Thank you for standing by and welcome to the Beach Energy Limited Half Year Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Derek Piper, Head of Investor Relations. Please go ahead.
Thank you. Good morning all and welcome to the Beach Energy Results webcast for the half year period ending 31 December 2023. My name's Derek Piper, Head of Investor Relations, and here with me is Brett Woods, our Managing Director and CEO, and Anne-Marie Barbaro, our Chief Financial Officer. We released a presentation this morning which summarized our results and we'll talk through that today. Brett will provide a highlight and/or an overview of the highlights and Anne-Marie will touch on the financials. We'll then open the lines for Q&A and we would ask if you could keep your questions to one or two each, say. That would be appreciated. We'll try to move through those fairly promptly. So on that note, I'll hand to Brett for an overview of the results.
Thanks, Derek. Hello and welcome to Beach Energy's FY 2024 Half Year Results webcast. My name is Brett Woods and I am the Managing Director and Chief Executive Officer at Beach. Joining me today is Anne-Marie, our Chief Financial Officer, to take us through the financials. Let me please start by saying it is a privilege to have been appointed to the role and I've certainly started at an exciting time for Beach. We're on the cusp of completing a suite of projects that delivers material volumes of new gas supply to domestic and global markets. This near-term growth outlook, our sound financial position, and the prospects for transformational growth are what attracted me to Beach. The past few months while I've been transitioning, I've thought long about my key areas of focus.
So in short, my key priorities are firstly, delivery of Waitsia, Enterprise, Thylacine West production as per the schedule and capital guidance. Reducing our operating costs of the existing business. I am concluding a comprehensive review of the organization and its cost base, specifically with a target to deliver disciplined, high-performance organization. Critically, we need an integrity and safety-focused organization who chases every molecule at the lowest possible cost. Margin growth is also a key mindset that I wish to unlock within Beach. Effectively enabling Beach to be in the strongest position to take advantage of its unique financial and technical capability. This can unlock further organic opportunities and those large opportunities when the right ones are available. I want to maintain our strong balance sheet position. And finally, I want to deliver disciplined capital allocation with the focus of increasing our shareholder returns.
Just a quick thank you to Bruce Clement for stepping up in the interim period while I've been on gardening leave. Bruce has overseen much progress across the business and has greatly assisted me with my transition. For today's webcast, I will provide an overview of the results and recent activities and an outlook for the remainder of this financial year. Anne-Marie will update on the financial results and we will finish the webcast with a Q&A. Slide two sets out the compliance statement which I'll leave you to read at your leisure. Beach is getting closer to completing this period of capital growth expenditure with new production well at Kupe, New Zealand, good progress at Enterprise and Waitsia. Our asset portfolio also provides several organic growth opportunities beyond the current drilling campaigns and performance enhancement initiatives. We're undertaking development studies on the Artisan and La Bella in the Otway Basin.
As we undertake these activities, we do so with a strict focus on sustainability and executing projects that are value creative in order to support the energy transition. We have clear emissions intensity reduction targets and are progressing several projects including the nationally significant Moomba CCS Project. Beach's existing asset portfolio and opportunity set, our scale, position in the market, and our financial strengths all position us well to pursue inorganic growth aligned with our core competencies. We have commenced a comprehensive strategy review to align our organization and the market on our objectives, an approach to growing our capital returns to shareholders, and discipline growth. And I remain committed to our capital management framework of returning 40%-50% of pre-growth free cash flow dividend payment. We look forward to communicating outcomes in the coming months.
Turning to slide four which details our health, safety, and environmental outcomes which are very mixed. Our personal safety performance reflects a disappointing result for an organization that I know is much better than these numbers show. We have kicked off a major safety intervention particularly with regard to our contractors in an attempt to reverse this trend. However, on the positive, we have had excellent outcomes with our environmental performance with a material reduction in hydrocarbon spills with a capacity of only 0.6 barrels being leaked and no significant Tier 1 or Tier 2 spills. Plant process safety performance was also strong with no incidents recorded. Again, with regard to personal safety, we're taking steps to investigate the cause of this and I'll be leading our Stand Together for Safety campaign across all our operations to turn this performance around.
There is a strong safety culture at Beach so we must improve in this area. Slide five sets out emissions reduction progress. A key element of our decarbonization plans is the nationally significant Moomba CCS Project. Construction progress continued over the past 6 months as the joint venture targets first CO2 injection in mid-calendar year 2024. Once operational, Moomba CCS will abate roughly one-third of Beach's equity emissions. In our operator business, we progressed several early stage projects. Beach has previously reported on the potential for CCS in the Otway Basin. Having completed the assess phase of this project, this project does not currently meet our investment hurdles and I am committed to maintaining discipline in our capital deployment. As such, we'll be putting this on hold for the time being. Electrification of our assets in the Otway Basin continues as does the flare reduction project at Beharra Springs.
