Page 20 - AGL Sustainability Report 2011

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Economic
AGL Energy Limited 18
Ongoing profitability
Optimisation of upstream gas portfolio
AGL has a target of acquiring 2,000 PJ of 2P gas
reserves in the medium term to manage security
of supply.
Approach
AGL continues to be a significant purchaser of gas in the wholesale
market. AGL’s Upstream Gas group is focusing on building a
diversified domestic gas portfolio to deliver duration and flexibility.
AGL is targeting medium-term ownership of around 2,000 PJ of
2P upstream gas reserves for domestic supply
1
, but will continue
to purchase gas from the wholesale market if this achieves superior
economic outcomes.
Performance
Over the past 12 months, AGL’s gas reserves entitlement has been
expanded by 511 PJ (32%) to 2,089 PJ at the 2P level, and by 268 PJ
(80%) to 3,640 PJ at the 3P level. In the first half of the year, AGL
booked its first gas reserves in the Hunter Valley (142 PJ). AGL’s
share of gas reserves in the Bowen Basin increased by 310 PJ during
the year, and the Mosaic acquisition also contributed to reserves
growth with 69 PJ of 2P reserves booked at 30 June 2011.
Over the next several years, AGL intends to focus on proving
up additional reserves. The potential value creation is substantial,
although the contribution to earnings will be limited until the
reserves are developed and ready for production and delivery
to market.
It is anticipated that with the investments and existing wholesale
contracts in place, AGL will be able to satisfy supply requirements
for customers well beyond 2018. The combination of remaining
wholesale contract volumes plus reserves demonstrates growth
in the sustainability of the business.
On 14 July 2010, AGL and Mosaic Oil NL (Mosaic) entered into
a Scheme Implementation Deed, under which AGL proposed to
acquire all of the issued shares in Mosaic by way of a Scheme of
Arrangement (Scheme). Under the Scheme, Mosaic shareholders
could elect to receive either $0.15 cash per Mosaic share or 1.01
AGL shares for every 100 Mosaic shares.
The Scheme was implemented on 20 October 2010, on which
date AGL acquired 100% of the voting shares in Mosaic and
obtained control. The consideration paid was $142.6 million, and
comprised an issue of equity instruments and cash. The fair value
of shares issued was determined using the published price at the
date of exchange. 6,984,172 ordinary shares in AGL were issued
on 20 October 2010 at a closing price of $16.61.
Mosaic’s principal activities are the production of, and development
and exploration for, oil and gas. Mosaic’s main producing assets are
located in the Surat-Bowen Basin in south-east Queensland. Mosaic
operates fields and discoveries in 10 petroleum leases, owns and
operates the Silver Springs processing facility, and owns 100% of
the Wallumbilla LPG plant and associated pipeline. Mosaic holds
varying interests in exploration permits in the Surat-Bowen Basin,
the Cooper-Eromanga Basin and New Zealand’s Taranaki Basin.
Mosaic also has a 33.3% interest in an oil storage tank and unloading
facility at Lytton in Brisbane.
AGL carried out a comprehensive review of Mosaic’s businesses and
assets to determine which are core and non-core to AGL’s integrated
energy strategy going forward. AGL has disposed of Mosaic’s
interest in the exploration permit in the offshore Carnarvon Basin in
Western Australia, and is in the process of selling Mosaic’s interests
in the exploration permits in New Zealand’s Taranaki Basin.
AGL is currently developing a gas storage facility at Mosaic’s
depleted Silver Springs/Renlim gas fields in the Surat Basin.
Acquisition-related costs amounting to $3.5 million have been
excluded from the consideration paid and have been recognised
as an expense in the period, within the ‘other expenses’ line item
in the income statement (refer to AGL Annual Report).
From the date of acquisition, the entity has contributed $9.3 million
to revenue and a loss of $0.7 million to profit before tax.
Note
1 Excludes ATP 1103.
Current gas portfolio
Future gas portfolio
Legend
Contract
51%
Equity gas
49%
Gas portfolio
4,260.9 PJ
Legend
Contract
50%
Equity gas
50%