Australia's AGL Energy to Exit Gas E&P Business

Australia's AGL Energy on Thursday it is getting out of natural gas exploration and production business.

The ASX listed company said that “following a review, it has taken 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 the commercial or retail gas activities, AGL said, adding that the company 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 A$640 million after tax (A$795 million 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 $10 million 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.