Now turning to slide six. Anne-Marie will talk through our financials in some detail shortly. So to summarise our results for the first half, we're impacted by lower production and a capital-intensive period as our major projects progressed. Production was down 11% to 8.8 million barrels of oil equivalent primarily due to lower customer nominations in the Otway Basin. Despite lower production, sale revenue was up 16% thanks to our first Waitsia LNG cargo and a one-off Waitsia condensate cargo. We recognise revenue of AUD 162 million for these cargos. Underlying EBITDA was in line with prior corresponding period and our financial position remains robust. Accordingly, the board declare a fully franked interim dividend of AUD 0.02 per share. In January, Beach announced a AUD 721 million non-cash impairment of our Cooper Basin producing assets and exploration carrying values across the Western Flank, South Australian Otway Basin, and Bonaparte Basin.
Anne-Marie will break this down in more detail shortly. As you can see on slide seven, it was another period of key project milestones both in the field and on the commercial front. I will touch on some of these in more detail a bit later. For the time being, it is worth calling out just a few. Firstly, the team in New Zealand have drilled, completed, and connected the Kupe South 9 development well. The incident-free campaign was delivered in less than 90 days on schedule and on budget. The well is now cleaning up but producing at lower rates than expected. We're assessing the cause of this including whether something may be restricting its flow. In the Otway Basin, the Enterprise development is in good shape as we continue to target first gas in Q4 financial year 2024.
During the first half, our agreement with local native titleholders was concluded and we also completed tying up the pipeline to the Otway Gas Plant. We now await final regulatory approvals to complete well site construction activities and commence the flowing of gas. In the Perth Basin, our operator drilling campaign delivered gas discoveries at Trigg Northwest and Tarantula Deep and the development well at Beharra Springs Deep- 2. We will soon be spudding the Redback Deep - gas exploration well, testing the Kingia Reservoir immediately east of the Kingia Gas Reservoir in the Beharra Springs Deep field. Still on drilling and in the Western Flank, we have completed the oil exploration and appraisal campaign for financial year 2024. But the success rates were well short of historical averages. I intend to place a hold on exploration drilling in the Western Flank so that we can refresh the drilling inventory.
We will, however, remain focused on development and appraisal drilling. I remain confident that there is further exploration potential in the Western Flank to pursue in line with our approach to disciplined capital deployment. On the commercial front, key agreements were struck during the half which have materially enhanced the value of our assets. We were particularly pleased to conclude negotiations with Origin for the Otway Basin price review and a new agreement for the sale of Enterprise gas. Our Otway Basin agreements now provide greater certainty for increasing production and higher prices in calendar year 2024 and beyond. These agreements were fantastic outcomes for Beach. So let me just touch on them a little bit more detail now. So looking at slide 8 and the pleasing commercial outcomes we have recently achieved, production from Otway over the past year has been significantly constrained.
Beach has said many times the legacy Origin Otway contracts and repricing are complex. The GSAs gave Origin significant flexibility. As we moved into calendar year 2024, this flexibility has been reduced and take or pay levels are more than 50% higher than calendar year 2023. When considering this greater than 50% increase, it's important to note that nominations in calendar year 2023 did exceed minimum take or pay levels. We now have greater confidence in guiding towards higher volumes and revenues in calendar 2024, namely from the higher take or pay I mentioned, signing the Enterprise Gas sale agreement which includes a minimum take or pay volume and the ability to sell surplus Enterprise volumes on a day-ahead basis. And the new volumes expected online this year including Enterprise in Q4 financial year 2024 and the Thylacine West development wells in the second half of this calendar year.
We have already seen offtake start to increase in 2024. Our Otway Basin acreage and infrastructure are valuable assets which we expect will become more evident as 2024 progresses. Turning to slide nine and an update on the Waitsia Stage 2 project. The first Waitsia LNG cargo and the one-off Waitsia condensate cargo were clear highlights from the half. Our strategy to mitigate past challenges by storing surplus gas from the Xyris Plant allowed us to fill an early LNG cargo and benefit from strong market prices. The image on this slide shows loading of the cargo, the first in Beach's history, very important milestone for us. On my first Friday with Beach just last week, I attended an executive meeting with Mitsui, Webuild, Clough and the lead project and operations staff of the Waitsia project.
Within that meeting, Clough and Webuild reconfirmed their commitment to the RFSU and gas export dates. Through what I observed as an acceleration of some of their critical path items such as engineering sign-offs and compressed commissioning activity, I can support that the project timelines are still in line with Beach's market guidance of Waitsia being online in mid-calendar year 2024. Mitsui and Beach are very aligned to seeing that both dates and capital hold firm as we'll quickly move into closing out the construction and progress commissioning activities. In terms of risks of these dates, with elements like engineering closeouts and commissioning, Clough took us through a range of mitigations and again this gave me confidence to maintain our timing and capital guidance. In the Perth Basin, we've also been keeping busy with our operator drilling campaign.
The program has so far delivered successful appraisal of the Beharra Springs Deep field and gas discoveries at Tarantula Deep and Trigg Northwest. Beharra Springs Deep -2 confirmed gas within the Kingia sandstone in the southern part of the Beharra Springs Deep field. The primary purpose of the well was to maintain plateau production at the Beharra Springs Gas Plant, the delivery of gas into the domestic market. The Tarantula Deep discovery came in in line with expectations and can be developed together with the Beharra Springs Deep field. The discovery is also encouraging for further near-field exploration opportunities. At Trigg Northwest, we plan to flow test that discovery in Q4 financial year 2024 with the aim of providing information on productivity and connectivity of the reservoir. Results will inform us for the next steps for further appraisal, exploration, and ultimately development of this part of our acreage.
