AGL Energy will make more than $600 million worth of writedowns on its upstream gas ventures and sell underperforming businesses as it battles uncertainty surrounding oil and gas prices.
AGL has written down the value of its gas business by $603 million, $275 million of which relates to the Gloucester project in the NSW Hunter region.
The writedowns will result in a $435 million hit to AGL’s 2014/15 net profit result, but the company reaffirmed its forecast for an underlying full year profit in the top half of its $575 million to $635 million guidance range.
Including previously announced measures, the company will take $808 million worth of pre-tax writedowns for the year.
AGL said it would look to divest projects in NSW’s Hunter Valley, South Australia’s Cooper Basin and the Queensland town of Moranbah, but retain the Gloucester project, which has faced long-running opposition from environmentalists.
The company’s chief executive Andy Vesey said the decision to sell non-core and underperforming assets was made in the context of uncertain future gas prices.
“We’re doing this against the backdrop of significant global uncertainty surrounding the long term oil and gas prices,” Vesey told analysts.
“We’re just unwilling to tie up large amounts of capital for extended periods with relatively uncertain outcomes.
“But we are planning to judiciously invest in a few projects that we can develop in a relatively short time horizon with more certain returns.”
The writedowns were disappointing, he said, but “reflective of some of the events happening on a global stage”.
AGL expects about 20 per cent of its gas requirements to be supplied from its own production, assuming the Gloucester project got up and running.
The company is also 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,” Vesey said.
AGL said it expected the asset sale process to take place in FY16.
AGL’s shares were down 40 cents, or 2.5 per cent, to $15.42 cents at 1142 AEST.
Bell Direct equities analyst Julia Lee said AGL’s divestment of poorly performing assets was a positive move, but did raise longer term concerns.
“I think it does bring into question AGL’s changing business model,” Lee said.
“They do need to change because of the impact that we have seen of solar power on utilities, and in particular over the next couple of years the impact of being able to store that solar power in batteries.”
Lee said that change would be a major disruption for companies like AGL, which derives around 80 per cent of its earnings from power generation.
