Adeliade-based Beach Energy [ASX:BPT] shares have fallen today after reporting a 24% decrease in its annual net profit and revising its completion forecast for the Waitsia Stage 2 natural gas project in WA.
The company reported a net profit of $385 million for the 12 months ending in June, down from $504 million the previous year.
The disappointing results come days after sudden news from the company that CEO Morne Engelbrecht had concluded his tenure and would be replaced by Bruce Clement, who would step in as interim CEO and continue as executive director.
Shares of the company are down 12.97% in the past 12 months as the company struggles to regain investor confidence after repeated delays and falling revenue despite rising gas prices.
Source: TradingView
Beach Energy earnings report
Shares of Beach Energy are down 3.59%, trading at $1.61, as its latest earnings disappointed shareholders.
Despite a slight rise in average realised prices, Beach’s production declined from 21.8 million barrels of oil equivalent (BOE) in the previous fiscal year to 19.5 million BOE in FY23.
This decline in production more than offset the price increase, resulting in a 7.5% decrease in annual sales revenue to $1.62 billion.
Beach Energy faced several challenges during FY23, which impacted investor confidence and the company’s stock value.
These challenges included delays in commissioning a pipeline connecting the Thylacine wells to the Otway gas plant in Victoria, as well as the insolvency of the original contractor for the Waitsia Stage 2 project.
Beach and its joint-venture partner, Mitsui, hired Webuild as a replacement contractor, but the estimated cost for completing the project increased to $450 million.
In May, Beach withdrew its target date for completion of the Waitsia Stage 2 project, citing uncertainty regarding potential cost overruns due to a tight labour market.
The company now expects the first gas from the project in mid-2024, with a revised capital expenditure estimate of $450 million to $500 million.
Additionally, Beach Energy provided guidance for its FY24, projecting production between 18–21 million BOE and capital expenditure between $850 million and $1 billion.
The company aims to meet this guidance under the leadership of its new chief executive, Brett Woods, who will join Beach on 21 February. Interim CEO Bruce Clement will serve until Woods assumes the role.
Mr Clement commented on today’s results, saying:
‘In FY24, we remain focused on delivering several exciting growth catalysts. These include Perth Basin exploration, connecting the Enterprise gas discovery, advancing Waitsia to first gas (targeted for mid-CY2024), and drilling the offshore Kupe South 9 well. These efforts will establish a strong foundation for Beach in FY24 and beyond. The resulting production increases will be particularly timely, as markets require our products more than ever.‘
Outlook for Beach Energy
These developments mark a challenging period for Beach Energy as it navigates project setbacks and adjusts its financial expectations.
The tight labour market in WA has especially impacted construction progress at the Waitsia Gas Plant in WA.
Western Australia’s unemployment rate for June was 3.5%, and the industry has seen an exodus of workers in recent years.
However, the company’s medium-term outlook shows several strengths, including its strong portfolio of assets and its position in the Australian gas market.
While it is difficult to project future demand due to regulatory uncertainty and changing consumption habits, the graph below attempts to highlight the potential supply shortfalls that could occur in southern states with a step-change scenario of quickly moving to a net-zero policy.
Source: Australian Energy Market Operator
The potential for considerable supply shortfalls could occur if the transition to renewables is done without adequate investment or off-ramping from existing infrastructure.
Beach Energy’s future outlook is uncertain. The company faces several challenges, including the Waitsia Stage 2 delay, tight labour and the decline in production levels.
How Beach Energy will navigate these challenges and meet its long-term goals remains to be seen. However, the company has a history of overcoming adversity, and structural shifts could mean it’s well-positioned to succeed in the medium term.
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