Shares up as City signals approval of Centrica’s gameplan

By PETER RANSCOMBE
Published on 27/07/2012 00:00

A STRING of acquisitions and investment in its North Sea operations helped underlying profits at Scottish Gas-owner Centrica to jump by nearly a fifth in the opening half of the year, sending shares higher yesterday.

A £1.2 billion spending spree that saw the firm snapping up assets from ConocoPhillips, Statoil and Total brought about a “step change” in Centrica’s North Sea business and helped the group post an 18 per cent rise in profits to just under £1.3bn.

Production could be boosted even further after the firm revealed its Cooper exploration well off the coast of Norway – which it operates with Aberdeen-based Faroe Petroleum and PetroCanada – had struck oil. Further testing is needed over the next few weeks to determine how much is in the well.

News of the discovery came just a day after the UK government unveiled tax relief for Centrica’s giant Cygnus gas field, the largest discovered in the Southern North Sea in 25 years.

The tax breaks will trigger £1.4bn of investment from the firm and French partner GDF Suez and is expected to create 4,000 jobs to develop the field off the coast of Norfolk.

When Cygnus reaches full production, it could provide enough gas to meet about 5 per cent of the UK’s demand.

Sam Laidlaw, Centrica’s chief executive, said: “We have made significant investments to secure energy supplies for the UK – and will continue to invest across the group, where we see value. As a result, we have a stronger business that is delivering benefits for all our stakeholders.

“Centrica has performed well in the first half of 2012 despite challenging market conditions, although the increase in earnings must be placed in the context of unusually low levels of consumption and profits in the UK in the first half of 2011.”

Revenues edged up by 4 per cent to £12bn, helping the company to increase its interim dividend by 7.7 per cent to 4.62p.

Jonathan Jackson, head of
equities at Killik & Co, said: “We remain positive on the shares. The group is on track to achieve cost reductions of £500m and the North American business is on track to deliver further growth.”

Operating profits from the “upstream” unit – which extracts oil and gas to generate power – jumped by 28 per cent to £682m. The division includes the former Venture Production business, the Aberdeen-based oil and gas producer Centrica took over in 2009 in a £1.3bn deal.

The “downstream” business, which supplies gas and electricity to homes and businesses, posted a 9 per cent rise in operating profits to £563m.

British Gas, the company’s domestic supply arm, which trades as Scottish Gas north of the Border, grew its profits by 23 per cent to £345m, sparking criticism from consumer groups.

However, Angelos Anastasiou, an analyst at Investec Securities, said: “We are close to reaching a conclusion to the political machinations on residential energy supply and this will allow the value that we see in the shares to be unlocked.”

Anastasiou warned risks still “include political interference, regulatory changes and movements in wholesale energy prices”.

One fly in the ointment though for Centrica was a 27 per cent drop in profits at its business energy unit to £93m.

James Constant, managing director of energy broker Business Juice, said the fall in profits pointed to increased competition to supply power to firms.

“It’s a war for customers and pricing is the few weapons in the armoury of energy providers,” he said. “These results show the challenging conditions for British Gas resulting from the volatility of the energy market.”