BPT 2.22% $1.32 beach energy limited

beach board questions for upcoming agm

  1. 2,293 Posts.
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    As I have said before, this is a broken stock not a broken company.

    Fundamentals appear to be still good with BPT.

    As always, there is an annoying disconnect between the BPT share price and its underlying fundamentals. Currently, the share price is at a significant discount to analyst valuations.

    I have put together my list of questions for the Beach Board for the upcoming AGM (at the end of this month). While I will be attending in person, I am sending this written list to each Board member this Wednesday to allow them time to review my questions in advance of the meeting.

    Anyone with constructive comments please let me know ASAP.

    1. Cash is King

    Cash is king in this irrational environment.

    BPT does have cash on the balance sheet – but it also has a lot of fixed expenditure commitments going forward.

    The BPT Board and Management must be able to demonstrate they have costs under control. In turn, discretionary expenditures should be looked at closely.

    As part of this above, has the Board given any thought to instigating a strategic cost review (similar to that which Oil Search undertook during the year); along with communication to the market of the review results? There should be no sacred “cost cows" during the process (such as a reduction or cancellation of the dividend).

    2. Debt is Evil (in this market and at this time)

    We can assume that the debt markets are going to be in turmoil for quite some time.

    Bank debt of approximately $215 million (as at 30 September 2008) needs to be repaid in less than 2 years (and or refinanced/renegotiated).

    What is the Board’s forward plan to pay down this debt in a timely fashion or to refinance it? Could the Board inform shareholders of this forward plan at the meeting?

    Until this plan is communicated, it is my opinion that a “risk” discount will be built into the share price.

    3. Overseas Expansion

    As has been pointed out in the past, any expenditure in overseas countries (such as New Zealand, Spain, Egypt etc) will be quarantined for tax relief until BPT earns New Zealand, Spanish or Egyptian revenue respectively.

    This effectively makes expenditure overseas to be around 30% more expensive compared with Australian exploration expenditure.

    If BPT does not find any commercial hydrocarbons, then overseas expenditures written off comes through the income statement which will also have an adverse impact on the effective tax rate and EPS (compared to Australian based expenditures).

    How much overseas exploration/appraisal expenditure has been incurred to date for which a tax deduction is still outstanding?

    In addition, could the Board provide better transparency (via the Segment Reporting note) in the financial statements of the amount of money spent in each of the overseas countries.

    4. CSM Asset Value

    The fair value of the CSM asset is clearly not reflected in the BPT share price.

    Given CSM assets seem to be “flavour” of the month, what is the Board doing to exploit the value of this valuable asset?

    Has the Board been approached by potential buyers (including private equity) for its CSM assets?

    5. Close Out of Oil Price Hedges

    In hindsight, I think the BPT Board and Management should have been more disciplined and cut the oil price hedge losses a lot earlier.

    Could the Board candidly communicate with us on this issue, specifically what went wrong internally (including the external advice sought and received) with regards buying back the hedge-book at nearly the peak in oil prices (about 3 days from the peak).

    What were the “sound commercial reasons” alluded to in the 2008 Annual Report for closing out the oil price hedges at that particular time?

    6. 2008 Bonus Options with an Exercise Price of $2.00

    Could the Board elaborate to shareholders how the $2.00 exercise price was determined?

    7. Investor Relations In-House

    A criticism in the past (by Intersuisse) has been that BPT has been poor at investor relations.

    BPT Management has to demonstrate it has all things well in hand and communicate such facts (and continue to communicate, communicate and communicate on a regular basis) to the market.

    Why doesn’t the Board bring investor relations in-house, employing a full-time employee to manage this process with shareholders, brokers, analysts, media etc?

    An added benefit of this process is that it will add more brokers/investment houses covering the stock (Per Commsec: AWE has 12 contributing analysts covering them; OSH 9; ROC 9; compared with Beach's 8). In theory, more coverage, more recommendations, more interest, more shareholders, more demand for the stock.

    In addition, having an in-house investor relations person may stop the continual reissue of releases to the ASX involving errors (in numbers and/or text) and/or omissions. From my viewpoint, Beach loses credibility with the market and its shareholders each time it happens. Lack of credibility must also have an adverse impact on the share price.

    To avoid further instances, for each ASX release, the in-house investor relations person could undertake a QA/QC of each such document before it is released to ASX?

    There should be zero tolerance for errors/omissions on all such releases.

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