Turning to slide 10 and a quick reminder that Beach sells its products into key energy markets which have very strong fundamentals. This diverse market exposure is a key element of our value proposition. Beach supplies gas to the East Coast, West Coast, and New Zealand markets and oil, liquids, and LNG to global markets. Each market continues to display its attractive fundamentals with tightening supply and demand outlooks as summarized on the slide. On the East Coast, our recent major investment in the offshore Otway Basin and Enterprise will yield a much-needed uplift in gas supply volumes for the market and at a time when increasing tightness in gas supply is forecast. Similarly, on the West Coast, Beach currently has two gas plants delivering into the domestic market at Xyris and Beharra Springs.
On completion of the Waitsia Gas Plant, Beach will also be delivering into the global LNG market. Before I hand over to Anne-Marie, a quick look at our priorities for the second half of FY 2024. In Perth, as we progress construction of the Waitsia Gas Plant, we'll also be taking a production testing of Gynatrix and Trigg Northwest to understand productivity of these discoveries and support development plans. In the Otway Basin, we are focused on a key number of priorities. Firstly, completing the Enterprise development as we target first gas before the end of this financial year. Secondly, we're progressing the manufacture and installation of the replacement flowlines for the final two wells of the offshore Otway program, Thylacine West 1 and 2, which we are targeting to be online in H1 FY 2025.
And finally, we continue to progress early stage planning for developing the Artisan and La Bella discoveries. Finally, as I mentioned earlier, we're currently undertaking a detailed strategy review focused on building a disciplined, low-cost organization. We look forward to sharing the outcomes of the review in the coming months. On that note, I'll hand over to Anne-Marie for an update on our first half financial performance.
Thank you, Brett. Good morning all. Thank you again for joining us today. I'll begin with slide 13 which shows our headline financial metrics. As Brett mentioned, our first half results were influenced by lower production largely due to customer nominations and planned gas plant downtime. Despite lower production, the Waitsia LNG and condensate cargoes contributed a 4% increase in sales volumes to 11 million barrels of oil equivalent and a 16% increase in revenue to AUD 941 million.
The Waitsia cargoes saw our product mix shift more towards liquids which accounted for 67% of first half sales revenue with gas accounting for 33%. For reference, in the prior corresponding period, the split was 59% liquids and 41% gas. Underlying EBITDA of AUD 488 million was in line with the prior corresponding period. Higher revenue for the half was offset by higher cost of sales with an increase in third-party purchases and inventory movements largely driven by the Waitsia LNG and condensate cargoes and higher operating costs in the Cooper Basin joint venture. Underlying NPAT was down 10% to AUD 173 million due to higher DD&A from the changing production mix and higher Cooper Basin JV costs as well as adverse FX movements.
Statutory NPAT was impacted by the impairment charge we announced during January, the charge of AUD 721 million before tax or AUD 505 million after tax related to the following carrying values. In the Cooper Basin, we recognized an AUD 468 million impairment charge on our producing assets largely driven by a forecast increase in Cooper Basin JV operating and capital costs. For our exploration assets, an AUD 178 million impairment charge was recognized to impair the carrying value for Western Flank exploration and an AUD 68 million impairment charge recognized for the SA Otway exploration carrying values. An AUD 7 million impairment charge was also recognized in relation to our Bonaparte exploration carrying values. It's important to note that the impairment charges are non-cash and do not impact our underlying earnings which I'll now touch on.
Slide 14 shows drivers of the 10% decline in underlying NPAT from the first half of FY 2023 to the first half of FY 2024. I've already touched on a number of these but to summarize, revenue was higher due to the Waitsia cargoes although this was partially offset by lower production due to lower customer nominations in Otway. Cash costs were higher due to higher third-party purchases associated with the Waitsia cargoes and higher Cooper Basin JV operating costs. Inventory movements were higher again due to the Waitsia cargoes as well as timing of other liquids liftings. We saw higher DD&A from a changing production mix and higher Cooper Basin JV costs and adverse FX movements were experienced. Turning to slide 15 which outlines movement in cash which resulted in closing cash reserves of AUD 226 million.
During the period, net operating cash flow of AUD 350 million was generated and debt drawdowns of AUD 315 million were made. These inflows funded a capital-intensive period with cash spend of AUD 603 million for the half. In FY 2024, capital spend is skewed towards the first half largely due to drilling across the Western Flank and Cooper which were conducted in the first half and elevated major project activities as we worked towards our first gas targets at Enterprise and Waitsia. On slide 16, you'll see that our balance sheet remains strong with AUD 446 million of available liquidity and net gearing of 12% at the end of the period. Our financial position allows us to maintain flexibility as we balance investment in growth with increasing dividends to shareholders. In recognition of this, the board has declared a AUD 0.02 interim dividend.
As we move towards a period of strengthened free cash flow in FY 2025 once our major growth projects in the Otway and Perth Basins come on stream, we have the capacity to pay higher dividends to shareholders in line with our capital management framework while retaining optionality for growth. On that note, I'll now hand back to Brett.
