Beach Energy : FY17 Guidance Capital Expenditure and Production Volumes

Ref. #049/16

ASX Ltd

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FY17 GUIDANCE - CAPITAL EXPENDITURE AND PRODUCTION VOLUMES

• Capital expenditure of $180 - 200 million, with a strict focus on value accretive investment
  • Active program with greater discretionary allocation to Western Flank exploration
  • Reduced capital allocation to the SACB and SWQ joint ventures
• Production volumes of 9.7 - 10.3 MMboe, expected to exceed FY16 levels

Beach Energy Ltd (ASX: BPT, "Beach") provides the following guidance in relation to FY17 capital expenditure and production volumes. Guidance excludes potential impacts from weather related events, unforeseen operational delays, exploration success and corporate activity (acquisitions, divestments, farm‐ins or farm‐outs). Production guidance is net of fuel.

Capital expenditure

FY17 capital expenditure is expected to be within the range of $180 - 200 million. The program reflects Beach's strict focus on value accretive capital allocation and is considered appropriately sized for the current oil price environment.

Approximately 55% of the FY17 program is discretionary expenditure. These projects have been high‐graded to maximise returns and have satisfied Beach's capital allocation requirements. Accordingly, these discretionary projects:

• Present the most attractive expected return on capital profiles within Beach's current opportunity set;

• Satisfy strict financial metrics, including but not limited to: net present value (NPV), risk weighted NPV, payback period and capital efficiency measures;

• Provide near‐term line of sight to production and financial return;

• Balance the need for both development and replacement of 2P reserves; and

• May be selectively deferred if oil prices materially decline.

The remaining 45% of the FY17 program is stay‐in‐business and committed expenditure (Fixed Expenditure). This is required expenditure on existing assets for purposes such as maintenance, regulatory commitments and contractual obligations.

Components of the FY17 capital expenditure program are summarised below.

100 -1 5

80 - 85

FY16A FY17E

Of the discretionary component, approximately two thirds is allocated to Beach's high yielding Western Flank oil and gas assets, with the remainder allocated to the SACB and SWQ joint ventures. Key objectives underlying discretionary expenditure allocations are summarised below.1

Western Flank Oil

34% 6%

Operated Non‐operated

Approximately 40% of discretionary expenditure is allocated to Beach's Western Flank oil permits. An active exploration program and a broad suite of development activities are planned to balance the need for both replacement and development of 2P reserves.

Exploration activities will target reserve additions through near‐field drilling, with up to 12 exploration wells planned across Beach's operated and non‐operated permits. These wells will be located close to existing infrastructure, thus enabling timely connection and commencement of production in the event of exploration success. Exploration drilling will test extensions of existing reservoirs, as well as new play types such as the Birkhead and Patchawarra formations in ex PEL 91. If successful, these new play types will provide significant opportunity for follow‐on drilling. Beach will also seek to replenish its seriatim of exploration prospects through the acquisition of approximately 300 km2 of 3D seismic, inversion of approximately 1,700 km2 of 3D seismic, and acquisition of approximately 200 km of 2D seismic.

1 Allocations are approximations and subject to change; certain projects require joint venture approval

Broad ranging development activities will be undertaken to mitigate natural field decline and accelerate production where appropriate. Activities include up to four development wells, expansion of the Bauer facility to 120,000 barrels of fluid per day (+60% / 45,000 barrels), additional artificial lift and various other initiatives.

Western Flank Gas

20% 5%

Operated Non‐operated

Approximately 25% of discretionary expenditure is allocated to Beach's Western Flank gas permits. The FY17 program is mainly focussed on reserve additions through exploration activities, and maintaining maximum production capacity from the Middleton compression project.

Exploration activities include up to three wells in ex PEL 106 which will test near‐field and step‐out extensions of the proven gas and gas‐liquids fairway. These wells will be located proximal to existing infrastructure, thus enabling timely connection and commencement of production in the event of exploration success. Acquisition of approximately 250 km2 of 3D seismic will be undertaken in the underexplored ex PEL 107 permit area to assess a possible southern extension of the ex PEL 106 fairway.

Development activities include the Middleton gas compression project which aims to maintain maximum production capacity, well connections and testing of prior year exploration wells.

SACB and SWQ Joint Ventures

35%

Non‐operated

Approximately 35% of discretionary expenditure is allocated to the SACB and SWQ joint ventures, and mainly relates to participation in selected gas drilling campaigns. Beach's primary objective in relation to FY17 SACB and SWQ joint venture expenditure is the cost effective development of gas reserves to satisfy existing contractual obligations. In doing so, Beach will participate in those drilling campaigns which meet our capital allocation requirements and therefore provide an attractive expected return on investment. This approach also preserves capital for deployment within other business areas or in line with Beach's growth strategy.

Total FY17 capital expenditure for the SACB and SWQ joint ventures is expected to be within the range of $75 - $85 million (Discretionary and Fixed). Due to an ongoing focus on reducing costs, and Beach's ability to selectively participate in most drilling campaigns, FY17 expenditure represents a reduction of approximately 35% from FY16, and a reduction of approximately 65% from FY15. Furthermore, FY17 capital expenditure for the SACB and SWQ joint ventures represents a significantly smaller fraction of Beach's total capital expenditure (c.42%) compared with FY16 (c.66%). Beach is working closely with Santos, operator of the SACB and SWQ joint ventures, in an ongoing drive to further reduce costs and execute capital programs as efficiently as possible. Beach is pleased with the progress of these initiatives and will provide further guidance in due course.

Further details of the FY17 capital expenditure program and indicative timing are contained in the Appendix.

Production volumes

FY17 production is expected to exceed volumes achieved in FY16, with guidance in the range of

↓ Natural field decline due to increasing water cuts and recent reductions in drilling activity;

↓ No further Egypt production post anticipated completion of sale in Q1 FY17; and

− Successful FY17 exploration wells assumed to commence production in FY18.