Dropping legal claim: Diamond seals new rig deal off Australia with Beach

Rig owner Diamond Offshore has agreed to drop legal proceedings against Australia’s Beach Energy after the pair agreed a new rig contract.

Beach confirmed Monday it had signed a new rig contract with Diamond for the semi-submersible Ocean Onyx for its upcoming drilling programme in Victoria’s Otway basin, off south-east Australia.

The contract covers six firm wells and carries three options, with operations scheduled to kick off between December this year and March next year.

The first well in the campaign will be the Artisan-1 exploration well, in VIC/P43, a four-way trap with direct hydrocarbon indicators suggesting a low risk prospect which lies adjacent to existing infrastructure that could allow for quick commercialisation if a find is made.

The remaining well commitments will see the rig used to drill a series of development wells in the Geographe and Thylacine gas fields.

Dropping legal claim

Beach said Monday that, as part of the new rig deal, it had signed a settlement agreement with Diamond to dismiss all current legal proceedings surrounding the cancellation of the previous deal, subject to approval by the Bankruptcy Court.

“We are pleased to constructively engage with Diamond and sign a new drilling agreement, in what has been a difficult time for the industry. It means Beach can move forward with its plans to develop additional natural gas supplies for the east coast gas market,” Beach managing director Matt Kay said.

“We look forward to working closely with Diamond over the coming weeks to prepare for the start-up of the offshore drilling campaign.”

Beach posts profit

The announcement of the rig contract came as Beach also revealed Monday that it had managed to book a net profit in the recent Australian financial year.

Beach generated a net profit of A$501 million for the 12 months to 30 June, down from the A$577 million profit booked in the prior financial year.

Underlying profit was also down, from A$560 million to A$461 million, as revenues shrank 14.3%, year-on-year, to A$1.65 billion.

Hurting Beach’s results was the global Covid-19 pandemic, which resulted in a decline in demand and commodity prices, with Beach noting revenue in the second half of the financial year was 17% below that generated in the first half.

Helping ease the impact of the collapse in prices was output being 2% higher than proforma 2019 financial year production, at 26.7 million barrels of oil equivalent.

“FY20 was a year in which we made new gas discoveries in the Perth and Otway basins, we commissioned a new gas plant in South Australia and connected new supply to our Otway Gas Plant in Victoria, the first new supply to that plant in more than four years,” Kay said.

“Western Flank oil again hit new heights, producing as much as 23,000 barrels per day in the second half of FY20, and, significantly, Beach achieved an organic 2P reserves replacement above 200% for the third consecutive year.

“Our facilities performed at 98% reliability, a testament to the performance and the resilience of our workforce in FY20.”

Slowing down but setting targets

However, Kay added that Beach would be slowing down its pace and looking to drive down operating costs over the 2021 financial year in response to the current low oil price environment and continued Covid-19 health crisis.

Despite this, the company is still targeting a rise in output over the next five years, with production anticipated to hit 37 million - 43 million boe but the 2025 financial year.

“Beach has set itself up to be in a position of strength during this downturn. We expect to invest in our highmargin and diverse portfolio and target creating over A$2 billion of free cash flow over the next 5 years,” Kay added.

“Our current projections have Beach remaining in a net cash position through our peak investment years at around US$40 per barrel Brent. This means Beach has the ability to pursue growth despite the current macro challenges.”

For the 2021 financial year, Beach anticipates output to total between 26 million and 28.5 million boe, with capital expenditure of between A$650 million and A$750 million.