Ready to ignite: AGL considers legal action over about-face on gas drilling
"We're looking into it," chief executive Michael Fraser said after his company released its half-yearly earnings to the stock exchange last week.
The energy group reported that it had spent $325 million at Camden, south-west of Sydney, and in the Hunter Valley, tapping gas that is locked in coal seams, and an estimated $250 million of this spending is now at risk.
The company has instructed its solicitors to look at what grounds could be used for any legal action. It follows the decision by the O'Farrell government last week that no drilling will be undertaken within two kilometres of urban areas or near so-called critical industry clusters.
"We invested a lot of money in good faith under existing policy and there could be legal action we could take," a spokeswoman for AGL said. "Our lawyers are looking into it."
The government's decision will "sterilise" extensive gas reserves found by AGL. It will not be able to access some of the gas at Camden and in the Hunter.
Mr Fraser met NSW Premier Barry O'Farrell last Tuesday to outline his concerns over the about-face.
"He's obviously not going to change the fundamentals of the policy," Mr Fraser said.
"There are grey areas and details that need to be fleshed out."
This includes how to define a critical industry cluster. In the Hunter Valley, AGL owns 800 hectares of land at Broke, which includes 200 hectares of vineyard.
"We own it, so could we drill on it?" the AGL spokeswoman said.
"Or what if a landowner wants to opt out" of the government ban and agree to give AGL access, she said.
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The NSW government announced an abrupt policy shift banning drilling within two kilometres of urban areas and near so‑called 'critical industry clusters', a decision AGL says could sterilise gas reserves and has prompted the company to consider legal action.
AGL says the sudden about‑face could cost it hundreds of millions of dollars after it invested under the previous policy. The company has instructed lawyers to explore what legal grounds might exist to challenge the ban.
AGL reported it has spent about $325 million at Camden and in the Hunter Valley on coal seam gas exploration, and estimated around $250 million of that spending is now at risk due to the policy change.
The article specifically names AGL’s Camden site (south‑west of Sydney) and projects in the Hunter Valley as locations where some gas reserves will be sterilised and access to gas could be prevented by the new restriction.
The government policy references 'critical industry clusters' but the boundaries and definition are unclear—AGL has noted there are grey areas and details to be fleshed out, which is important for investors because these definitions determine where drilling is permitted.
AGL owns about 800 hectares at Broke in the Hunter Valley (including 200 hectares of vineyard). The company has raised questions about whether ownership or a landowner opting in or out affects the ban, but the policy details remain unresolved.
AGL’s chief executive Michael Fraser met with NSW Premier Barry O'Farrell to outline concerns, and the company has instructed its solicitors to investigate potential legal grounds; AGL spokeswoman confirmed lawyers are looking into the matter.
Investors should monitor AGL announcements about any formal legal action, government clarification on the two‑kilometre and 'critical industry cluster' rules, updates on the financial impact of the at‑risk spending, and any further discussions between AGL and the NSW government.
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