AGL Energy (AGL), Australia’s second-largest energy retailer, has decided to divest its gas exploration and production assets due to the volatility of commodity prices and long development lead times, according to a filing at Australian Securities Exchange.
Slumping oil prices have undermined the economics of gas projects, AGL reported. The company expects to have an impairment charge of A$640 million (€411 million; $460 million) after tax, or A$795 million pre-tax, against the carrying value of its gas exploration and production assets. That includes an increase in rehabilitation provisions.
The company has been trying to sell its Queensland natural gas assets at Moranbah, Silver Springs and Spring Gully, except for the gas storage and related plant at Silver Springs. “Due to difficult market conditions, this may take some time,” AGL noted in the filing.
“It is likely that the sale of Moranbah will require a cash payment in relation to onerous contract provisions previously booked,” the company said.
In New South Wales (NSW), AGL 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 planned – as it believes the returns do not justify its A$1 billion investment.
It will relinquish its Petroleum Exploration Licence for the Gloucester region to the NSW government and will decommission and rehabilitate its well sites and other infrastructure assets in the region.
Andy Vesey, AGL’s managing director and chief executive officer, said that “exiting our gas assets in NSW has been a difficult decision for the company. AGL has invested significantly in these projects and communities.”
He added that the company would focus on its core competencies.
The Sydney-listed company currently runs a diverse power generation portfolio including base, peaking and intermediate generation plants, covering traditional thermal generation as well as renewable sources such as hydro, wind, solar, landfill gas and biomass. Its interim financial results will be released on 10 February.