Centrica profits boosted by oil and gas production

INCREASING returns from oil and gas production helped Scottish Gas owner Centrica post a 14 per cent rise in operating profits following last year’s record £2 billion investment in North Sea and other assets further afield.

The UK’s biggest energy retailer by customer numbers also benefited from colder winter weather, which pushed domestic gas consumption up by 12 per cent. The resulting increase in residential profits to £606 million sparked renewed outrage among hard-pressed consumers recently forced to absorb inflation-busting price hikes.

However, the biggest contribution to group operating profits of £2.7bn came from Centrica Energy, where profits rose by 20 per cent to £1.23bn. Centrica’s main priorities are to secure more gas supplies by developing resources internationally, leaving it less exposed to price swings on the wholesale market.

It completed three major acquisitions last year, boosting total production by 18 per cent to 56.7 million barrels of oil equivalent (mmboe) per day.

Jonathan Roger, managing director of Centrica Energy Upstream, said the group had further raised its ultimate production goal from a target previously set at 75mmboe.

“Following record investment in the oil and gas industry last year, the strongest for more than three decades, Centrica Energy Upstream increased its profits by 20 per cent for the third consecutive year,” Roger said.

“We are now well positioned to optimise and develop our portfolio, both in the North Sea and internationally, and will invest to increase our annual production up to 100mmboe.”

In the results statement, chief executive Sam Laidlaw highlighted Centrica’s involvement in large-scale North Sea gas field developments Valemon and Cygnus, the latter of which is the largest gas discovery in the southern North Sea in the last 25 years.

Centrica said it remains committed to investment in the UK and Norway, with further drilling decisions due in 2013. However, with the development of North Sea fields “becoming increasingly expensive”, the company will also seek to diversify its production portfolio.

This could “possibly” include investment in North American shale gas. Centrica also wants to expand its US customer base – where it has nearly six million accounts, including 3.5 million residential homes – in its core markets of Texas and the US North East.

“The continued liberalisation of markets in the United States, and the undeveloped nature of energy services provision, offer an opportunity to grow our customer base, both organically and through acquisition,” the company said.

“We will continue to evaluate both bolt-on and larger acquisitions, but remain focused on returns and will only transact where we see value.”

Centrica proposed a final dividend of 11.78p per share, giving a total payout for the year of 16.4p, a 6 per cent increase on the previous year’s 15.4p.

As part of a strategic overhaul, Centrica said the British Gas managing director Phil Bentley would step down at the end of June as the company “migrates from a regional structure to an international functional structure”. He will be replaced by US retail boss Chris Weston, who will take responsibility for all so-called downstream operations, including British Gas residential in the UK.

Mark Hanafin, managing director of Centrica Energy, will take charge of all upstream exploration and production activity.

Bentley’s departure had been widely anticipated amid mounting pressure for action to tackle rising household bills. He reportedly harbours ambitions to become a company chief executive in his own right.