The Australian: Beach party bonus after 10 year hangover [March 07, 2006]

The petroleum company has fully recovered from a difficult patch, writes Nigel Wilson

--------------------------------------------------------------------------------

March 07, 2006
"JOCKEY", "Bananas" and "Hairy" are names that Reg Nelson has cause to remember with a great deal of distaste.

They're the nicknames of a group of investors associated with a notorious corporate fraud case of the 1980s involving the Independent Resources group.

It revolved around the Australian company Beach Petroleum in 1989 buying 47 per cent of the North Burbank oilfield in Oklahoma for $US28 million, a figure which was alleged to have been far too high. It was the focus of a series of fraud allegations against some Beach directors.

Nelson, now Beach chief executive, was brought in to co-ordinate the company's pursuit of the alleged fraudsters.

This week he recalled that Beach was ultimately successful -- it was awarded damages of $45million (about $150 million in today's dollars) -- but not all of that was recovered. And much of it went on legal bills and repaying a $28million Westpac debt.









But that was then. This week Nelson is celebrating the success of a 10-year corporate recovery program by announcing an equity sweetener to Beach shareholders in the shape of a 1-for-10 bonus option issue at $1a share.

This followed Beach reporting a net profit of $16.2 million for the six months to December 31, 53 per cent higher than the corresponding period.

The company reported a threefold increase in first-half after-tax earnings to $31.2 million but this included a one-off contribution of $19.4 million from the sale of a 7.9 per cent stake in Anzon Australia, its Gippsland Basin Basker-Manta joint venturer.

Nelson also notes with pride that Beach's market capitalisation was well above $500 million, placing it in the top six or seven listed operations in its industry on the Australian stock market.

Beach has moved out from the very real shadows of potential liquidation in the mid-1990s to becoming a leader in the national upstream business.

Nelson, 60, is a Scottish-born geophysicist who came to Australia with his family in 1955. He has been associated with the management of Beach since 1992, first as executive director.

He says that after sorting out the legal issues and disposing of some of Beach's limited assets to help pay for the litigation, his task is to develop a new business model built on the company's share of a small producing asset at Bodalla in southwest Queensland.

"It wasn't that revolutionary," he says, with his trademark deprecating humour.

"Everyone knew that in 1999 Santos had to relinquish some of its Cooper Basin acreage, so our goal was to acquire some of that and go exploring close to where we knew discoveries had been made."

The plan may been simple but there were a number of problems in the way, not least the negotiation by Beach and some of its equally small competitors of a model agreement with Aboriginal traditional owners that is hailed as one of the most comprehensive and effective in the country.

Acracia -- the first well drilled in the new permits, with Stuart Petroleum -- was an oil discovery that led to several others in the region.

Nelson notes that at 2000 barrels a day production, Acracia provides a handsome cashflow.

The reborn Beach first began to attract positive attention a little earlier, in southwest Victoria.

The company had sold its producing gas assets near Port Campbell under its previous management but Reg Nelson was convinced it could star again.

He plays down his role in delivering 3-D seismic exploration onshore, but there is no doubt his geophysical background helped.

With vastly increased capacity and reduced computing costs, it was determined around 2000 that 3-D seismic in onshore exploration could be justified.

Beach used the exploration tool to explore around Port Campbell and came up with a number of small gas targets that were cheap to exploit and have subsequently proved to be satisfactory cash flow contributors.

More recently, Beach's involvement with the innovative Basker-Manta development has created interest.

The small Bass Strait fields -- Nelson says they are really in the Pacific Ocean -- had been passed up for development by majors such as Shell and Woodside.

When Anzon's Steve Koroknay determined that a revolutionary development -- involving a shuttle tanker and a floating production, storage and offloading vessel -- could be profitable at oil prices of $US25-30 a barrel, Nelson became interested.

As a result, Beach became a foundation shareholder in Anzon and also its joint-venture partner.

Later this quarter, Beach will report on its first shipment of oil from Basker Manta, which will again revolutionise its books.

The resurgence of Beach, and Reg Nelson's role in it, has been recognised by his peers.

In 2004 he was elected chairman of the Australian Petroleum Production and Exploration Association, the industry's peak lobby group. Nelson said it was an honour to be picked for the job.

It was also personally significant because the man who provided the inspiration for him to become interested in geology was Reg Sprigg, one of the association's founders.

These days, when he has time, the avuncular APPEA chief relaxes at a recently acquired property on the banks of the Murray River, where he's attempting to grow fruit trees.

It's far enough away from Beach's Adelaide headquarters to remind him of Arkaroola where he first learned, from the late Sprigg, that studying rocks could be very rewarding.