VOLATILE commodity prices have taken their toll on energy group AGL, with the company deciding to end all exploration and production of gas in NSW and Queensland.
Announced by company chief executive Andy Vesey in February, the decision comes after AGL reported impairment charges of $640 million after tax against the carrying value of its gas exploration and production assets, including an increase in rehabilitation provisions.
“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 said.
Mr 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.
There would be no change to AGL’s commercial or retail gas activities, he said. AGL was confident that it would meet gas demand from its residential and small business customers through its sales agreement with the Gippsland basin joint venture as well as the planned expansion of the eastern gas pipeline.
NSW Greens mining spokesperson Jeremy Buckingham welcomed AGL pulling the plug on coal seam gas in NSW and Queensland.
“This is a wonderful and smart strategic decision by AGL to get out of a fossil fuel that was floundering in the face of community opposition, concern about pollution and climate change, and an accelerated transition to renewable energy.”
Groundswell Gloucester chair Julie Lyford said this is a “wonderful victory”.
Ms Lyford said the group will ask the state government to ensure adequate and prompt remediation at the Waukivory site and long term monitoring for environmental impacts that may result from the CSG work.
AGL however put its exit from Gloucester down to economics rather than pressure from environmental organisations and local communities.
In New South Wales, AGL said 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 previously proposed.
AGL said impairments for both projects included additional provisions ensuring rehabilitation costs have been provided for.
It had also 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.
Economic returns from the project to support the investment of around $1 billion were deemed inadequate by AGL, according to its review.
AGL will relinquish its petroleum exploration licence for the Gloucester region (PEL 285) to the NSW government and will commence a decommissioning and rehabilitation program for its well sites and other infrastructure in the Gloucester region.
“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.
AGL 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, the company said.
Without the Gloucester gas project, there are limited opportunities for scale and efficiencies across projects, so at Camden, AGL said it will extract gas from its existing wells enabling closure in 2023.
Camden will be progressively decommissioned and the site rehabilitated.
AGL has impaired its Queensland natural gas assets at Moranbah, Silver Springs and Spring Gully, with AGL expected to sell these assets apart from gas storage and related plant at Silver Springs.
Due to difficult market conditions this may take some time, AGL said.