The net downgrade to its proven and probable (2P) reserves across the Western Flank oil and gas fields in the Cooper Basin comes after recent declines in oil production and drilling results sparked an urgent review.

Adelaide-based Beach Energy’s shares opened at 9.30am at $1.68 but by 10.30am were trading at $1.29, a loss of more than 23 per cent following the selling spree that wiped more than $800 million from its market cap. Beach Energy shares recovered slightly to be $1.33 about 12.30pm.

In a statement to shareholders this morning, the company said the downgrade included a 17.6 million barrel of oil (MMbbl) downgrade to its Western Flank oil 2P reserves and a  7.2 million barrels of oil equivalent (MMboe) downgrade to Western Flank gas and associated liquids 2P reserves.

However, the downgrades have been partially offset by the recently completed acquisition of Senex Energy’s Cooper Basin oil and gas assets, with a 2P reserve increase of 4.2 MMbbls and 2.2 MMboe reducing the total downgrade to 18.4 MMboe.

This represents about 5 per cent of the company’s total 2P reserves.

Beach expects it will lead to a fall in production of 4-5MMbbls in the next financial year, costing hundreds of millions in lost revenue based on the company’s realised oil price of $64.90 in the first half of the 2021 financial year.

No immediate impact on gas production is expected.

In February, Beach reported it had experienced higher than expected decline rates within the Bauer field, the largest oil field on the Western Flank.

Additional production data from Bauer field oil wells have since confirmed the production decline.

Recent results from Western Flank oil wells drilled outside of the Bauer oil field, including the Balgowan, Chiton, Hanson and Kalladeina fields, have come in towards the low end of expectation.

Beach Energy Managing Director and Chief Executive Officer, Matt Kay said the unique nature of these fields had presented some challenges.

“The past five years has seen the Western Flank outperform our expectations, but we are now witnessing material decline from a number of fields,” he said in the statement to the ASX.

“This has had a negative impact on our recent production results, as well our FY21 production guidance and Western Flank 2P oil and gas reserves.

“Previous reserves assessment across the complex Western Flank oil and gas fields have proven to be optimistic following recent drilling results. The team has developed new reservoir models to optimise field development.”

The company said it now plans to focus attention on its exploration portfolio across the Western Flank oil and gas assets following several successful years of developing its existing fields there.

“Beach continues to value the exploration potential within the company’s Western Flank oil and gas acreage and plans to further evaluate the seriatim of more than 100 prospects and leads, based on new Western Flank interpretations and lessons learnt,” it said in the statement.

“The company has had a ~33 per cent exploration drilling success rate in recent years.”

The company says its planned production growth from the Otway Basin and Perth Basin developments remain on track.

But it has withdrawn and will no longer provide a five-year outlook in its current form.

“This is due to an acknowledgement of continuing variability to the business, which includes adjustments in work programs that were experienced during the COVID-19 pandemic, reductions in the Western Flank oil and gas production profile and variations to project interests as a result of asset acquisitions.”

Beach Energy’s net profit for the first half of the 2021 financial year more than halved to $129 million compared with last year’s figure, on the back of a 38 per cent slump in realised oil prices.

The price decrease due to the coronavirus pandemic also led to a 22 per cent fall in sales revenues to $705 million, despite production levels being maintained at 13.4 MMboe for the half.