Beach Energy urges gas support in May budget, removal of Fed uncertainty after dismal quarter
More gas supply backed with carbon storage – and supportive budget initiatives – can alleviate power challenges, the energy giant’s CEO says, but Federal price meddling won’t help.
The Albanese government’s proposed mandatory code of conduct has created investment uncertainty to push ahead with new gas projects, Beach Energy has warned.
The company, backed by billionaire Kerry Stokes, is focused on its Waitsia Stage-2 project in the Perth Basin and offshore Victoria Otway developments, the latter of which will bring another 100 terajoules of gas into the East Coast market when it comes online later this year.
However, there is a cloud hanging over future planned projects.
Investment uncertainty – blamed on the Federal Government’s growing intervention by the industry – is a key risk.
The proposed “reasonable price provision” is part of an incoming mandatory code of conduct for the industry, which the market believes is likely to be introduced within weeks.
“While removing investment uncertainty is imperative to bring on new gas supply, the proposed “reasonable price provision” runs the risk of making this harder and harder to do,” Beach Energy chief executive Morné Engelbrecht said.
The provision, aimed at controlling local supply and prices, will likely require producers to supply gas at prices that reflect the cost of domestic gas production, allowing for a reasonable return on capital.
The removal of government-created investment uncertainty and supportive May budget initiatives could unlock affordable, reliable and sustainable energy ‘right under our noses’, Mr Engelbrecht said.
The Beach boss told The Australian more domestic gas supply, backed with carbon capture and storage, was the answer to current challenges around energy transition as demand and prices rise.
“The US has pursued this policy approach and it is already paying dividends, delivering energy security, reduced emissions and cheaper power,” he said, following the release of a tumultuous March quarter report that saw production, sales volumes and revenues fall and operational challenges at a key project.
He cautiously welcomed recent comments by Prime Minister Anthony Albanese and Energy Minister Chris Brown, “which reaffirmed gas’ role in the energy mix going forward, acknowledging the important role gas plays and will play in terms of the energy transition and reaching climate goals”.
“We hope that these comments are now backed by initiatives in the upcoming Federal Budget that support the development of domestic gas for Australians.”
The $3.5bn energy producer reported double-digit falls in sales volumes and revenue after production fell 5 per cent to 4.5 million barrels of oil equivalent (mmboe).
Total sales volumes of 4.6 mmboe for the three months to March 31 were 11 per cent below the December quarter, mainly due to lower production and three less liquids liftings, compared to six liftings in the previous quarter.
Third quarter sales revenue dropped 13 per cent to $353m, due to lower sales volumes and lower realised oil pricing, partially offset by higher gas gains.
The average realised sales price across all products of $76.9 per boe was 3 per cent below the prior quarter. The average realised oil price decreased by 6 per cent to $133.2 per barrel, and the average realised gas price increased by 7 per cent to $8.9 per gigajoule.
It also revealed one of its three newly-installed Thylacine flow lines at its offshore Victorian Otway development had failed a hydro pressure test and will be repaired or replaced – a setback for the key project.
But Mr Engelbrecht was focused on the wins, including the spudding of Trigg 1, the first well of its operated Perth Basin gas exploration campaign.
Italian contractor Webuild, which took over management of the Waitsia Stage 2 gas project in the Perth Basin after the collapse of previous contractor Clough, is also tracking first gas by December.
Beach’s share of capex at Waitsia is expected to come in between $400m and $450m, up from an original forecast of $350m-$400m following the change of guard.
Also, its Moomba carbon capture and storage (CCS) joint venture project in South Australia with operator Santos is now more than half complete, with the first carbon dioxide injection targeted for 2024.
The updates come after Beach doubled its interim dividend payout to 2c per share last month, after reporting a 10 per cent fall in underlying first half net profit to $191.2m.
At the time, full year production guidance was also revised down from 20-22.5 million barrels of oil equivalent to 19-20.5 mmboe.
Beach’s capital expenditure of $249m in the March quarter was 12 per cent below the prior quarter, with a focus on the Otway and Perth basins.
Mr Engelbrecht has previously said its business would not be materially affected by the Federal Government’s current $12 gas price cap, given its gas was largely contracted.
But has flagged problems in developing financial models for new projects beyond the end of 2023.
A cloud hangs over further investment in its BassGas assets and more drilling in the Otway, as it needs certainty around pricing and what sort of interventions the government will institute over the longer term.
Citi analysts James Byrne and Tom Wallington last week warned of an aggregate impact on the local energy sector of changes to the Petroleum Resource Rent Tax, safeguard mechanism, the Australian Domestic Gas Security Mechanism, price caps, failing contractors, labour shortages and a legalistic offshore regulator.
“In isolation, these changes can be absorbed by industry, but in aggregate will likely result in greater execution risks for projects, reduced cash flows, and reduced investment in Australian projects,” they warned.
Citi rated Beach as a buy at a target price of $1.76 per share, despite identifying a number of risks to delivery on growth projects.
“These are offset by upside opportunity with exposure to the East Coast gas market as well as international exposure through Waitsia Stage 2 LNG,” the note from Citi said.
Beach shares reversed earlier losses and are 0.3 per cent higher at $1.52 at 12.45pm AEST.