Thanks, Anne-Marie. We'll now have a quick look at the remainder of financial year 2024 and activity across our portfolio. Slide 18 sets out our FY 2024 full year guidance which reflects performance from the first half and expectations for the second. The guidance is presented in our recent quarterly report. For production, the top end of the range was reduced with full year guidance now 18-20 million barrels of oil equivalent which is largely the result of Otway customer nominations in the first half of FY 2024.
For capital expenditure, the bottom end was increased with full year guidance now AUD 900 million-AUD 1 billion as we deliver our key growth projects. A breakdown of production and capital expenditure by type and basin can be seen set out on the slide. Before we move to Q&A, a quick reminder of why we see a compelling outlook and value proposition for Beach. We're set apart from our peers. First, as we complete major projects this calendar year, you will see the long-awaited step change in production and cash flow which sets us up nicely for material growth in FY 2025 and beyond. Second, Beach has exposure to key markets with strong fundamentals which will continue for decades to come as the energy transition plays out. Third, our financial position is strong and we are committed to disciplined OpEx and capital deployment.
Fourth, the imminent step change in cash flows provides flexibility to balance sheet increase dividends for shareholders and in line with our capital management framework while retaining optionality for growth. Fifth, our existing portfolio of quality assets has several meaningful opportunities for organic growth. Lastly, we have emissions reduction projects underway which support our decarbonization and sustainability objectives being well advanced against our 2030 commitments. In closing, Beach is poised for a big year ahead for the rest of 2024 with new gas supply coming to market at Kupe, Enterprise, Waitsia, and Thylacine West. I'll now ask for the lines to be open for question and answer.
Thank you. If you do wish to ask a question, please register by pressing star then one on your phone. If you wish to cancel, you can do so by pressing star two. And if you are on a speakerphone, please pick up your handset before asking your question. Your first question comes from Tom Allen at UBS. Please go ahead.
Good morning all and congratulations, Brett, on your appointment and first set of results. Just regarding the strategy review focused on cost and capital discipline, as a new CEO, can you expand on your specific ideas for this review and where the cost out initiatives might come from? You mentioned in the presentation there's a hold on exploration drilling in the Western Flank but where else might savings come from?
Yeah. I think from my perspective, Beach needs to position itself as a low-cost operator and I dare to comment that we aren't that at the moment. We have an organization that was built up on the basis of a large project delivery and execution and we need to get ourselves leaner in those spaces as those project ends. But critically, we need to get into looking how we do things. It's the structural improvements that we need to build into the organization. We need to look at simplifying our systems and our processes to make sure that we can deliver things in a more nimble and timely manner. We're kind of getting to that position where I'd say we're doing a little bit too much business with ourselves.
So my focus will be on making sure the organization is fit and right size for what we need to do moving ahead, that our operator cost base is under control, that we work with our joint venture partners to be constructive in working with them on their cost base so that we can look at growing our margins and delivering more value to shareholders.
Thanks, Brett, for that color . That's fantastic to hear. Just second question if I may. With the big step change in free cash flow expected now inside of 12 months, what are your early thoughts around the potential uses of cash in regard to how the team are thinking about returning cash to shareholders compared to investing in new growth?
I'm absolutely remaining committed to our 40%-50% of pre-growth free cash flow dividend policy as the board announced over the previous years. I think that's important. It's a great value proposition for shareholders in Beach. One of the other great opportunities we have is we are uniquely positioned with a very strong balance sheet and sitting in that kind of between small-cap and major organization that we're well positioned to take advantage of any assets that may come free. My mission, though, isn't to kind of jump into something blindly. We'll only ever take a disciplined approach to execution and look for those assets that add the most value to our organization as they come available.
Thanks, Brett. That's helpful.
Thank you. Your next question comes from James Redfern at Bank of America. Please go ahead.
Hi, Brett. Congratulations on the role as well and thank you for your comments regarding your priorities for the company which is very, very useful. Two questions, please. First one is just on the Otway, just a housekeeping question just in terms of the take-or-pay volumes for calendar 2024 with Origin Energy from the Otway. Just wanted you to please confirm what that number might be, please.
Unfortunately, I can't give you that number. So what I've tried to do is de-risk the volumes a little bit through the statement. The take-or-pay levels have increased by effectively two times, 50%. And the real exposure that Beach has had in the Otway is having such a vast range between its take-or-pay levels and what the plant can deliver. So a significant increase in that take-or-pay reduces our or makes it much more clearer when we put production guidance out that we'll be able to hit those targets.
And then the additional benefit here is we've been able to achieve an excellent arrangement on the Enterprise gas that has, again, a solid foundation of take-or-pay and does give us exposure to the market with some ability to trade some spot as well. So with the growing take-or-pay out of the existing GSAs plus the additional take-or-pay out of Enterprise, it gives us a much more solid foundation of the proportion of gas in the Otway that we can deliver readily to the market and then still giving us excellent exposure to value through spot.
Great. Thanks, Brett. Second question is just relating to the Moomba CCS Project. First injection is due mid-calendar 2024. How quickly will it ramp up to nameplate capacity of 1.7 million tonnes? And just checking, did you say that would offset a third of Beach's equity-based emissions at full capacity? Thank you.
