UK Utility Centrica Suffers from Low Prices in 2015
The dominant UK energy utility Centrica saw a big rise in its Rough gas storage business, but lost money in all other segments in the UK thanks to low commodity prices. Overall, it made a statutory loss of £884mn ($1.27bn) for the year, after exceptionals and impairments were deducted from its operating profit of £1.026bn. For 2014, the figures were a statutory loss of £1.005bn and an adjusted operating profit of £1.171bn.
Criticised for not fully passing on low wholesale energy prices to consumers, the company is, along with its five peers, awaiting the outcome of a Competition & Markets Authority probe that started just before the 2014 oil price crash. This could come next month.
In its results reported February 18, Centrica said low commodity prices hit the upstream and low power prices and a weak spark spread hit its nuclear power and some gas-fired power assets. Nevertheless, CEO Ian Conn said Centrica had turned in a "resilient financial performance." Operating cash flow has been strong, and the company has paid down about 9% of its debt, bringing it down to £4.7bn.
Most of the additional £8mn it earned from Rough is not sustainable in the long term as it came from selling cushion gas, needed to retain pressure when withdrawing gas. The main source of revenue, selling storage capacity, was hit by the poor seasonal price spreads, with bundled units of capacity going for 21.1 pence/therm, only about 5% up on 2014, which was its worst year since it bought the asset in 2003. That business earned £37mn, up 28% on the year.
It said its Irish operation, Bord Gais, did better than expected it to when it bought it, recording an operating profit of £30mn in the first full reporting year since its acquisition in June 2014.
In North America it did well from Direct Energy compared with the year prior, although the results for 2014 were particularly bad, owing to the damage done by the storms.
It reported net exceptional pre-tax charges of £2.358bn, up from 2014's £1.597bn. Of that, the bulk (£1.865mn) was attributed to a number of production assets, reflecting declining wholesale gas and oil prices. The upstream business was flat in terms of output, down 1% at 78.6mn boe. Gas production was down 3% and liquids production was up 7%.
In Europe, total production was down 1%. Norwegian production rose by 16% reflecting consistently high production from Kvitebjorn and Statfjord and a first contribution from the large-scale Valemon project in the North Sea, which came on-stream in January 2015. UK and Netherlands production decreased by 14%, reflecting the natural decline of producing fields and an extended maintenance shutdown at Morecambe, its swing producer for the UK.
Centrica is pulling back its international upstream business to focus on the UK, Netherlands and Norway. "As such we continue to review options to release capital from our Trinidad & Tobago assets, while we now consider our positions in Canada to be non-core. We continue to work with our Canadian partners, Qatar Petroleum, as we seek ways to maximise value from our existing position," it said.
Looking to the future, if current low wholesale prices continue beyond 2016, it could cut upstream capital expenditure to the bottom end of its £400-£600mn range. "As a result, we currently project that our sources and uses of cash flow will remain more than balanced over the period 2016-18, even if flat real wholesale oil, gas and power prices remain at low levels of $35/bbl Brent oil, 35p/therm UK NBP gas and £35/MWh UK power," it said.
William Powell