AGL Energy has announced it will no longer explore coal seam gas assets and will not proceed with the Gloucester Gas CSG Project.

AGL said the decision to no longer focus on coal seam gas exploration or production is due to a fall in global oil and gas prices as well as long development lead times.

AGL said that this decision will not change their commercial or retail gas activities. The company are confident that they have sufficient gas for 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 $640million after tax ($795million 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 $10million 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 Managing Director and CEO, Andy Vesey, said the company will 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.

Within this decision, AGL has impaired its 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.

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.

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.

AGL said the economic returns to support the investment of approximately $1billion were not adequate. Consequently, in the interest of shareholders and customers, they decided ceasing operation was the most responsible course of action.

AGL will relinquish its Petroleum Exploration Licence for the Gloucester region (PEL 285) to the NSW Government and will now commence a comprehensive decommissioning and rehabilitation program for its well sites and other infrastructure in the Gloucester region.

Mr Vesey said, “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.”

AGL will also establish a $2million 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.

AGL 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 closure in 2023.

The Camden site and wells will be progressively decommissioned and the sites rehabilitated. 

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