By Nick Toscano
Victoria’s first new gasfield to begin production in almost a decade has been downgraded and is now believed to hold vastly less gas than first thought, driving a sharp sell-off in the Kerry Stokes-backed Beach Energy on Monday.
Since starting up in June, Beach Energy’s Enterprise project off the coast of Port Campbell has boosted Otway Basin gas output at a critical time, as cold weather began increasing heating demand, raising prices, and making authorities more nervous about the risk of shortfalls hitting gas-connected homes and businesses.
The Ocean Onyx drill rig, used by oil and gas producer Beach Energy in the Otway Basin.Credit: Beach Energy.
However, Beach Energy, whose biggest shareholder is billionaire Stokes’ Seven Group Holdings, notified investors on Monday that early pressure data had indicated a “smaller resource pool”, which may contain about one-third less natural gas than originally thought.
The surprise downgrade, revealed as the Adelaide-based oil and gas producer reported it had slumped to a full-year loss, sent its shares tumbling more than 11 per cent in early trade.
“Disappointingly, over recent weeks we have observed pressure decline at Enterprise, which is consistent with a smaller reservoir,” Beach Energy managing director Brett Woods said.
There would be no change to this year’s output guidance due to the downgrade, Woods said, but the field was now expected to run out of gas sooner.
“The Enterprise field remains a valuable asset within Beach’s portfolio and an important source of new gas supply for the east coast market,” he said.
The Enterprise gasfield, discovered in 2021, secured a Victorian government production licence this year, the first to be granted in the state since 2014.
The project’s start-up came at an important time: gas users in Victoria and NSW have been put on high alert for supply shortfalls this winter after the Australian Energy Market Operator issued a rare “threat to system security” notice as a bout of cold weather collided with an outage at a key Gippsland gas-processing plant.
Beyond this year, the outlook deteriorates even further. The entire east coast gas market is expected to be in structural deficit by 2028 due to rapidly declining output from ExxonMobil’s legacy fields in Bass Strait, which have traditionally supplied the bulk of domestic needs.
The additional supply to be unlocked by Beach Energy’s Enterprise has been welcomed by industry groups amid escalating worries that a lack of new projects is leading to higher prices and potentially crippling shortages for consumers, such as manufacturers, which depend on gas for energy or as raw material in their factories’ processes.
However, Enterprise also encountered significant pushback from some community groups and conservationists due to fossil fuels’ contribution to greenhouse gas emissions that are driving the worsening climate crisis, and the field’s proximity to the Twelve Apostles marine sanctuary.
Australia’s reliance on gas – a major source of harmful emissions – has come into sharper focus as governments step up commitments to decarbonise.
Policies banning gas hook-ups in new Victorian residential buildings and encouraging people to switch gas appliances to electric alternatives are driving down long-term gas demand forecasts.
However, the market operator has said the shift is not happening fast enough to avert the threat of shortfalls for a fuel that remains widely used in heating, cooking, power generation and manufacturing, especially in Victoria.
The downgrade of Enterprise’s reserves – by 11.5 million barrels of oil equivalent – dragged down Beach Energy’s company-wide “proven and probable reserves” by about 20 per cent from its prior assessment.
Its production target for this financial year, however, is unchanged at between 17.5 million and 21.5 million barrels of oil equivalent.
Royal Bank of Canada analyst Gordon Ramsay said: “At the midpoint, this represents a 17 per cent year-on-year production uplift underpinned by the Victorian Otway, where we have already seen a material step-up in production rates following the connection of the Enterprise development.”
In a boost to gas supplies, global energy giant Shell and partner PetroChina announced on Monday they would expand their Surat coal seam gas project in Queensland. The second phase of their Arrow Energy joint venture’s Surat gas project was expected to produce 22,400 barrels of oil equivalent a day, to be directed both to local buyers and for liquefied natural gas customers in Asia, the companies said.
“Embarking on phase 2 of the Surat gas project with Arrow is part of our commitment to bring more gas to market,” Shell head of integrated gas Zoe Yujnovich said.
Beach Energy’s full-year loss of $475 million, posted on Monday, followed hefty writedowns to the value of its oil and gasfields in Australia’s Bass Basin and New Zealand’s Taranaki Basin. Stripping out one-off costs, the company’s underlying net profit slid 11 per cent to $341 million.
After an earlier strategic review into the company’s direction, Beach has been slashing spending this year and cutting hundreds of jobs across its workforce as it seeks to turn around its performance following a series of production downgrades and heavy losses.
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