AGL to exit gas exploration and production

AGL Energy has announced it is abandoning exploration and production of its natural gas assets due to the volatility of commodity prices and long development lead times.

AGL advised that there would be no change to its commercial or retail gas activities.

The company said it 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 Jemena’s Eastern Gas Pipeline. Incremental future gas requirements are likely to be sourced from southern markets, the company said.

AGL advised that it expects to recognise an impairment charge of AUD$640 million after tax against the carrying value of its gas exploration and production assets including an increase in rehabilitation provisions. The charge will be recognised in the financial results for the six months ended 31 December 2015.

In its statement AGL attributed the two major drivers of the impairment charge to the fall in global oil prices with the consequent effect of long-term Queensland gas prices and Waukivory Pilot well data indicating lower than expected production volumes from its Gloucester Gas Project.

Queensland

Primarily due to the fall in long-term Queensland price forecasts, AGL has impaired its Queensland natural gas assets in Moranbah, Silver Springs and Spring Gully. Apart from gas storage and the related plant at Silver Springs, AGL said that it expects to sell these assets but warned that due to difficult market conditions this could take time. The company also said that due to joint venture obligations with the Moranbah project, this impairment may take some time.

The company also said that the sale of Moranbah will require a cash payment in relation to onerous contract provisions already booked.

New South Wales

AGL has advised that it will not proceed with the Gloucester Gas Project and will cease production at the Camden Gas Project in south west Sydney in 2023, 12 years earlier than previous proposed.

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. The company said that “the economic returns to support the investment of approximately AUD$1 billion were not adequate”.

AGL will also relinquish PEL 285, located in the Gloucester region, to the NSW Government and will commence decommissioning and rehabilitation for its well sites and other infrastructure in the Gloucester region.

The company said that without the Gloucester Gas Project, there are limited opportunities for scale and efficiencies across projects, so at Camden, AGL will extract gas from its existing wells enabling closer in 2023. The Camden site and wells will be progressively decommissioned and the sites rehabilitated.

For more information on the impairment summary click here.

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