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AGL exits gas exploration and production

AGL Energy Limited has announced that it will be stopping all exploration and production of all gas assets.

Following a review, the company said it has made a strategic decision that exploration and production of natural gas assets will no longer be a core business for the company due to the volatility of commodity prices and long development lead times.

“There is no change to AGL’s commercial or retail gas activities,” the company said in a statement.

“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.”

They said the charge will be recognised as a significant item in the financial results for the six months ended December 31, 2015, and the impairment had 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,” AGL said.

“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.”

Managing Director and CEO, Andy Vesey, said AGL would focus on its core competencies, transforming the business to capitalise on the evolution occurring in the energy sector and to meet its customers’ rapidly changing needs and expectations.

AGL has impaired it’s Queensland natural gas assets at Moranbah, Silver Springs and Spring Gully.

“Apart from gas storage and related plant at Silver Springs, AGL expects to sell these assets,” the statement said.

“Due to difficult market conditions this may take some time. It is likely that the sale of Moranbah will require a cash payment in relation to onerous contract provisions previously booked.”

In New South Wales, AGL will not proceed with the Gloucester Gas Project and will cease production at the Camden Gas Project in South West Sydney in 2023, twelve years earlier than previously proposed. Resulting impairments for both projects have included additional provisions ensuring rehabilitation costs have been appropriately provided for.

“Exiting our gas assets in New South Wales has been a difficult decision for the company. AGL has invested significantly in these projects and communities over the past seven years for the Gloucester Gas Project, and ten years in the case of the Camden Gas Project,” Mr Vesey said.

“We are proud of the dedication and professionalism of our employees and contractors in their efforts to get to this point and our work to bring benefits to the communities in which we operate. We remain committed to leaving a positive legacy in these regions.”

The company will establish a $2 million Independent Trust Fund and will work with the Gloucester community to identify investment options to deliver ongoing economic benefit to the region and its communities.

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