Shares crash over building delays and cost blowout at troubled WA gas plant

Beach Energy shares plummeted close to 20 per cent in early trading on Monday over news of poor construction at a West Australian gas plant causing major cost increases and a delay of up to a year.

The plant to process gas from the onshore Waitsia field, 370 kilometres north of Perth, is now expected to cost between $1.2 billion and 1.3 billion – $300 million more than a revised estimate a year ago, and $500 million more than the original estimate in late 2020.

Waitsia gained a controversial exemption from the ban on exports of onshore gas.

Beach chief executive Brett Woods, who has led Beach for three months, said it was extremely disappointing to be continually encountering quality issues at this late stage of the Perth Basin project in which the company had a 50 per cent stake.

“Having to redirect existing onsite labour to remedial works is slowing the progress of pre-commissioning activities, resulting in further delay and cost increases,” he said.

The current problems were preceded by the need to rebuild compressors and replace valves and piping after prestart-up quality checks revealed problems.

RBC Capital Markets analyst Gordon Ramsay said close to 50 per cent of the project workforce were fixing problems rather than focusing on starting up the plant.

Ramsay said Beach would also incur costs of more than $40 million from processing capacity it had booked to Woodside’s North West Shelf gas export plant.

The company is trying to arrange a gas swap with other WA producers to use that capacity and repay the gas when Waitsia is operating.

Beach and its partner Mitsui, which operates Waitsia as well as half-owning it, are producing an updated cost estimate and schedule, but the extent of quality issues identified required Beach to inform the market with preliminary figures.

The plant is now expected to start up in the September quarter, a delay of nine months.

Clough Engineering, then owned by South African firm Murray & Roberts, had the contract to build Waitsia but entered voluntary administration in early 2022 after its parent turned off the cash tap. The project’s future looked troubled until Italian construction contractor WeBuild bought Clough a few months later.

A year ago, Beach cut its Perth Basin reserves by 11 per cent after disappointing drilling results.

The field will produce up to 250 terajoules of gas a day in operation but deliver just 20 terajoules a day to the hard-pressed local market.

Waitsia received a controversial exemption from WA’s ban on the export of onshore gas from then-premier Mark McGowan in 2020. At a press conference the next day, McGowan refused to say whether he had discussed the exemption with Kerry Stokes or his son Ryan. The family control the dominant newspaper in WA and have a 30 per cent stake in Beach Energy.

The Australian Energy Market Operator has predicted WA – the Australian state most dependent on gas – will have a mild shortage over the next three years and demand will significantly outstrip supply late in the decade and early into the ’30s.

Last week, Woods announced the Adelaide-based company would lay off 30 per cent of its staff.

Beach Energy shares were trading at $1.61 in late trading on Monday, 29¢ or 15 per cent down from Friday.

Read more:

• Message managed: How Premier’s promise made bureaucrats mould gas policy around Kerry Stokes-backed Waitsia
• Beach Energy to slash almost a third of its staff in cost-cutting push
• Australia’s fossil fuel giants set to take multibillion-dollar hit

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