AGL Energy to take $603m write-down on gas business

AGL Energy to take $603m write-down on gas business

AGL Energy will take more than $600 million of write-downs on upstream gas ventures as a result of a review of the business that will also see several assets in Queensland, South Australia and New South Wales put up for sale.

The stalled expansion of the Camden coal seam gas project south of Sydney has been formally cancelled, but the Gloucester project will continue, AGL said in a statement on Monday.

The streamlining of the business will see AGL focus on just a few core assets in gas, including Camden, Gloucester, the Silver Springs gas storage plant in Queensland, the new Newcastle gas storage facility and the Wallumbilla LPG plant. Other assets are to be divested, including the Hunter gas project, stakes in the Spring Gully venture in Queensland and in the Cooper oil project, as well as the Moranbah assets, which are already on the market.

AGL’s new chief executive Andy Vesey put the upstream gas business under review within a week of taking over the role in February, raising speculation the utility may seek to exit those activities completely.

But Mr Vesey subsequently said he regarded it as strategicaly important for AGL to have a presence in upstream production of gas, of which it is a major retailer and wholesale seller.

AGL said on Monday it had a “strong” gas supply position through a mix of contracted gas purchases and its own production at Camden, covering its expected demand from household customers until 2027 and contracted commercial demand until 2021.

“This position enables AGL to focus on a small number of gas projects including strategically important gas storage while avoiding significant capital expenditure, releasing poorly performing assets and allowing management to concentrate on enhancing shareholder value across the group,” it said.

The write-downs, which total $435 million after tax, comprise a $237 million after-tax write-down on the Moranbah assets in Queensland, a $193 million write-down on the Gloucester project and a $5 million write-down on the Cooper project.

At Gloucester, AGL said the write-downs resulted from a review of the development costs and gas volumes, taking into account the delayed timing of the venture and expected lower gas sales prices. But it said the project, now slated for a final investment decision in 2016, “will assist AGL to secure competitively priced gas for our NSW customers”.

The impairments will bring total write-downs for AGL in the 2014-15 financial year to $590 million after tax, or $808 million pre-tax, taking into account those previously advised, AGL said.

The company reiterated that its underlying profit would likely be in the top half of previously stated guidance for 2014-15.

Source:- www.smh.com.au