Credit Suisse casts doubt over AGL's Gloucester Gas Project

GLOBAL brokerage firm Credit Suisse says opposition to AGL’s Gloucester Gas project could delay the Waukivory Pilot Project and weaken the energy company’s profits.

Global brokerage firm Credit Suisse says opposition could threaten AGL's Gloucester Gas Project.

Global brokerage firm Credit Suisse says opposition could threaten AGL's Gloucester Gas Project.

In its July market update, Credit Suisse attributed just $88 million in value to the Gloucester Gas Project out of a $347.5 million book value, due to delay risks.

AGL’s retail arm could also be exposed to campaigns by activists that trigger customer losses, the broker said, keeping a ‘neutral’ recommendation on the company’s stock.

AGL was contacted for comment but declined to issue a response.   

Credit Suisse said proposed changes to the State Environmental Planning Policy (SEPP) could have benefits and repercussions for AGL.

Under the current SEPP proposals to drill or operate more than five wells within 3km of existing wells are deemed to be State Significant Developments, which require a full environmental impact statement (EIS) in order to proceed.

Under the planned changes, the 3km rule will begin at the geometric centre of the proposed wells, not the nearest, to existing wells.

The proposed amendments would remove the ambiguity surrounding whether AGL is required to produce an EIS or not, but this could also have a downside for the company according to Credit Suisse.

“We continue to view the high level of resistance in the Gloucester Valley and surrounds will be an ongoing risk for (AGL) if it commences the Waukivory Pilot CSG (coal seam gas) Project,” Credit Suisse analysts wrote.

“As a guide, almost all of the submissions to the NSW Department of Planning and Environment for the proposed amendments referenced (AGL’s) Gloucester CSG project and were highly critical.

“Many opponents have called for an EIS as it provides a formal opportunity for public submissions and is a more transparent process.

“Avoiding this requirement may lead to the perception of a weakening of the approvals process, in our view.”

Uncertainty over land values was also an issue, the broker said.

“A report commissioned by the (State) government’s Valuer General (said) there (was) not enough evidence to draw a conclusion on the impact of CSG’s presence on land values in NSW,” Credit Suisse analysts wrote.

“We believe this is the key concern among many that oppose CSG in the Gloucester Valley.

“If (AGL) believes this is the case, we think it could significantly reduce local opposition by guaranteeing land values, in our view.

“Otherwise, in light of the absence of evidence convincing local residents otherwise, we think concerns over potential impacts on land values will continue to drive opposition to AGL as those affected do not stand to benefit financially from CSG, unlike other land owners elsewhere in NSW and Queensland.”

Credit Suisse said a coordinated campaign targeting AGL’s electricity and gas customers could result in customer loss and costs to the company.

It reiterated a 2.9 per cent write down in AGL’s valuation from issues connected to the Gloucester development.

Credit Suisse said the $260 million write down on the book value of the Gloucester Gas Project was equivalent to a loss of 180,000 customers.

AGL is likely to make a final investment decision on the Gloucester Gas Project in the second half of 2015.

The company is scheduled to release its full year 2014 results to the Australian Securities Exchanges on Wednesday, August 20.

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