Reinvigorated by its $590 million acquisition of Delhi Petroleum last year, Beach’s current program of asset integration and development sees it poised to unleash an exploration campaign unparalleled in the company’s 45-year history.

The quest for new company-making projects is underwritten by an annual $50 million exploration budget, over 100 million barrels of oil equivalent (MMboe) of proven and probable (2P) reserves (expected to rise quickly to nearly 140MMboe), and 2006-07 production of over 10MMboe. Production for the first half of the current financial year was 4.7MMboe.

“A reserves to production ratio of 10 years will provide solid cash flow – rising quickly to $500 million a year, subject to oil price – for the next decade, allowing us to keep good people and get them out looking for new opportunities, particularly those with high-impact exploration potential,” Beach managing director Reg Nelson said.

Some potential big targets have already been identified off New Zealand, Victoria and Western Australia.

In the six years to 2006, Beach drilled 70 exploration and appraisal wells, with a roughly 50% commercial success rate. In the current financial year, it plans to participate in drilling over 100 conventional oil and gas wells, including many small, shallow wells in the Santos-operated Cooper Oil Project, and to complete initial development of about 75 coal seam methane wells at Tipton West in Queensland.

The acquisition of Delhi has transformed Beach and delivered it an average 21% interest in over 200 oil and gas fields and associated infrastructure covering large parts of the Cooper and Eromanga basins in Queensland and South Australia.

These include the Santos-operated Cooper Basin joint ventures (Beach 50%), which include reserves of 300MMboe (65MMboe to Beach via the Delhi acquisition), with Santos predicting production to treble to 30,000bopd by 2010.

Add to the mix the Anzon-operated Basker-Manta-Gummy (BMG) oil, gas and condensate project in Bass Strait; the Tipton West CSM project; and a significant stake in Petratherm’s advanced Paralana hot rock energy project in South Australia.

Nelson says Beach’s strategy is to build strength through expansion and diversity, providing stable revenue and protection against volatility in commodity prices.

Nelson says the BMG project (Beach 50%), off the Victorian coast, will be a major contributor to Beach’s future reserves and production growth.

BMG’s oil component came onstream in mid-December last year. Peak daily production to date has been 18,500bopd from four wells. Beach expects average daily production rates will stabilise between 15,000–20,000bopd, pending further field developments, starting later in 2007.

The gas is being re-injected back into the reservoir for storage. Under a sales contract with Alinta, gas delivery is due to start in 2009.

The recently expanded BMG project has current 2P reserves of just under 40 million barrels of oil (MMbbl), a gas-condensate resource of 379PJ) and 19MMbbl of condensate.

The drilling of a further three wells, costing up to $300 million to unlock 15MMbbl of 2P reserves, is scheduled to begin with Basker-6 late this year, to come online in early 2008.

Nelson has great faith in the Cooper Basin, where Beach bought the small Kenmore/Bodalla oil fields in southwest Queensland from Origin and Santos back in 2002.

“We see real upside value in the Cooper Oil Program [Beach has an average 25%] because it emulates what we set out to do very successfully in Kenmore/Bodalla,” he said.

“The high success rates from drilling so far in the Cooper Oil Project supports our view that the Cooper retains significant upside potential for Beach.”

Nelson says it has been estimated there were 700MMbbl of oil originally in place in the Cooper, of which only 200MMbbl have been recovered to date.

“We have no doubt that a lot more can be recovered,” he said.

In the coming months, the focus of the Cooper program will be the Naccowlah Block (Beach 38.5%) in southwest Queensland, home of the Jackson oil field, where a drilling campaign of more than 20 wells will be undertaken.

During 2007, Beach expects to participate in drilling up to 130 wells associated with the Cooper Oil Program aimed at increasing the recovery factor by up to 10% for an additional 70MMbbl gross.

A 25-well program in the December quarter met with a 68% success rate and resulted on one new oil field discovery, five successful oil appraisal wells and five successful oil development wells. Low risk, high success rate.

The Arrow Energy-operated Tipton West CSM project in Queensland (Beach 40%) was commissioned in December last year and went into commercial production the following month at 3.5 million cubic feet a day ahead of a targeted 30 terrajoules per day.

The project has 2P reserves of 174PJ, but wider proven, probable and possible (3P) reserves of 2300PJ close to markets, infrastructure and existing pipelines.

It has an initial gas sales agreement with the nearby Braemar power station project for up to 10PJ per year, with good potential to expand the producing area into adjacent blocks.

Another new growth opportunity is Beach’s buy into a new geothermal or “hot rock” energy joint venture with Petratherm to develop its promising Paralana energy project, 11km from the Beverley uranium mine and 130km east of Leigh Creek in South Australia.

This could see Paralana become Australia’s first commercial-scale geothermal electricity supplier by the end of 2009, with potential to expand to baseload supply.

The $20 million third stage development will involve two new wells close to the Paralana test well, thermal resource definition, circulation tests and the establishment of an underground heat exchanger.

Beach’s participation to the end of this stage will cost $10 million for 21%, with another $20 million towards the cost of establishing a 7.5MW electricity generation plant at Paralana taking its stake to 36%.

Nelson says the farm-in is based on Beach’s view that future growth in the petroleum sector is likely to increasingly require a portfolio, which includes both conventional and alternative energy projects.

Petratherm has focused Paralana on initially providing electricity to the local market – the growing needs of the Beverley mine from around 7.5MW to 30MW – and then expanding to around 520MW for the national electricity market.

Pursuing more traditional energy resources, Beach is targeting high-reward exploration prospects in WA, Victorian and New Zealand waters.

In WA’s Carnarvon Basin, Beach (10%) will participate in drilling Hurricane-2 in the current quarter chasing a 40-50MMbbl of oil leg of the Santos-operated Hurricane gas discovery.

In Victoria, drilling this year of the offshore Otway Basin (50%) will target more than 1Tcf of gas, and a Canterbury Basin well (20%) off NZ’s South Island, will target four to five times that size.

First published in the April issue of ResourceStocks