No production has been possible at BassGas during the planned Stage 1 enhancement upgrade, which began before Christmas and took longer than expected. Delays were due to a mixture of bad weather affecting access to the offshore rig and construction challenges. The result is a blow-out in budgeted costs of at least $90 million!
BassGas is an impressive project. It consists of Yolla, the offshore unmanned gas platform in Bass Straight, and 180km of undersea and underground pipes connecting Yolla to the on-shore production facility at Lang Lang near Melbourne.
Origin Energy is the operator of BassGass, which is a joint venture project between Origin, AWE, and Toyota Tsusho Gas. Beneficial interests are held 42.5%, 46.25%, and 11.25%, respectively. In July, AWE CEO Bruce Clement commented that he was very disappointed in the delay and budget increase and Origin’s project delivery performance. AWE shareholders may be wondering if relationships between AWE and Origin have soured further since July.
On the positive side, while a question mark still hangs over Chinese demand for iron ore, coal, and steel, the oil and gas industry continues to enjoy plenty of demand both domestically and overseas. With its exposure to the growing population of Victoria, BassGas has an encouraging future coupled with the potential for upgrades to reserves.
With the positive dynamics in the oil and gas industry, there may be further opportunities within the exploration and production sector. Beach Energy (ASX: BPT) has several joint ventures with Origin and Santos (ASX: STO), amongst others. Beach recently updated the market with its Monthly Drilling Report, which included upgrades to reserves. Beach has interests in a number of oil and gas fields, including in the Cooper Basin and Egypt.
The BassGas upgrade is a good reminder that there are often blow-outs in time and costs when it comes to construction projects — even when very experienced players are involved. These unexpected (or perhaps expected!) events are why investors should always invest with a margin of safety.
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Motley Fool contributor Tim McArthur does not own shares in any company mentioned. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.