Anti-fracking protestors will no doubt claim victory, but AGL’s decision, announced yesterday, to withdraw from fracking and coal seam gas extraction was more down to the slide in world oil and gas prices and weak results from the Gloucester project in NSW in particular.
AGL said the decision will cost it write downs of $640 million after tax or close to $800 million pre-tax.
AGL revealed more than $600 million of impairments of Upstream Gas assets last July, taking the write-downs at that stage since 2013 to $1.3 billion pre-tax. The latest write-downs lifts that figure to around $2 billion.
AGL said the impairment will have “minimal” impact on its underlying profit for 2015-16, and the cash impact is likely to be less than $10 million. The charges will be recognised in the company’s accounts for the December half.
“There is no change to AGL’s commercial or retail gas activities,” AGL said yesterday.
"AGL is confident that it has sufficient gas for its residential and small business customers following the recent contract with the Gippsland Basin Joint Venture and the planned expansion of the Eastern Gas Pipeline. Incremental future gas requirements are likely to be sourced from the southern markets.
“AGL expects to recognise an impairment charge of $640 million after tax ($795 million pre-tax) against the carrying value of its gas exploration and production assets including an increase in rehabilitation provisions.
"This charge will be recognised as a significant item in the financial results for the six months ended 31 December 2015. The impairment has minimal impact on FY16 Underlying profit.
"The FY16 cash impact of this strategic decision, excluding potential sale of assets, is expected to be less than $10 million and relates to rehabilitation, redundancy and other associated costs.
“The two major drivers of the impairment charge have been the fall in global oil prices with consequent effect on long-term Queensland gas prices and Waukivory Pilot well data indicating lower-than-expected production volumes for the Gloucester Gas Project,” AGL’s statement said.
"AGL has completed the business case for the Gloucester Gas Project, which incorporated disappointing gas flow data from the Waukivory Pilot wells and economic modelling of the gas resource.Unfortunately, the economic returns to support the investment of approximately $1 billion were not adequate."
AGL 1Y – AGL pulls the pin on Gloucester gas
The company said it will cease production at the Camden Gas Project in South West Sydney in 2023, 12 years earlier than previously proposed.
AGL will also sell its Queensland assets at Moranbah, Silver Springs and Spring Gully. It said asset sales are likely to raise $10 million at most.
