Waitsia costs blow out to $1.2bn

Beach Energy and Mitsui & Co’s Waitsia stage two gas project will not produce this year and will cost hundreds of millions more than previously expected as a result of quality issues.

ASX-listed Beach revealed revised timelines and cost guidance for the contentious project to market this morning, labelling the latest developments disappointing.

Beach now expects to pay between $600 million and $650 million for its 50 per cent share of Waitsia, up from previous guidance of between $400 million and $450 million.

Beach’s original capex forecast for its share of what was initially expected to be a $750 million project was between $350 million and $400 million.

The new guidance places the overall cost of Waitsia stage two at $1.2 billion.

The project was previously scheduled for first gas in the middle of 2024. That milestone has been reset to early in 2025.

When Waitsia does enter production next year, the joint venture anticipates its processing costs to be higher than first thought.

Beach said it would assess its options to partially mitigate unused capacity at the project.

The blowouts are the result of issues identified during precommissioning of the gas plant, which were identified after delays caused by problems that required compressors to be rebuilt, and valves and flanges to be replaced.

“It is extremely disappointing to be continually encountering quality and execution issues given the late stage of the project,” Beach managing director and chief executive Brett Woods said.

“Having to redirect existing onsite labour to remedial works is slowing the progress of precommisioning activities, resulting in further delay and cost increases.

“Beach is committed to driving the construction of the Waitsia gas plant to its conclusion and will work closely with the operator and contractor to deliver this strategically important project.”

The Waitsia stage two project is being undertaken by Italian contractor Webuild, following its acquision of contractor Clough early in 2023.

In May, the Waitsia JV partners withdrew their schedule and capital estimates for the project.

Cost guidance has been scarce since then.

The news comes weeks after the Kerry Stokes-backed Beach slashed its workforce by 30 per cent, one of the first moves to come off a strategic review undertaken following Mr Woods’ appointment late in January.

In February, Mr Woods expressed optimism that Waitsia project timing was on track in an investor call following the company’s half-year result release, for which it booked a $345 million loss on asset write-downs at assets in the eastern states.

In addition to its construction battles, the Waitsia project is a point of contention politically in Western Australia.

The project received a controversial export exemption from then-premier Mark McGowan in 2020, allowing it to export 7.5 million tonnes of LNG from the project over five years.

The ability to apply for export exemptions from the onshore projects on existing pipelines – like Waitsia’s Perth basin neighbours – was subsequently removed by a policy tweak in 2023, leading to outcry from fellow gas developers in the region.

Beach shares were down close to 19 per cent at $1.54 in early trade this morning.