Diversified gas and electricity company AGL Energy's (ASX: AGK) admission last week that it may be forced to write down the value of its coal seam gas (CSG) assets in New South Wales will cause concern for investors, not just in AGL but any company exposed to the industry in NSW.
In late February, the NSW government released a package of measures aimed at further regulating the industry. No doubt many of these measures will bring some relief to primary producers and residents of regions earmarked for CSG exploration and potential development, including in the Hunter Valley. For AGL's shareholders though, the new, stricter regulations have created "an impairment risk to the existing book value" of both AGL's Camden and Hunter Gas Projects.
Other companies currently exposed to CSG in NSW include oil and gas producer Santos (ASX: STO), which has the largest acreage at a staggering 62,000 square kilometres and Dart Energy (ASX: ESG), a smaller player in the region but with its assets concentrated in NSW, it has potentially much more at stake. Other major CSG players such as Origin Energy (ASX: ORG) and Beach Energy (ASX: BPT) do not have CSG assets in NSW and so are not affected by this current policy shift.
Foolish takeaway
There is a lot of controversy around the environmental impact of CSG and really no telling how future governments will regulate the industry. Investors may choose to tread well clear of the CSG industry or, at the very least, concentrate on the larger, vertically integrated producers that provide some safety for investors through their diversified business exposure.
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Tim McArthur owns shares in Origin Energy.
