Beach Energy and Cooper Energy resist gas pricing code
Two of the nation’s big energy producers have dismissed a plan to push for a change in the benchmark method for east coast gas prices.
Two of the nation’s big energy producers have dismissed a plan by top domestic gas users to use a high-level “code of conduct” meeting to push for a change in the benchmark method for east coast prices, arguing the market is already working as intended.
Some of the largest gas users, including industrial manufacturer Orica, have called for changes to the national competition regulator’s LNG netback formula — effectively the price of LNG shipped overseas less processing and shipping costs.
Instead, they want the removal of an implicit cost premium built in to pay back the cost of the giant LNG export plants used to ship gas to Asian buyers, saying the cost of LNG capital accounts for $2 to $3 a gigajoule in the final price domestic users pay for gas.
Beach Energy chief executive Matt Kay, who sits on the committee developing the code of conduct, said the Adelaide-based company and its partners were spending $1bn on new gas projects to supply the east coast industry at competitive costs.
“I don’t expect it’s the role of the upstream gas industry to subsidise companies downstream,” Mr Kay told The Australian after reporting its interim results. “So we want a fully fair and functioning market and we’re investing to do that. But I don’t expect us to substitute the downstream.”
Manufacturers like Orica, Incitec Pivot and Qenos say they can’t find gas on a contracted basis for less than $8 to $10 a gigajoule, more than double historic levels. Their frustration over gas prices has grown after a deal between Scott Morrison and big LNG exporters in January avoided formal price controls, which some big manufacturers had pushed for but which were strenuously resisted by the LNG industry.
Cooper Energy, developer of the Sole gas project off the Victorian coast, said specifying a price mechanism was the wrong signal.
“The market price should be freely negotiated between willing buyers and willing sellers. And therefore to mandate a price in the code is not allowing the market to work. I clearly believe the market should set the price and constructive behaviour will see the right prices for everybody in the market overall,” Cooper chief executive David Maxwell said.
Cooper is involved in the talks but questioned whether a code was even necessary.
“If the right people are behaving in the right way, I don’t think there is a need for a code of conduct,” Mr Maxwell said. “If it’s needed to make some people comfortable, then it’s going to help the market because what you don’t want is people feeling uncomfortable with behaviours. In my personal view it’s not needed, but if it’s going to help others then let’s have it.”
Beach reported that its first-half profit had tumbled by half on lower oil prices, and it cut its annual production guidance amid higher decline rates at its Western Flank oil fields.
Underlying net profit after tax fell 52 per cent to $128m, falling short of $143m consensus, after revenues declined by nearly a quarter to $726m as its realised oil price fell by 40 per cent over the six-month period.
It narrowed its production guidance for the 2021 financial year to a 25.5m-26.5m barrels of oil equivalent range from 26m-28.5m boe previously.
On a pro-forma basis, guidance for 2021 is 26.5m-27.5m boe, reflecting Beach’s acquisition of Senex’s Cooper Basin and Mitsui’s Bass Basin assets.
Beach said the performance of the Western Flank oil fields in the Cooper Basin were not as the company had expected.
While Western Flank oil production was up 8 per cent on the prior period across 27 horizontal wells, it saw higher than expected decline rates in a number of wells.
Beach will pay an interim dividend of 1c per share, which is steady on last year.
Cooper reported that its underlying earnings fell 40 per cent to $9.7m due to delays connected with bringing its Orbost gas plant online.
Beach shares fell 4.6 per cent to $1.68 on Monday, while Cooper declined 3.2 per cent to 30c.
