In late May, AGL Energy (AGL) revealed plans to sell $1 billion in assets and cut more than $400 million in costs by redirecting the company away from traditional fossil fuels and towards renewables.
Yesterday it fleshed out that review with news of more than $600 million of write-downs on upstream gas ventures which will also see several assets in Queensland, South Australia and New South Wales put up for sale.
As well the stalled expansion of the Camden coal seam gas project south of Sydney has been finally cancelled, but the controversial Gloucester project near the Hunter Valley in NSW will continue after being an early tip to be sold off. This decision will see AGL attract a lot of attention from green groups which oppose the Gloucester project.
Under the strategy announced in late May, AGL said it would sell about $1 billion in assets and cut $470 million in costs and working capital by mid-2017, with “modest” job cuts.
It will also make a big push on smart metering, rooftop solar and storage in its rapidly emerging “new energy” business, which it expects will break even within three years.
But the strategy will also see some of AGL’s renewable interests sold, with its 50% share of the giant Macarthur wind farm, Australia’s largest (at the moment).
Yesterday’s announcement provided more details of the asset sales and the costs.
As a result, AGL will focus on just a smaller core of 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.
Therefore other assets are to be sold, 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 (Queensland) which are already on the market.
AGL said in yesterday’s statement it had a “strong” gas supply position through a mix of contracted gas purchases (especially from Bass Strait), 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," AGL 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.
AGL said the write-down at Gloucester resulted from a review of the development costs and gas volumes, taking into account the delayed timing of the venture and expected lower selling prices for the gas.
But it defended keeping the project, now slated for a final investment decision in 2016, saying in yesterday’s statement that it “will assist AGL to secure competitively priced gas for our NSW customers”. (That’s if the final go ahead is given next year.)
AGL said it expects about 20% of its gas needs to be supplied from its own production, assuming the Gloucester project goes ahead next year.
But the company is also very aware of the bad publicity associated with Gloucester and indicated in yesterday’s statement that it remains focused on making sure the Gloucester project doesn’t impact its retail brand.
“This is always something we have to be attentive to, not only in development of upstream gas but in everything we do, to make sure we do things in the appropriate way,” Mr Vesey said.
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 announced, AGL said yesterday.
The company reiterated that its underlying profit would likely be in the top half of previously stated guidance for 2014-15 of an underlying full year profit in the top half of its $575 million to $635 million guidance range.
The shares dipped 2% to $15.49 yesterday.
The NSW Energy Minister Anthony Roberts yesterday announced that AGL had agreed to sell back three large exploration licences in the Hunter Valley and around Sydney under the government’s buyback scheme which was announced in 2014.
Mr Roberts said that the "very generous" buy-back scheme would only last till September and after that companies with exploration licences would have to "use it or lose it".
