S&P/ASX 200 Index (ASX: XJO) energy share Beach Energy Ltd (ASX: BPT) is having a day to forget on Monday.
The Beach Energy share price closed on Friday at $1.89. In late morning trade today, shares are swapping hands for $1.55 apiece, down 18.2%.
For some context, the ASX 200 is up 0.1% at this same time.
In a better comparison of apples to apples, of ASX 200 energy shares to ASX 200 energy shares, Santos Ltd (ASX: STO) shares are down 1.3%. Meanwhile, the Woodside Energy Group Ltd (ASX: WDS) share price is down 1.1%.
Here's what's happening.
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ASX 200 energy share hammered on rising costs
The Beach Energy share price is getting smashed today after the company reported on a series of quality issues at its Waitsia joint venture project in the Perth Basin.
Beach Energy owns 50% of the JV project; Mitsui E&P Australia owns the other half.
In February, the ASX 200 energy share reported on various quality issues during the pre-commissioning of systems at its Waitsia Gas Plant, including rebuilding compressors and replacing valves and flanges.
Beach Energy said those earlier problems have now largely been rectified.
However, in news that has investors scrambling for the sell button, management today said that "further quality issues are emerging as pre-commissioning activities progress".
Beach and Mitsui are now working to update the production schedule and cost estimates for Waitsia. But the partners said that even before that's completed "the extent of additional quality issues is to a point where current guidance on schedule and cost needs to be updated".
And those, as demonstrated by the sharp share price fall today, have been revised significantly higher.
In the guidance updates for Waitsia Stage 2, Beach Energy now expects first gas from the Waitsia Gas Plant by early 2025. That's been pushed back from the previous expectations of first gas production by mid-2024. The partners plan a three-month ramp-up of production thereafter.
And costs are up significantly. Beach forecasts total capital expenditure of $600 million to $650 million, up from $450 million to $500 million previously.
Additionally, the ASX 200 energy share noted that unavoidable processing costs based on its revised first gas target will also be incurred in FY 2025. Management said they will continue to assess options to partially mitigate unutilised capacity until production kicks off.
The JV partners also are looking to capitalise on potential time swap opportunities with Western Australia gas market participants who have excess gas prior to completion of the Waitsia Gas Plant, in exchange for returning these volumes when they need them most.
What did management say?
Commenting on the cost blowout pummelling the ASX 200 energy share today, Beach CEO Brett Woods said:
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.
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.
