AGL has cited disappointing production volumes from its Waukivory pilot in a shock decision to move away from natural gas assets.
The decision means the Gloucester Gas production will not proceed, and the Camden gas project in Sydney will cease production 12 years earlier than planned in 2023.
“AGL has completed the business case for the Gloucester Gas Project which incorporated disappointing gas flow data from the Waukivory Pilot wells and economic modelling of the gas resource,” the company said.
“Unfortunately, the economic returns to support the investment of approximately $1 billion were not adequate.”
“Consequently, in the interest of our shareholders and customers, this is the most responsible course of action.”
AGL had projected the gas project at Stratford, about 100km north of Newcastle, to deliver more than 15 per cent of the state’s gas needs by 2018.
Anti-CSG opponents had long argued that the Gloucester project - over which even senior government officials had raised doubts concerning the complex geology of the region - should never have gone ahead.
"It means the biggest party you've ever seen," John Watts, a spokesman for Groundswell Gloucester, said.
AGL bought the project for $370 million in cash in late 2008, when it was reported to contain 26 per cent of certified CSG reserves in the state.
The company advised the stock exchange on Thursday that a review had guided the company to move away from natural gas exploration and production as a core business.
“There is no change to AGL’s commercial or retail gas activities,” the company said.
AGL expects to recognise an impairment charge of $640 million after tax ($795 million pre-tax) against the carrying value of its gas exploration and production assets including an increase in rehabilitation provisions.
“This charge will be recognised as a significant item in the financial results for the six months ended 31 December 2015 [but] the impairment has minimal impact on FY16 Underlying profit,” the company said.
“The FY16 cash impact of this strategic decision, excluding potential sale of assets, is expected to be less than $10 million and relates to rehabilitation, redundancy and other associated costs.”
The Gloucester project had been a flashpoint between activists and AGL in the debate over coal seam gas.
NSW Greens mining spokesperson Jeremy Buckingham said AGL’s decision was “wonderful and smart”.
He congratulated those who had fought the project, saying he shared the joy “at being able to move on with their lives knowing that their land and water is protected."
"The Greens recognise that AGL seems to be making a significant efforts to transition itself from climate baddie, to an energy company with a clean future,” he said.
"This decision shows that a social licence is necessary to operate in a community.
"With one deeply unpopular and troubled coal seam gas project left in NSW, it is time for Premier Baird to act and ban coal seam gas across the state.”
The Herald reported in November that Gloucester Shire Council had asked Premier Mike Baird to buy an exploration licence back from the company.
Opponents, who marked their 100th protest against the project late last year, had maintained the project threatened drinking water in the foodbowl as well as beef, dairy, horticulture and tourism operations.
AGL had long argued the project would keep energy prices affordable, create jobs and promote economic development.
“AGL is confident that it has sufficient gas for its residential and small business customers following the recent contract with the Gippsland Basin Joint Venture and the planned expansion of the Eastern Gas Pipeline,” the company announced on Thursday.
“Incremental future gas requirements are likely to be sourced from the southern markets.”
with Peter Hannam
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