Centrica seals £1bn deal to buy gas and oil supplies from Norway

SCOTTISH Gas parent company Centrica yesterday announced a £1 billion deal to buy oil and gas assets from Norway’s energy giant Statoil in a move which will boost its production output by a quarter.

The deal came as the FTSE 100 company also extended an existing gas supply deal with Statoil with a £13bn, ten-year agreement to start from 2015.

With the UK currently importing about 50 per cent of its gas requirements, the deal which will supply around 5 per cent of annual gas needs – enough for 3.5 million homes – was welcomed by Prime Minister David Cameron who said it would help to secure competitive gas supplies from a “trusted and reliable neighbour”.

The deal will replace a current arrangement between the two companies and will see Norway’s biggest energy firm maintain its 16-18 per cent market share in UK gas supplies.

Under the asset purchase agreement, Centrica is buying a package of oil and gas production and development interests off Norway for up to £1.02bn, lifting its output by around 12 million barrels of oil equivalent (mmboe) per year and its reserves by 29 per cent.

The two companies have also signed a memorandum of understanding to look at partnering on gas exploration opportunities in the UK and Norway.

Jonathan Roger, managing director of Centrica’s upstream interests – who joined the company following its acquisition of Aberdeen-based Venture Production – described it as a significant deal.

“It is a good mix of producing and developing assets which gives us our first production in Norway and trebles our reserves there,” he told The Scotsman.

Kvitebjoern, the main asset in the deal, produces some 60 mmboe per year of gas and oil, of which Centrica’s 19 per cent share will be 11.4 mmboe per year.

Analysts said the deal to acquire further production assets indicated upside in North Sea values and energy prices.

“Centrica’s desire to improve its energy hedge would suggest it doesn’t see commodity prices going lower, and therefore the implication is that the value of North Sea assets are the very least underpinned at these levels, if not likely to rise,” said a note issued by Evolution Securities.

Arctic Securities analyst Trond Omdal said he wasn’t surprised that Centrica was looking outside UK waters to increase its assets.

“The UK’s production is falling sharply, and it’s natural for Centrica to want to have parts of its portfolio in Norway. After making large discoveries on the Norwegian shelf and expanding internationally, it’s also natural for Statoil to cut some stakes,” he added. Shares in Centrica closed down 2.8p at 286.1p.