Beach Energy shares plummeted by 16 per cent in early trading on Monday due to poor construction at a West Australian plant that is expected to increase costs and cause a delay of up to a year. The plant, which processes gas from the onshore Waitsia field, is now estimated to cost $600-$650 million, $150 million more than a revised estimate from a year ago, and $250 million more than the original estimate in late 2020. Waitsia gained an exemption from the ban on onshore gas exports, adding to the controversy surrounding the project.
Beach chief executive Brett Woods expressed disappointment in continually encountering quality issues at this late stage of the Perth Basin project, in which the company has a 50 per cent stake. Redirecting onsite labor to remedial works has slowed progress on pre-commissioning activities, resulting in further delays and cost increases. Previous issues required the rebuilding of compressors and the replacement of valves and piping after quality checks revealed problems. Beach and partner Mitsui, who operate and half-own Waitsia, are currently working on an updated cost estimate and schedule to address the extent of quality issues identified.
The plant is now expected to start up in the September quarter, a delay of nine months from the original timeline. Clough Engineering, previously owned by South African firm Murray & Roberts, had the contract to build Waitsia but entered voluntary administration in early 2022 after funding was cut off by its parent company. The project’s future was uncertain until Italian construction contractor WeBuild acquired Clough a few months later. A year ago, Beach had to reduce its Perth Basin reserves by 11 per cent due to disappointing drilling results.
Investors and shareholders are concerned about the escalating costs and delays in the Waitsia project, leading to a significant drop in Beach Energy shares. The increased expenditures and extended timeline have prompted Beach and Mitsui to reassess their cost estimates and schedule, as the quality issues identified have necessitated a public update with preliminary figures. These setbacks come after previous problems with compressors, valves, and piping, adding to the challenges faced by the project. The delayed startup of the plant adds to the uncertainties surrounding the project’s financial and operational viability.
Despite the setbacks and challenges faced by the Waitsia project, Beach Energy remains committed to resolving the quality issues, addressing the cost overruns, and completing the construction of the plant. The partnership with Mitsui will continue to work on rectifying the problems and ensuring the successful startup of the facility in the September quarter. The acquisition of Clough Engineering by WeBuild has provided some stability to the project, offering hope for a more efficient and effective construction process moving forward. With a revised cost estimate and schedule in the works, Beach Energy aims to regain investor confidence and deliver on its commitment to the Waitsia project.
