State ban could lead to $500m in losses by: Matt Chambers From: The Australian August 29, 2013 12:00AM Increase Text SizeDecrease Text SizePrintEmail Share Add to DiggAdd to del.icio.usAdd to FacebookAdd to KwoffAdd to MyspaceAdd to NewsvineWhat are these? Source: TheAustralian NSW government plans to ban coal-seam gas production near houses and some businesses could lead to more than $500 million of corporate writedowns this earnings season as some projects are slashed to just their real estate value. Yesterday AGL Energy wrote down $343m of the value of its NSW CSG land, including one asset by 95 per cent.
Another NSW gas hopeful, Dart Energy, has flagged that significant charges will be taken on $118m of CSG assets, while Metgasco, which has $71m of assets in the state, also may take a big hit.
AGL chief Michael Fraser, who released a full-year earnings report yesterday that sent shares in the company on the biggest one-day climb in more than five years, said some of the changes being proposed by the O'Farrell Coalition government "make no sense".
"If the NSW government doesn't change the plans . . . then the impact on our reserves alone will be to sterilise just over 400 petajoules of proven and probable reserves," Mr Fraser said.
..."This is equivalent to 17 years' supply for the entire NSW residential market, which is over a million customers."
The AGL writedowns, which cut the value of its NSW assets by half, were revealed with the company's full-year profit of $388.7m.
The result was up 283 per cent because of a full year of operation from the recently acquired Loy Yang brown coal power station and strong performances from the energy merchant and retail operations.
Underlying profit, which stripped out the writedowns and other one-offs, rose 24.1 per cent to $598.3m, which was in line with expectations.
AGL shares shrugged off the writedowns and expected results to surge 71c, or 4.9 per cent, to $15.08 as commentary from Mr Fraser indicated a more positive future for retail and wholesale energy businesses.
Most of the $343m of CSG ground writedowns were taken on AGL's Hunter gas project, in the Hunter Valley, where the book value was reduced from $202.8m to $10m.
The $10m represents only the value of land owned by AGL, which includes 1317ha of agricultural land.
In March, vocal concerns from community and environmental groups led NSW to release a draft planning policy that proposes banning CSG development within 2km of residences, wineries and studs in many parts of the state. AGL has made its impairments based on the draft regulation, so if the final regulations are better for the sector, values could be written up again.
The gas industry says the bans threaten to leave NSW short of gas in two or three years when east coast demand surges because of the ramp-up of $70 billion of CSG export plants being built at Gladstone as many NSW gas contacts expire.
Dart Energy, whose plans to drill at St Peters in Sydney's inner west spurred early opposition to CSG, said last week it would take a big hit on its $118m of Australian assets when it released its accounts next month. "The accounts will include a material impairment charge . . . arising from the NSW government policy currently in place," Dart said.
Metgasco, whose NSW assets have a book value of $71m, has not yet decided whether to take a writedown. Santos, which paid $924m for Eastern Star Gas and its CSG ground in the Pilliga state forest near Narrabri, has said it is unaffected by the draft policy and made no writedown in its first half report earlier this month.
AGL said it had resolved disputes with gas suppliers Santos and Esso-BHP Billiton and locked in most of its volumes at fixed prices indexed to inflation.
It is also positioning to move more of its own available gas north to Queensland as a shortage loomed.
AGL declared a final dividend of 33c, fully franked, bringing the full-year dividend to 63c, up 3 per cent from the previous year.
Morgan Stanley analyst Stuart Baker said capital guidance left room for increased dividends or growth this year. "A lot of the pressures on the energy markets, both wholesale and retail, are starting to ease," Mr Baker said.
The effects of adverse regulatory decisions and more retail competition were set to unwind and AGL's retail business performed strongly, he said referring to share price strength.
A personalised tool to help users track selected stocks. Delivering real-time notifications on price updates, announcements, and performance stats on each to help make informed investment decisions.
(20min delay)