Beach Energy strikes ‘moderate’ new supply deal with Origin Energy

The group, majority owned by billionaire Kerry Stokes, has struck a new long-term supply deal with Origin that includes just a ‘modest’ increase in prices, which has disappointed some investors.

Billionaire Kerry Stokes. Picture: Supplied

Beach Energy, majority owned by billionaire Kerry Stokes, has sealed a new long-term supply agreement with Origin Energy that includes just a “moderate” increase in prices, dashing some investor hopes that the deal would propel earnings and underpin a corporate turnaround.

Some Beach Energy investors had pencilled in sizeable increases to annual revenues as a result of a contract review of the pricing of gas from Otway, but the company revealed the new multi-year deal included low-key increases.

The modest increase to prices in the long-term deal will likely be perceived as a victory for Australia’s largest electricity and gas retailer, which was scared in 2021 when an arbitrator ruled on a price that Origin chief executive’s Frank Calabria described as “not reflecting market prices”.

Bruce Clement, Beach’s interim CEO, says the deal with Origin would provide certainty to the company’s earnings.

“We are pleased to have concluded negotiations with Origin for the Otway Basin price review, and a new agreement for the sale of Enterprise gas. Our Otway Basin arrangements now provide higher prices and greater certainty for increasing production rates and sales volumes,” said Mr Clement.

Billionaire Kerry Stokes. Picture: Supplied

But Citigroup analyst James Bryne said he believed the new agreement would be in the vicinity of about $11 a gigajoule, underwhelming some investors.

“We think the prior price was around$10.50/GJ, so the new price may be around $11/GJ. Speaking to [Beach] last year, we felt that [Beach’s} expectations were that arbitration would result in a very good outcome for BPT, so a less than $12 outcome may disappoint the bulls,” said Mr Bryne.

Shares in Origin edged up about 0.5 per cent after the announcement of the new long-term supply agreement.

Shares in Beach shrugged off any perceived disappointment in the Origin deal, as investors focused on soaring quarterly revenues.

The oil and gas company said revenues for the three months ended December 31 totalled $544m, up 37 per cent from the previous quarter and up substantially on the $408m reported one year earlier.

The higher revenues, Beach Energy said, were driven by the sale of a LNG cargo from its Waitsia LNG project.

The outlook for Beach is likely to be shaped by its Waitsia Stage 2 project in Western Australia, which was hampered by the collapse of developer Clough in 2022.

Investors have cheered relatively smooth progress on the expansion, but noted milestones in development must still be cleared – providing some risk.

Waitsia was supposed to see first gas from the expansion in late 2023. Beach said first gas from the expansion is still on course for mid-2024, but shareholders will likely remain anxious.

Beach Energy has disappointed investors several times in recent years as it struggles to boost production. It has set a revised strategy that sees a rapid expansion in gas output to capitalise on a looming east coast gas shortage.

Providing some pause for thought among shareholders, Beach on Thursday said it trimmed its production outlook for 2024. Beach said it expects annual production to be between 18-20 million barrels of oil equivalent, down from its previous guidance of between 18-21 MMBoe. Beach said the revision was due to lower nominations from users.

Australia has ample gas in storage amid a relatively benign period. Winter was relatively mild in 2023, meaning gas was not needed to be a supplementary source of electricity, while sunny conditions has seen record renewable energy generation.

The company is 30 per cent owned by billionaire Mr Stokes.

Beach last year named Seven Group CEO Ryan Stokes as the company’s interim chairman, as his father tightened his grip on the oil and gas company.

Originally published as Beach Energy strikes ‘moderate’ new supply deal with Origin Energy