State of Origin costs revealed
ORIGIN Energy has finally put a price on the cost blow-out at its 42.5 per cent-owned BassGas project: $275 million. That pushes the total capital costs of the project up to $750 million. In April it put a price of $430 million on the project.
Origin spokesman Tony Wood said the figure had been released to end speculation on the size of the cost blow-out. The blow-out was "a disappointing outcome," Mr Wood said.
An energy analyst with a major broking firm said the blow-out meant the project would have to rely on current high oil prices to claw back the cost increase. "They will need to leverage off higher condensate prices and, given the strong market, it should be OK in the short term," the analyst said.
BassGas would produce about 1 million barrels of condensate (used to make petrol) a year but that would wane within five years, the analyst said. After that the project would rely almost completely on contract gas sales to Origin's retail gas customers in southern Australia and a smaller amount of LPG.
The analyst said he was not surprised by the blow-out figure and said he had factored in one about 6 per cent lower.
The BassGas project was first scheduled to be finished two years ago but technical problems and legal disputes have pushed back that date. The project began production last month and is gearing up to full production, possibly by the end of July.
BassGas will supply about 10 per cent of Victoria's gas needs for 15 years. Origin has made up its contracted shortfall from BassGas by sourcing gas elsewhere while it comes on stream.
The BassGas tale of woe started shortly after development of its Yolla field in Bass Strait began. Suspicions of impurities in the gas required treatment plant modifications that boosted the price by $25 million. Then a dispute broke out between Origin, which manages the BassGas joint venture and main contractor Clough Engineering about whether the projected had been completed at the end of 2004. Origin kicked Clough off the site and went to work rectifying faults and design problems. Last year Origin tried to speed things up and brought in a ship that would allow workers to live at the site. However, the thrusters that positioned the ship failed and it had to be sent off for repairs, further delaying things while a replacement was arranged.
Clough and the BassGas joint venture are now embroiled in an arbitration process that Origin hopes will yield $100 million in compensation. Clough is not taking this lying down and has claims totalling $129 million against the joint venture.
Mr Wood said: "Oil prices are higher than when the project started but, until you really know what the final costs are (after the arbitration is settled), you don't know what the final economics are." Arbitration might not be completed till late 2007, he said.
The project was now producing income for the joint-venture partners, Mr Wood said.
Yolla is one of several new gas fields off Victoria that have boosted gas reserves in the southern states. Two other big finds are at Thylacine and Geographe. Development costs there are estimated at $1 billion-plus.
Origin holds 42.5 per cent of BassGas. AWE Petroleum, a wholly owned subsidiary of Australian Worldwide Exploration, holds 30 per cent. CalEnergy Gas has 15 per cent and Wandoo Petroleum 12.5 per cent.
Investors reacted negatively, pushing Origin's share price down 8¢ to $7.40.
The reporter owns Origin shares.