The company is walking away from its controversial Gloucester coal seam gas project in northen NSW and will stop production at the Camden gas project, also in NSW, in 2023.
AGL also plans to sell its natural gas assets at Moranbah, Silver Springs and Spring Gully, all in Queensland.
The decision means the company will incur an impairment charge of $640 million against its exploration and production assets, to be recognised in its half year results to be released next week.
However the cash impact on AGL’s full year results would be minimal at around $10 million, it said.
AGL is one of Australia’s largest energy retailers, and has for years looked to expand its presence in gas production in order to source supplies for its retail and commercial operations, plus boost margins.
“Exiting our gas assets in NSW has been a difficult decision,” chief executive Andy Vesey said.
“AGL has invested significantly in these projects and communities over the past seven years for the Gloucester gas project, and 10 years in the case of the Camden gas project.”
The major drivers for AGL’s decision include the sharp fall in global oil and gas prices, long lead times for developing the projects, and lower than expected production volumes for Gloucester.
Crude oil prices have slid about 70 per cent in the past 18 months, and last month slipped to a 13-year low below $US27 a barrel.
“We are talking about potential investment of a billion dollars, so we had to make sure there were returns for shareholders. That has increasingly become uncertain in recent weeks,” Vesey told analysts.
The company said it was confident it will have sufficient gas supplies for its residential and small business customers.
The decision has been cheered by activist groups who have long protested against the company’s gas developments, saying the Gloucester project threatens drinking water, dairy, horticulture and tourism operations in the area.
“This is fantastic and long overdue news for the embattled Gloucester community, which has struggled for years to stop this project,” Steve Phillips, regional coordinator for environmental group Lock The Gate, said.
The company denied it had quit the project under pressure from protest groups, and said it was strictly a business decision.
AGL shares were up five cents at $18.56 each.
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