Yeah. Cheers, James. Yeah, that's right. The Moomba CCS Project gets us a long way to our 2030 targets and it reduces our equity emissions by 30% which is a fantastic single project to deliver that. Yeah. And as you mentioned, we are on track. The operator, Santos, obviously, is on track to deliver that project in the middle of the year. I haven't got specifics on the ramp-up timeline and I'm sure that will come to hand as we get closer to execution.
Okay. Thanks, Brett.
Thank you.
Thank you. Your next question comes from Adam Martin at E&P. Please go ahead.
Yeah. Good morning, Brett. Good morning, Anne-Marie. Just back on Waitsia, Brett. Well done on your role. But you talked there just about compressed commissioning activities. Can you just give us a bit more color on what you're talking about there, please?
Well, as we go into or as any project goes into the late stages of construction and commissioning, we have four banks of compressors. Over the last few years, there have been some supply chain challenges which the operator or the contractor is working very hard on. So I think for me, if I was to think of there was any timeline to be focused on, I feel quite confident about our mid-year gas export timeline. And then it's just we'll start with 1 compressor run and then we'll cycle to two compressors and three compressors and four compressors as we ongoing execute the ramp-up and commissioning of the project. That timeline is really depending on just how everything comes together at that time. So we're not speculating on that at the moment.
Webuild are working closely with Beach and the operator and Mitsui to make sure that that is the shortest possible timeframe to do it safely and sustainably.
Okay. Thank you. Just the second question, back on the strategy review cost out. I mean, you're obviously at Santos in that 2016 and 2019 period when that company but they got very good at drilling wells, basically lowered CAPEX considerably and also lowered OPEX. Is there any sort of learnings from that process in the way that you're tackling this strategy review? Thanks.
Absolutely. Yeah. I had the fortunate position of sitting over the top of the Cooper Basin during 2015, 2016, and 2017 and worked very closely with Kevin on which was a very effective cost out and efficiency program. One of the key learnings we got from that, it's not just about removing contractors and bringing them on next time you drill a well. It's really trying to focus on how structurally you do things different. So I often use this language which is structural cost out. So things that we can put in place that when we continue to execute, they don't come back. Operating more efficiency through our compressors, simplifying our operations, more remote operations where applicable, these types of things can really affect positively our costs.
And then similarly, I've got a very, very good relationship with Kevin and Santos and we're going to work very closely to make sure that we achieve our cost objectives over the next few years.
Okay. That's great. Well done.
Thank you. Your next question comes from Dale Koenders from Barrenjoey. Please go ahead. Good morning.
Again, congratulations on the role. Just hoping you could expand again on the strategic review underway. You've called out the Bass Basin cost and operational reset. What is this, Brett? And also when you think about operational efficiencies, what other assets are you challenging that operational efficiency review? Is this potentially Waitsia debottlenecking or what's involved?
Well, Waitsia debottleneck is already part of the plan. We're working with the operator on what that's going to look like. But for me, if I can break it into two sections, my primary focus at the moment is what I can control. What I can control is our costs. So we'll be looking through our whole Otway operator position, our Cooper Basin operator position primarily, and obviously our New Zealand operator position. And then working closely with our second tier which is influencing Mitsui and influencing the Santos joint venture.
We also have our own operations in WA which we're also actually really good on costs. I think there's parts of our organization that are very cost-focused but I want to kind of bring Beach back to its original pioneering spirit, its spirit of being able to do things efficiently and quickly and leanly and then be ready to grow and pounce when it's right. Another way to put it, Dale, is I want to earn the right to invest and I want our organization to be fit and ready to invest. And at the moment, I think we're a bit far from that. So my mission is to focus the organization, get it lean, get it fit, and really kind of emphasize that cost is a priority for us.
Sounds great. On that thought process, sustaining CapEx base for Beach has been quite high historically, potentially anything in that AUD 3 million-AUD 500 million per annum. Is that something also we'll focus?
Well, that's at the heart of it really, Dale. It's the sustaining just so everyone's clear, our exploration drilling in the Cooper Basin sits in sustaining. So the numbers you see at the moment for the FY 2024 includes the second half of last year's calendar. I'm getting confused with all the financial years and calendar years. But in the second half of last year, they executed the Waitsia program with all the exploration drilling. So we're not going to see that in the next part of this year. And the Cooper drilling also came in the second half of last year and we won't see that kind of expenditure in the first half of this year.
So my mission is to get that sustaining capital under control and at a level that supports making sure that we grow our margin across our business, doing it safely and sustainably.
Okay. Thanks. Sounds good.
Thank you. Your next question comes from Saul Kavonic from MST Marquee. Please go ahead.
Thank you, Brett. A couple of questions if I may and perhaps just a broad one. I think you're the first CEO of Beach with a very strong technical background essentially since Beach is the company it is today after the Lattice acquisition. I'm keen to get your sense on looking at subsurface and technicals in particular, what surprised you to the downside and the upside since you've got your feet under the desk over the last few weeks?
I think on the upside, probably the quality of the people. I walked into an organization only in the last two weeks and I've wandered around and I've met nearly everyone here in Adelaide and met most of the people in Perth. There's a lot of capability in this organization. I think that is exciting for me because to drive the outcomes that we need to deliver, it starts with having a high-performing, highly capable organization.
