E.ON buys Caledonia Oil and Gas for £470m

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E.ON, the German utility giant currently in pursuit of ScottsihPower, yesterday announced it was to gobble up UK North Sea producer Caledonia Oil and Gas.

E.ON, Europe's biggest listed energy group, said the purchase was to diversify its gas sources, currently dependent on Norwegian and Russian output, and to improve its access to gas supplies for its UK market, where a shortage of gas is expected.

Caledonia has interests in 15 gas fields and total reserves of 14 billion cubic meters in the UK part of the southern North Sea.

The deal, worth 470 million, is subject to UK regulatory approval. If it goes ahead E.ON plans to spend 300m to develop the gas fields, which will reach their maximum production in two to three years' time.

The gas to be purchased is enough to supply nine million households and will be produced over the next ten years. It will see the group's wholesale commercial arm, E.ON Ruhrgas, producing up to 20 per cent of its needs over the long-term.

Chief executive Wulf Bernotat said: "The acquisition of Caledonia brings us significantly closer to our goal of covering the gas needs of E.ON Ruhrgas from our own production in the long run."

The deal is significant for the industry as the pressures on energy suppliers have been exacerbated by the fact that the UK is no longer self sufficient in gas, as North Sea supplies dwindle.

Natural gas is increasingly used to generate electricity and to heat homes, as it is more efficient and emits less carbon dioxide than hard-coal or lignite. The price of the fuel has climbed 44 per cent over the past 12 months.

E.ON has built a significant market position in the UK after its €15 billion (10.18bn) purchase of Powergen in 2002 and its 2003 buy of Midlands Electricity for €1.6bn. Earlier this month it announced it was considering a cash offer for ScottishPower - a move that would be opposed by Britain's fifth-biggest energy supplier.

Caledonia is controlled by a group of investors led by energy-focused private equity firm First Reserve.