our focus for the remainder of 2016 will be on further assessment of Crux development concepts and the options for this gas resource.”
A new development concept for the Crux gas-condensate field with Shell is likely to be selected later this year, and could involve using the Prelude FLNG, or some sort of standalone development, possibly with the future tie-in of the Auriga.
The tale in the US will be familiar to many: drilling at Bivins Ranch has been scaled back with a focus on preserving capital in the current environment with the expectation that activity can be ramped up quickly on signs of a stronger and more stable oil price – just like everyone else.
Seven bought the stake in June 2014 from Florida-based NextEra Energy, a minority partner in the Texas panhandle site, for $US63.7 million, prompting operator Apache Energy to file a lawsuit claiming NextEra breached its contract and violated its right of first offer for a 11.2% stake in the Bivins Ranch project at below market value.
SGH has participated in more than a dozen horizontal wells to date at Bivins Ranch, which is operated by Apache Corporation (73%), which since 2012 has been reducing costs in exploration and development of the emerging Canyon Wash interval in the Whittenburg Basin.
Likewise, Stokes said the company was looking to the medium term gas market potential in Eastern Australia, and the role that can be played by the Cooper Basin.
SGH said the infrastructure connected to all markets on the East Coast, and the potential for consolidation given the strong balance sheet of Beach and Drillsearch remained sound reasons for investing.
“We are very pleased to see the transaction complete and the ability for the combined group to deliver on their synergies. We are confident that the cost savings target of $20 million over two years can be improved upon,” Stokes said.
“In the current environment, the merged company should achieve cost reductions on par with others in the sector. The other strength is the balance sheet of the combined group and the ability to take advantage of the depressed prices to create a leading mid-cap energy company positioned to profit in the current market and as the oil price improves.”
SGH believes that greater value can be extracted in a shorter time frame, particularly given that Beach operates more than 90% of Drillsearch’s production.
In terms of the troubled Longtom gas project in Victoria’s offshore Gippsland Basin, work continues for the proposed Gemfish-1 exploration well.
Stokes said long-lead items have been delivered to Victoria and Tasmania for storage, and the company was seeing a reduction in drilling and subsea costs, which could play into plans to resume Longtom production in January 2018.
