Fossil fuel assets taking huge hits

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With the bulk of company reports for the 2015/16 financial year having been delivered, it is clear the fossil fuel sector has taken some substantial financial hits recently.

Write-downs on fossil fuel assets and increased provisioning for dodgy debts to the sector have combined to paint a bleak picture throughout reporting season.

By far the hardest hit has been BHP Billiton, which wrote down AU$9.4 billion dollars on its US onshore petroleum activities, which predominantly involved shale gas exploration.

Closer to home, Santos has also felt the pinch from its own high-cost gas investment. The company wrote down the value of its flagship GLNG project by almost $2 billion.

The coal industry has also seen some significant losses, with Rio Tinto reporting almost a billion dollars worth of take or pay charges for unused capacity at the Abbot Point. Wesfarmers wrote down a massive $850 million on its Curragh coal mine in central Queensland, while coal transporter Aurizon reduced the book value of its Aquila Resources business and rolling stock by a combined $528 million.

AGL Energy‘s decision to abandon coal seam gas operations in NSW (Camden and Gloucester) added significantly to $795 million worth of impairments reported for the 2015/16 financial year.

While we are still waiting for full financial year reports from ANZ, NAB and Westpac, we know the banking sector hasn’t been immune to the costs of dodgy fossil fuel assets. Both Commonwealth Bank and Macquarie Group have reported significant bad debt provisioning, with at least $200 million attributable to dodgy resources lending for each bank.

fossil fuel writedowns:
$0 million
So far in 2016

CompanyWritedown (AU$)Project / asset
BHP Billiton$9427 millionUS onshore gas & Indomet coal
Santos$1950 millionGLNG
Rio Tinto*$925 millionAbbot Point Coal Terminal take or pay charges
Wesfarmers$850 millionCurragh coal mine
AGL Energy$795 millionCSG impairment
Beach Energy$635 millionCooper Basin and other gas
South32 Ltd$582 millionSouth Africa energy coal
Origin Energy$551 millionBass, Cooper & Otway gas
Aurizon$528 millionAquila Resources and rolling stock
AWE Ltd$292 millionBassGas, Cliff Head & Tui Oil (NZ)
Commonwealth Bank$200+ millionResources debt
Macquarie Group**$200+ millionResources debt
Horizon Oil$195 millionPNG & NZ oil
Wollongong Coal**$125 millionRussell Vale colliery
Carbon Energy$96 millionUnderground coal gasification impairment
Cue Energy$91 millionMahakam Hilir PSC, Maari oil field, exploration assets
Senex Energy$70 millionExploration assets
Cooper Energy$34 millionIndonesian & Otway oil/gas

*Half year report to 30 June 2016
**Full year to 31 March 2016