Then when we look at opportunities, I remember and you would remember this well, Saul, middle of last decade when we kind of broke apart the Cooper Basin and went after it again, we spent a bit of time getting our inventory right and then we had a fantastic era of drilling across the Cooper Basin. I believe in the Cooper Basin, nearly every time anyone puts a hole in the ground, we end up finding some form of hydrocarbon.
But what we've had is we've seen our success rates dwindle a little bit over the last 12 months and I think that's a function of a lack of inventory. So the reason I've pressed pause on exploration drilling in the Cooper Basin is to give a very capable subsurface team time to catch up with the drill bit and put their best foot forward in what is the next phase of exploration drilling across the Western Flank because those barrels deliver a lot of value for our organization. So they're very important barrels. So we need to get that right. And then if you look at, I'm quite amazed with the scale and this excess across the Perth Basin. For me, there's great exploration opportunities there for us. And I've got a great relationship with the folk at Mitsui.
So we're going to work even more closely than we have in the past to deliver value for our assets and value from the Perth Basin.
Are you confident that Waitsia is going to not slip towards the last quarter and is actually going to be able to deliver at full nameplate capacity of the new plant being built?
Yeah. A couple of bits in that. So from my meeting so far with which has been one and kind of a detailed review with the project team, they have all the elements lined up to be able to deliver as per the guidance which will get exporting gas in the middle of the year. And I think so I pushed back on that and said, "Well, what could go wrong? “What are the elements?” And then Clough and Webuild took me through a range of mitigations that they’re putting in place if anything can slip. So in terms of confidence, I do have confidence in our RFQ and our gas export dates. I think for me, the risk that I’d like to highlight is probably just the ramp-up time.
Is it going to be one month or two months or three months? I think because one of my challenges there is the North West Shelf have announced that they’re having a shutdown in August. So I’d love to get all the compressors all ramped up at full rates before that shutdown. But it may be that we only get one or two of them ramped up and executing. So for me, that's kind of one of the probably more important risks in the second half of this calendar year: what's the ramp-up going to look like? And then when the North West Shelf comes back online, how quickly can we get to full rates? In terms of the gas, we've got enough gas to deliver to full rates. We've got enough gas to fulfill our contracts. So I'm quite confident in where we're heading with Waitsia.
Great. I'm going to sneak a quick one in as well, a fast one. Is there any more LNG cargoes to be exported before official startup of the plant?
I think one of the great things that we have, and certainly from one of my observations, is we've got some real strength in marketing and trading. And because we've got two domestic gas trains in WA, we are positioning ourselves to take advantage of whatever opportunities come up. I'm not going to say whether we can or we can't. But as you know me, Saul, I'll look at every opportunity to generate some value for the organization. So we'll certainly be looking at things like that and driving as hard as we can.
Great. Thank you. That's all from me.
Thank you. Your next question comes from James Byrne at Citi. Please go ahead.
Good morning. Congratulations on the appointment, Brett. Look, I loved what you said earlier about earning the right to invest. But as I look at the portfolio, there's not a great deal of 2C. Listening to your answer to Tom earlier, it does sound like M&A is an important part of growth when you do feel like you've got the right to invest indeed. I'd contend though that you'd need quite a bit of acquisition to get to the kind of scale I think that an oil company needs to make it through the energy transition without destroying equity value. I don't think you're close to having that scale today. Feel free to push back on that.
But I'd actually think that a better approach is to take your skill set, really lean out the organization, spend a very limited amount of capital on the highest margin growth and excluding provisions, give the rest back to shareholders. Do you think that there's not merits to putting Beach into harvest mode given where the business is at today?
Well, they're part of our strategic reviews to look at all options. And one of them is obviously to think about opportunities such as that. I would argue that there is great opportunities coming out. And though you've seen recently that the Woodside transaction with Santos hasn't gone ahead, I expect that there's a lot of other clever thinking going on next door to figure out how else to liberate value. So I'm not in a rush to do anything else. I'm going to be very prudent. We've got a very strong return capital to shareholders philosophy within the organization. And we're going to line these things up and see what delivers the best value and do things that are creative, not erosive of value. So nothing's not on the table. I certainly look at every opportunity to deliver value.
Now, what I do have is a board and I believe a major shareholder that is very aligned to the vision that we're putting in place. That's a positive for me. I wouldn't have joined an organization such as Beach if I didn't think there was real value in the share price, real value in the assets that it currently holds, and a fantastic opportunity to try and grow value. That's what I'm all about.
Got it. Okay. How would you describe the M&A market here in Australia from a competition perspective? Because on the one hand, it's much more difficult for juniors to be able to finance acquisitions related to things like abandonment provisioning. At the other end of the spectrum, there may be less capital from offshore. That's not to say that there's no competition in M&A. I'd just love to hear your perspective.
Yeah. I think it reflects the unique position that Beach has. We sit between the miners and the majors. We have a strong balance sheet. What we are seeing is if you compare the cost of doing M&A transaction in Australia, it appears to be lower cost than, say, doing it in other parts of the world. So I think there's an opportunity there for us to take some of that value and run with it. So I don't I think you've seen in today's press, there are rumors of other players coming into the market which is even more exciting for me to get competitive on what opportunities there are available.
