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UTILITIES - Centrica joins forces with Bayerngas Norge

18 July 2017

By Nathalie Thomas Energy Correspondent, Source: Newspaper

Centrica, the owner of British Gas, is to combine its exploration and production business with Oslo-based Bayerngas Norge.

It is the latest example of European utilities stepping back from legacy oil and gas portfolios to concentrate on core services such as supply and services.

The joint venture will have its own board and will operate as a separate company, headquartered in London.

It will remain on Centrica’s balance sheet, although the transaction could lead to a possible initial public offering of the business after two years.

Centrica will own 69 per cent of the joint business and the remaining 31 per cent will be held by the shareholders of Bayerngas Norge, who are led by Stadtwerke München (SWM), Munich’s municipal utilities company.

Centrica will make deferred payments of about £340m after tax between 2017 and 2022 to the joint venture to help fund the decommissioning of certain fields this year and next.

The combined business will own producing and development assets in the UK, Netherlands, Norway and Denmark, two-thirds of which will be gas.

Combined production this year is estimated at 50m-55m barrels of oil equivalent from 27 producing fields, while combined proven and probable reserves are estimated at 409m barrels.

Deepa Venkateswaran, an analyst at Bernstein, said that the joint venture would allow Centrica to invest less in exploration and production than it would have done. The joint business would invest £400m-£600m in the “near term”, of which Centrica’s share would be £276m-£414m, she said.

Last year, Bayerngas Norge made a pre-tax loss of NKr3.2bn (£299m) while Centrica’s exploration and production business made a £223m profit. The deal, which is expected to close in the fourth quarter of this year, is the latest example of European utilities distancing themselves from legacy exploration and production businesses.

The French utility Engie struck a $3.9bn deal this year to sell its exploration and production assets to Neptune Energy. Denmark’s Dong Energy also recently sold its upstream oil and gas business to Ineos, the private petrochemicals company.

Copyright The Financial Times Limited 2017

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