Second major Webuild project flags delays, blowouts after Clough takeover

Webuild’s takeover of Clough has not fixed all of the problems for its clients, and Beach Energy’s Waitsia gas expansion is the latest project to face more delays and blowouts.

The Kerry Stokes-backed Beach Energy has flagged further delays and cost blowouts at the troubled Waitsia gas expansion in WA, only months after saying it was confident the buyout of its collapsed contractor would ensure first gas was delivered by the end of the year.

Beach withdrew its cost and completion guidance on Thursday, saying it was no longer confident first gas from the project could be delivered by the end of the year, or within the total revised capital estimate of $800m to $900m.

The Kerry Stokes-backed company owns Waitsia with Japanese giant Mitsui and has faced a raft of issues with the delivery of the project after contractor Clough ran into financial troubles in 2022.

After Clough collapsed into administration in December, the pair were forced to step in to guarantee payments to subcontractors threatening to walk off the job unless they were paid.

Clough was rescued from insolvency in February after Italy’s Webuild, the company’s partner in the troubled Snowy 2.0 expansion in NSW, bought the bulk of its assets and ongoing work.

At the time Beach said it was confident the acquisition would enable “project execution to continue uninterrupted”.

Beach now says Mitsui is again reviewing the cost and schedule of the project under Clough’s new ownership, blaming the “tight labour market” in WA for its fresh problems.

A spokeswoman for Webuild said on Thursday that payments to subcontractors and employees were up to date.

“The well-known labour market conditions in Western Australia and global supply chain impacts of critical path items are among the factors that have affected construction progress and these impacts are reviewed with the Waitsia Joint Venture,” she said.

In March, unions warned that workers at Waitsia were leaving the job because the existing enterprise agreement – due to expire at the end of the month – no longer offered competitive wages compared to other major construction projects in WA, and a new agreement was still to be negotiated.

Clough’s December collapse is believed to have triggered the departure of a number of the project’s skilled blue-collar workforce, given wages at the project were already lagging other agreements signed as the state’s construction sector boomed amid WA’s tight border restrictions during the Covid-19 pandemic.

It is understood Webuild and the joint venture partners authorised the payment of retention bonuses and above-agreement payments to stay competitive, but industry sources say wages still lagged on the project and competitors were regularly able to pick off blue-collar workers by offering better pay elsewhere.

Formal negotiations for a new union agreement did not begin until late March, and The Australian understands a vote on a new enterprise agreement will be put to the project’s workforce within a week.

The Beach announcement is the second time within a month a major project run by Webuild and its new subsidiary has announced a major blowout in the cost and schedule, after Snowy Hydro confirmed in early May it expected further delays on the Snowy 2.0 project.

Snowy said the expansion would overrun its already revised $5.9bn budget, and new chief executive Dennis Barnes said the fixed-price contract with Webuild may need to be renegotiated to ensure the project was delivered.

Clough also signed up to build Waitsia on a fixed-price contract, but The Australian understands that was later modified by the project’s owners to allow for additional payments to cover cost escalation and supply chain disruption faced by the company’s subcontractors.

Credit Suisse analyst Saul Kavonic said the announcement by Beach came as little surprise.

“A further cost blowout and delay was always likely given the complex contractor situation, inflationary environment and unseasoned operator,” he said.

“We had already assumed a few months delay and 20 per cent higher cost beyond last guidance.

“The main surprise is why Beach didn’t realise this uncertainty back in February. The announcement does not provide reassurance that Beach has learned its lessons regarding allowing for conservatism in managing market expectations.”

The original estimates for the project put first gas from Waitsia in the second half of 2023, with a capital cost of about $700m to $800m.

Beach shares dropped 4.3 per cent to close at $1.35.