The company says exploration and development of east coast gas is no longer a core business due to the volatility of commodity prices and long development lead times involved.

AGL will also terminate production from the Camden CSG project in NSW by 2023, 12 years earlier than expected.

AGL secured the asset through its takeover of Sydney Gas Company a decade ago as part of a push into the upstream business, kicked off under earlier management.

Camden is NSW’s only significant domestic gas production asset, although Santos is developing the Narrabri project near Gunnedah, and uses gas to generate power at its Wilga Park power plant.

While there have been serious fears of an east coast gas shortage, AGL managing director Andy Vesey said that AGL is confident that it has sufficient gas for its residential and small business customers following the recent contract with the Gippsland Basin Joint Venture and the planned expansion of the Eastern Gas Pipeline.

Incremental future gas requirements are likely to be sourced from the southern markets, he said.

NSW imports some 95% of its gas.

There is no change to AGL’s commercial or retail gas activities, he said.

AGL expects to recognise an impairment charge of $640 million after tax against the carrying value of its gas exploration and production assets including an increase in rehabilitation provisions in its results for the six months to December 2015, but sees minimal impact on its 2015-16 underlying profit.

The cost of shutting up shop is expected to be less than $10 million and relates to rehabilitation, redundancy and other associated costs, and that could be further reduced if the company sells off assets.

The company said the fall in the oil price, and the flow-through into the Queensland gas market, plus poorer than expected flow rates for its Waukivory pilot near Newcastle, the subject of more than a decade of work, were major factors in its decision.

The company said $1 billion would be needed to develop the Gloucester project, but that at such a huge cost there was little likelihood of sufficient returns.

PEL 285 will be returned to the state government, leaving Santos as essentially the only CSG player in the state.

The fall in the Queensland gas price has also led the company to writedown the value of Moranbah, Silver Springs and Spring Gully fields, all of which will be put up for sale.

The gas storage facility and related plant at Silver Springs, obtained via the takeover of Mosaic Oil several years back, will be retained.

AGL said that the market for east coast gas assets is so poor that the sale of the fields could take some time, and the sale of the aging and underperforming Moranbah CSG field, operated by Shell and PetroChina, will probably require a cash payment in relation to onerous contract provisions previously booked.

The impairments for the Gloucester and Camden CSG projects include additional provisions to ensure rehabilitation costs are fully covered.

“Exiting our gas assets in NSW has been a difficult decision for the company,” Vesey said.

“AGL has invested significantly in these projects and communities over the past seven years for the Gloucester gas project, and ten years in the case of the Camden gas project.

“We are proud of the dedication and professionalism of our employees and contractors in their efforts to get to this point and our work to bring benefits to the communities in which we operate. We remain committed to leaving a positive legacy in these regions.”

To make up for not developing Gloucester and putting $1 billion into the local area AGL will establish a $2 million independent trust to identify investment options to deliver ongoing economic benefit to the region and its communities.

Wells at Waukivory and Camden will be progressively decommissioned and the sites rehabilitated as required.

The latest writedown is only slightly less than the $808 million before tax impairment included in its 2015 accounts, with $600 million of that being in the value of AGL’s upstream gas assets at Gloucester, Moranbah and its Cooper Basin oil interests.

Lock The Gate

Anti-CSG activist group Lock The Gate says residents of Gloucester and Camden in NSW are celebrating this morning's news that AGL is getting out of CSG, with 300 wells no longer planned to be drilled around Gloucester.

“This is fantastic and long-overdue news for the embattled Gloucester community, which has struggled for years to stop this project,” LTG’s regional coordinator for the Hunter and Central Rivers Steve Phillips said.

While LTG is a Queensland import, the Hunter Valley was the site of some of the earliest anti-CSG protests in NSW, when Sydney Gas Company proposed drilling in the area, spooking locals.

“Massive congratulations are due to the brave and hard-working local residents who put their lives on hold to fight for their community and their environment,” Phillips said.

He bemoaned that it was an economic decision from the company rather than “sensible policy from the NSW government”

In Western Sydney, local LTG co-ordinator Dan Robins said he hoped “the wells at Spring Farm with a history of leaking gas will be prioritised for closure".

“All eyes are now on Santos in the Pilliga,” he said.

“It's crystal clear now that coal seam gas is a dead-end industry in NSW. This is a marginal industry with no long-term security, but massive long-term risks to water resources and local communities. We call on Santos to follow AGL's lead.”