Beach Energy reveals fresh delays and cost blowouts to major growth project
The under-fire group has sought to draw a line under a spate of issues, revealing its main growth project will be at least six months behind schedule and cost 30 per cent more.
Beach Energy will produce the first gas from its Waitsia expansion at least six months later than previously anticipated, while the project is likely to cost at least 33 per cent more – as the company majority owned by billionaire Kerry Stokes endures fresh issues.
The delay and cost blow outs, which Beach said was due to quality issues in development – will further stain the company’s standing with investors after a series of missteps that seen a wave of management upheaval, and shares in the company fell as much as 20 per cent before closing down 15 per cent after Beach’s third production delay.
Beach has earmarked Waitsia Stage 2 project for much-needed production growth, allowing it to capitalise on an expected looming east coast gas shortfall, and it has expected first supplies by mid-2024. But Beach said on Monday, production is not expected until early 2025, and costs will likely be between $600m and $650m. Beach has previously forecast the Waitsia Stage 2 project to cost between $400m and $450m.
Beach’s newly installed chief executive Brett Woods acknowledged the bitter blow – compounded by the discovery so late in the works of the expansion.
“It is extremely disappointing to be continually encountering quality and execution issues given the late stage of the project. Having to redirect existing onsite labour to remedial works is slowing the progress of pre-commissioning activities, resulting in further delay and cost increases,” said Mr Woods.
“Beach is committed to driving the construction of Waitsia Gas Plant to its conclusion and will work closely with the operator and contractor to deliver this strategically important project.”
The issues are the latest pothole for a prohole that Beach is under intense pressure to deliver.
RBC Capital Markets analyst Gordon Ramsay said the delay would be a blow to Beach’s 2025 financial year earning.
“While this work is now substantially complete, other issues have been identified such as the quality of 400 small ball valve fittings, fire systems, non-compliant hydrogen bottles, and southern pipeline over compaction,” said Mr Ramsay.
“This means close to 50 per cent of the project workforce is now undertaking rectification work/repairs to equipment instead of being focused on pre-commissioning activities, which has delayed the project start-up.”
Works on the project was delayed due to Covid-19 and the collapse of developer Clough. Italian developer WeBuild has since been appointed as the project developer, but production was significantly hampered.
The delays to Waitsia are also a bitter blow to Mr Woods, who assumed his new role this year, with the remit of turning the company around, and the WA expansion project shaped as a litmus test of the new chief executive.
Mr Woods has made good progress in winning over investors, with an aggressive approach to cost-cutting.
Beach last month said it would cut 30 per cent of its workforce, a decision that, while painful for the approximately 200 staff, was seen by investors as indicative of Mr Woods’ determination to deliver.
Still, investors remain wary after a series of false dawns.
In 2022, Beach slashed the estimated gas reserves at its LNG export basin near Perth by 11 per cent after the Waitsia Stage 2 drilling campaign.
The company – 30 per cent owned by billionaire Mr Stokes – said the reduction in total proven and provable reserves by 10.6 million barrels of oil equivalent was due to “increased structural complexity in the Waitsia field and poor reservoir quality in the High Cliff reservoir at Waitsia”.
In 2021, Beach suffered its biggest ever one-day share market fall when it suddenly slashed its estimate for reserves from the Western Flank oil reserves in northeast South Australia, triggering class action lawsuits.
The episodes have tested the patience of investors, chief among them is the company’s largest shareholder – Mr Stokes.
Mr Stokes has in recent months moved to tighten his grip over Beach, with pressure growing on the company to deliver its much vaulted growth project.
Should it be ready for 2025, Beach will still be able to capitalise on the east coast’s looming gas shortfall – which could see states such as Victoria and NSW forced to import new supplies to meet extreme demand periods.
The supply shortfall is expected to grow, and the east coast could be dependent on imports from places such as WA if states are unable to bolster domestic production.
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