Got it. Okay. And that's all from me from a questions perspective. But can I just applaud you for your early decisiveness on capital allocation around Western Flank exploration and pausing on our Waitsia? Yes. I mean, I think they're both demonstrating the discipline that we're all hoping for. So thanks, Brett. That's all from me.
Cheers, James.
Thank you. Your next question comes from Gordon Ramsay at RBC Capital Markets. Please go ahead.
Hi, Brett. And congratulations on your new role. Just very quickly on Kupe South 9, you've indicated that, well, it looks like it's initially disappointing. Has that got to do with reservoir quality? Have you kind of been able to narrow that down in terms of what the issues might be?
Yeah. No problem, Gordon. And good to speak to you again. Kupe South 9 came in effectively just slightly under prognosis in terms of its static subsurface properties. And we had initial rates that were really quite high and quite promising. But then we've seen what appears to be a bit of a restriction. So we're not sure if it's mechanical. We're not sure if it's a bit of dirt coming up out of the ground. It's unclear. So we're going to do some step rate testing across there to see if we can get that flow moving. I think there's a good chance that we'll be able to get this thing moving in the right direction. But what I want to do through my time here at Beach is just be very open and transparent and upfront with you.
And at the moment, it is erring on the disappointing side. But we're going to do everything we can to get that fixed.
Excellent. And just another one from me. What does a modest gas price increase mean in terms of the Lattice contract arbitration?
It means it's up but it's not significantly up. To be fair, the original GSAs were struck at a pretty good price at the time. We're pleased, given the lack of comparable contracts that have been executed across the market over the last years, to get where we got to. But the critical part for me, the critical part for our organization is significant growth in minimum take-or-pay. That gives us so much more surety about our base volumes. And it helps us to manage our costs as well. In the old way, if we can't get all our volumes away, we get a relatively higher cost base. So for me, there's multiple avenues to managing costs. And getting more out of the ground is certainly one of those good things.
But I'm also a value player. And getting access to that spot market, that tightening East Coast, is really important. So I'm going to look very, very hard on how to maximize our value from our Otway assets, whether it be for ongoing GSAs or even more positioning against the spot market.
Just related to that, can you comment on how much of Enterprise has been contracted in terms of what you expect the output to be from? I don't know if it's a two-year contract, but what do you expect the output to be from that field roughly, just on a percentage basis?
Unfortunately, I can't because a lot of that is commercial in confidence, Gordon.
Okay. Thank you.
Thank you.
Thank you. Your next question comes from Nik Burns at Jarden Australia. Please go ahead.
Hi, Brett and Anne-Marie. Let me join the others in congratulating you to the new role, Brett. Apologies. I have another question on M&A and just about your comments around first wanting to earn the right to invest. How long do you feel it could take to earn that right? And you mentioned there could be some opportunities with your friends at Santos next door. I'm just wondering if that means that M&A may not be on the radar for some time, say, this year. If you can maybe just add some more color on that. Thank you.
So to start with, I'm hoping that my intention will be at the full years to give a much clearer and firmer view on our strategy and our strategic direction. And I expect to be able to demonstrate some of the significant moves I've done on costs during that time. So I'm hoping that through action, that you'll be able to see that I'll be earning the right. I think we'll always be opportunistic. We've got a great balance sheet. Certainly, it's not my focus over the next three months to four months to go and bite something off. But we'll always be looking if something becomes something that is really exciting. But good M&A requires you to deliver the synergy value from that transaction.
So I want to have an organization that can actually unlock that synergy value as well as seek grow that accretive value part of the story. And I don't know if I have that today. And we're going to work closely as a leadership team to make sure that we have that and that we're positioned for that. So I think the message I want to give you, Nick, is I just want an organization that is disciplined and focused. And I think that will come with time, hopefully not too long. But that's just absolutely my mission over the next six months.
That's clear. Thanks, Brett. And maybe just touching, this might be a part of your last answer, but you've called out margin growth as a key focus for you. Just wondering what you mean by that exactly. I'm assuming it's more than just lower costs. Can you talk about is it pursuing higher margin growth opportunities organically or inorganically? And maybe give some examples of how you think you can achieve that. Thank you.
Yeah. So obviously, margin growth includes costs. So that's one element. The other part of it is potentially getting more exposed to the spot market in terms of our commercial positioning. I'm just weighing that up at the moment with the team on how we can. You've seen in every market we're operating in, you're seeing tightening. So I see a very exciting future in the East Coast gas market, very exciting future in the West Coast gas market as well as internationally. So then I'll be chasing assets that have the ability to execute at low cost, those things that we have advantage on. We have excellent onshore operating skills. I must say our onshore operating team are trending towards low cost.
We need to get that in all our offshore activities as well which I think aren't trending towards low cost. So there's real good shoots in this organization of capability. I can't understate the quality of the people that I've come across so far at Beach. What I want to do is get them focused. If we get that focus, we get those elements in cost, we get those more molecules to market in those higher growth markets as well as looking at some simplification of our asset base and maybe chasing some over time, some higher margin assets, that'll help our story and that'll help drive that kind of leverage position that I'm trying to achieve.
That's great. Thanks, Brett.
Thank you. Your next question comes from Sarah Kerr, Morgan Stanley. Please go ahead.
