Beach Energy points finger of blame at Origin for revenue slump

The result is the latest in a string of disappointments, but the Kerry Stokes-backed company said Origin Energy was the primary driver for the underwhelming production figures.

Beach Energy, majority owned by billionaire Kerry Stokes, has reported a 12 per cent decline in quarterly revenue – a downgrade it said was driven by Origin Energy’s unwillingness to take gas.

The revenue slide is the latest in a string of poor performances by the gas company, which has seen Mr Stokes seek greater influence over Beach Energy.

The South Australia-based company said sales revenue for the three months ended September 30 totalled $405m, down 12 per cent on the $450m Beach Energy reported in the previous quarter.

Production during the quarter totalled 5.2 million of barrels of oil equivalent, down 10 per cent on the previous quarter.

Shares in Beach edged lower after the announcement, lingering close to a three-month low.

Beach Energy interim chief executive Bruce Clement said there was strong operational performance in the quarter, but it was impacted by lower production, which he said was driven by Origin Energy.

“Disappointingly, production was down 10 per cent from the prior quarter, predominantly due to minimum gas nominations made by our Otway Basin customer, Origin Energy, which saw over 10 PJ of gas being made available but not taken,” Mr Clement said.

“Given Beach’s significant investment to develop gas and increase production from the Otway Basin in support of the Victorian and East Coast gas markets, it is disappointing that Beach is unable to deliver this gas at a time when the government and the market are actively pursuing additional gas supply.”

Origin’s reduced demand is understood to have stemmed from warmer than average conditions. Electricity demand in the three months ended September 30 fell to a record third quarter low as solar output soared during unseasonably warm weather.

Gas is primarily used as a so-called peaker, supplementing Australia’s traditional coal power plants and renewable energy generators when there is insufficient supply to meet demand.

But Beach Energy’s decision to publicly point the finger at Origin for its downturn hints at tensions between the two.

Beach and Origin are in the midst of a contract review of the pricing of gas from Otway. Negotiations are ongoing but if no agreement is reached, the two parties could opt for arbitration.

The last contract renewal between the two companies took more than 10 months to complete, ending only when an arbitrator ruled on a price that Frank Calabria described as “not reflecting market prices”.

The electricity and gas retailer in the aftermath of the 2021 ruling lowered its underlying earnings guidance after forecasting an increase in cost of up to $80m due to the ruling.

The ruling, however, was a boost to the coffers of Beach and the South Australian company will be keen for another favourable outcome as it looks to accelerate its corporate turnaround.

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.

If Beach Energy is to turn its fortunes around, it must accelerate development of Waitsia Stage 2 project in Western Australia, which was hampered by the collapse of developer Clough in 2022.

Beach Energy said it expects first gas from the development in Q4 2024.

WA shapes as a key base of development for Beach Energy with the Waitsia development, which it hopes to supplement with new recent reserve discoveries.

After disappointing shareholders and investors, however, Beach Energy has little wriggle room left to underwhelm, a recent cited by analysts and market sources as to why Mr Stokes has taken steps to exert more control over the business.

Beach Energy in August named Santos executive Bruce Woods as the company’s new chief executive, following the abrupt ousting of Morne Engelbrecht after a little more than a year in the job.

Beach Energy earlier this month named Ryan Stokes, son of Kerry Stokes and chief executive of Seven Group, as the interim chairman of the board of directors.

The company said Mr Ryan Stokes would be in place until it completes negotiations with its preferred candidate, but it has been interpreted by the market as Mr Kerry Stokes’ desire to have more control over the business as it enters a critical phase.