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AGL Energy abandons natural gas plans

4th February 2016

By: Esmarie Iannucci

Creamer Media Senior Deputy Editor: Australasia

  

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PERTH (miningweekly.com) – Energy major AGL Energy on Thursday announced plans to abandon its natural gas assets, citing the volatility of commodity prices and long development lead times.

AGL MD Andy Vesey told shareholders that the company’s focus would be on its core competencies, transforming the business to capitalise on the evolution occurring in the energy sector, and meeting customer’s rapidly changing needs and expectations.

There would be no change in AGL’s commercial or retail gas activities.

In Queensland, AGL planned to divest of its Moranbah, Silver Springs and Spring Gully assets. The gas storage and related plant at Silver Springs would be safe from the divestment.

Vesey said that owing to the difficult market conditions, the divestment of these assets would likely take some time, and it was possible that the sale of the Moranbah asset would require a cash payment in relation to onerous contract provisions previously booked.

In New South Wales, AGL had taken the decision not to proceed with the Gloucester gas project and would cease production at the Camden gas project in 2023, 12 years earlier than previously proposed.

The Camden project consisted of 144 wells, of which 96 were in production. The project employed 47 people.

The Gloucester natural gas project plan included a Stage 1 gas field development of up to 110 gas wells and associated infrastructure, a central processing facility, gas transmission pipeline and a delivery station.

AGL had completed the business case for the Gloucester project, which incorporated disappointing gas flow data from the Waukivory pilot wells and economic modelling of the gas resource.

However, the economic returns to support the investment of about A$1-billion were not adequate, Vesey said, adding that abandoning the asset was in the best interest of shareholders.

Furthermore, AGL would relinquish its petroleum exploration licence for the Gloucester region to the state government and would start a comprehensive decommissioning and rehabilitation programme for its well sites and other infrastructure in the Gloucester region.

Without the Gloucester project, there were limited opportunities for scale and efficiencies across projects, so at Camden, AGL would extract gas from its existing wells enabling closure in 2023.

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

“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.

“We are proud of the dedication and professionalism of our employees and contractors in their efforts to get to this point and our work to bring benefits to the communities in which we operate. We remain committed to leaving a positive legacy in these regions,” said Vesey.

While AGL shareholders lamented the news, with the company’s share price dropping nearly 19% on Thursday, environmental groups have welcomed the move away from natural gas.

“This is fantastic and long-overdue news for the embattled Gloucester community, which has struggled for years to stop this project,” said green’s group Lock the Gate’s regional coordinator for the Hunter and Central Rivers, Steve Phillips.

“It's a shame it was an economic decision from the company – rather than sensible policy from the New South Wales government – that saved Gloucester from coal seam gas, but local residents will be thrilled with the decision regardless,” he said.

AGL would establish a A$2-million independent trust fund and would work with the Gloucester community to identify investment options to deliver ongoing economic benefit to the region and its communities.

Edited by Mariaan Webb
Creamer Media Senior Deputy Editor Online

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