Ready to ignite: AGL considers legal action over about-face on gas drilling

AGL is considering taking legal action against the state government after its abrupt policy shift on coal seam gas exploration, claiming it will cost it hundreds of millions of dollars.

AGL is considering taking legal action against the state government after its abrupt policy shift on coal seam gas exploration, claiming it will cost it hundreds of millions of dollars.

"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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