Centrica Sells Last Non-Europe E&P Asset

Leading UK energy marketer Centrica said June 9 that its majority-owned Canada E&P joint venture CQ Energy Canada Partnership is to be sold to a consortium comprising MIE Holdings Corporation,Can-China Global Resource Fund (CCGRF) and trader Mercuria.

They have agreed to pay C$722mn (£413mn or $535mn) cash for all of CQ and are setting up a new company, Maple Felix Energy Corporation, to acquire it; the transaction is expected to close in 2H 2017.

According to MIE Holdings, "the consideration after adjustments in accordance with the purchase and sale agreement will be funded through a combination of the group’s internal resources, debt or equity financing and proceeds to be raised from the convertible preferred shares issued by the purchaser as follows: (a) C$170,000,000 in convertible preferred shares from CCGRF; (b) C$34,000,000 in convertible preferred shares from Mercuria; and (c) C$296,000,000 in common shares from the group. The purchaser will draw up to C$250,000,000 from the senior secured revolving credit facility to be provided by a syndicate of Canadian banks." 

MIE said that the book value of CQ Energy Canada Partnership amounted to C$843mn as of end-2016.

Centrica, which has a 60% share in CQ, expects its net share of sale proceeds to be £240mn. The other 40% is held by Qatar Petroleum International.

In line with its strategy announced in July 2015, Centrica said the divestment means its E&P activity will now be focused solely on European assets; it completed its divestment of E&P gas assets in Trinidad & Tobago last month.

According to MIE, CQ produced 55,775 barrels of oil equivalent/day in 2016, of which 87% was gas (292mn ft³/day). It made a net loss of C$48mn and has 343.6mn boe of 2P reserves at end-2016. It operates in western Canada’s Sedimentary Basin, where Centrica has been present since 2000.

Centrica’s share price initially firmed 3% on the day probably because of the divestment, but by 10am UK time (9am GMT) the rise was only 1.5%.

The UK election result – which has led to a hung parliament with no overall majority – caused sterling to weaken. It may also have lessened the likelihood of Conservative-led price controls on big energy suppliers, including Centrica, as parties now focus on who should lead the next government.

Mark Smedley