Thanks so much. Congratulations on your first result. I have two questions if I may. I was wondering if you could provide some color on any consultations Beach has had with the WA government just on the possible relaxing of the domestic gas export ban. And what could a possible lifting of the ban mean for Beach?
Yeah. I can't really comment on any discussions with the Western Australian government. We're in a great position that we have an ability to export gas from the Waitsia field to the LNG markets. But I just want to reflect to everyone that we have two other gas facilities there both serving the domestic gas market. I think if and maybe I'll be a bit over-ranging here, but WA's got a lot of wonderful assets. And some of those assets are getting underutilized like the North West Shelf. To deliver more gas to the domestic market, some of those smaller projects do need some exposure to export markets. So the irony here is giving more access to export will enable more domestic product. But I think we need to do that in a balanced way.
And certainly, as an organization, certainly me, I'm absolutely committed to servicing the domestic market as well as getting exposure to the export market. I think that makes practical sense.
Great. Thank you. And could I direct a question to Anne-Marie? How are you thinking about the debt capacity running at 12% versus the 15% target Beach has? And how can headroom increase once Beach has earned the right to invest?
Thanks, Sarah. So initially, when we put out our target gearing of 15%, we did talk about that being quite a modest gearing target to allow us the ability to stretch our legs further in the event that we did want to pursue any incremental growth. But currently, at 12% at the end of the half, obviously, that's sort of as we are getting to the pointy end of delivering our major projects. So we do expect that to sort of come off quite quickly once those new projects are on stream. But we sort of talk about that 15% being a target there but allowing us internally to stretch ourselves further if the right opportunity presents.
Great. Thank you so much. And congratulations on the result.
Thanks.
Thank you. Your next question comes from Henry Meyer at Goldman Sachs. Please go ahead.
Morning, all. And Brett, congratulations again on the appointment. Two questions if I can just quickly. First one on still could be early days, but your focus on exploration in the future strategy. You've pulled back some exploration in the Western Flank already. Interested if you could share some color on the flexibility you might have in exploration offshore Victoria. What's firm and committed potential timeline for offshore gas Victoria drilling? And a lot of talk on inorganic growth as well as some opportunities popped up. Could you defer some of that activity or is it more or less locked in in 2025?
Yeah. Start with the Otway. We're currently doing a bit of a refresh. A part of the strategic review is to really have a deep look at what we're going to drill in the Otway Basin. Things like Artisan and La Bella are discoveries. They're all close to tie-ins. So we're just going to go and test the market for costs at the moment and then run the economics to make sure that those projects conform to our new model of disciplined capital deployment. And that's really important to me. And then similarly, we do have a great partner in the Kupe. And we're looking at drilling a well with them later this year. Calendar year.
Well, actually, sorry. I think it might be next year. Excuse me. Next calendar year. But our challenge here is what are we going to do and what we're not? And I'm not going to do anything that is not value creative. So we're having a good refresh at that. And I'll give a much more colourful view on the Otway exploration development lens at the full year.
Great. Okay. Thanks, Brett. And a final quick one if I can. You mentioned you've got the other existing domestic gas plants in WA. Spot prices there and recontracted prices are shooting up or have been shooting up fairly significantly too. In the past, Beach has provided a bit of an indicative breakdown on contracted gas position on the East Coast. Can you talk to any notable change in your contracted gas position in WA going forward?
At this point in time, I can't. Sorry, Henry. Unfortunately, most of it is very commercially in confidence.
Got it. Okay.
What we have been doing, though, is we've been able to execute some great swaps to facilitate the LNG cargo. And we'll continue to look at every opportunity we can to deliver value through the market.
Thanks, Brett.
Thank you. Your next question comes from Scott Ashton at SHA Energy Consulting. Please go ahead.
Good morning, Brett. Congratulations. Just two questions. With a fresh set of eyes coming into the business, where do you see the low-hanging fruit in the sort of cost optimization for drilling, activity, say, Perth Basin versus Cooper? And then secondly, it's more of a technical question because it goes to optimizing the molecules, those deeper discoveries around Beharra Springs. That's high-pressure gas. How do you sort of think about optimizing the topside facilities which are sort of not designed to handle that high-pressure gas? Does that mean that the Beharra Springs facilities need some sort of optimization? Thanks.
Yeah. So I'll start with the cost question. Before I joined Beach, I heard much about, effectively, the cost profile that Beach were executing program at and the cost profile others were executing the program at. As part of my strategic review, I've been working with some of our partners to kind of really get a clear view on where we're competitive on cost and where we're not. So I'm going to break that down in a lot of detail and work with the team to get that right. And some of that is associated with corporate overhead.
So I've got to make sure that all parts of the business are right-sized to make sure we're aligned to the cost objective that I want to drive. In terms of the variable pressure across the Perth Basin, that comes with its own opportunities for us as well. Any modifications and dropping pressure down would be not hyper-complex. So I'm not particularly worried about it. But we'll continue to explore and chase opportunities in the Perth Basin because it's certainly a critical market for us in the west. And we do have a fantastic position and an excellent partner with Mitsui who are aligned with us on investing across that basin.
That's great. Thank you very much, Brett. Cheers.
Thank you. That does conclude our question-and-answer session and our conference for today. Thank you all for participating. You may now disconnect your lines. Thank you.