The owner of British Gas has struck a deal to offload its Norwegian oil and gasfields but abandoned plans to exit fossil fuel production altogether after failing to find a buyer for the rest of its North Sea business.
Centrica said that its majority-owned subsidiary, Spirit Energy, had agreed an £800 million deal to sell most of the Norwegian fields to Stavanger-based Sval Energi and interests in one other field that straddles the UK- Norway border to Norwegian state-backed Equinor.
The FTSE 250 group said its headline share of the proceeds was expected to be £560 million, although this was subject to various adjustments, and analysts at Jefferies estimated net proceeds at less than £290 million.
Centrica had been looking to offload its entire 69 per cent stake in Spirit Energy but was forced to rethink this year after struggling to attract buyers.
The sale will leave Spirit with primarily gas-producing fields in the UK and the Netherlands, which Chris O’Shea, chief executive, said would now be retained but would be “effectively in run-off” with no new exploration and cashflows set aside to cover decommissioning costs.
Advertisement
O’Shea, who took the top job last year, is attempting to arrest the decline at Centrica which has lost millions of customers and about three quarters of its value over the past decade. British Gas remains the UK’s biggest household supplier, with about seven million households.
O’Shea is continuing a simplification programme begun by predecessor Iain Conn and last year sold Direct Energy, its American energy supply business. However, O’Shea abandoned a long-running sales process for its 20 per cent stake in Britain’s ageing nuclear fleet after failing to find a suitable buyer and has now also had to revise his ambitions to exit oil and gas production.
Spirit Energy was formed in 2017 when Centrica merged its oil and gas exploration and production business with that of Bayerngas Norge as it sought to refocus on its customer-facing businesses, such as British Gas. Two years later, Centrica put its stake in Spirit Energy up for sale, but struggled to attract buyers and paused the process when the pandemic hit and led to a collapse in oil prices. It later revived the sales process but said it was pursuing alternatives after failing to receive compelling offers for its entire stake.
The Norwegian fields that Spirit Energy is offloading account for 92 per cent of its oil and liquids reserves, and 39 per cent of its gas reserves. They accounted for 52 per cent of Spirit Energy’s total production in 2020 and contributed a loss before taxation of £65 million.
O’Shea said: “We are pleased to continue to bring focus to Centrica’s portfolio with these transactions, which are aligned with our strategy to reduce our exposure to carbon intensive oil and gas exploration and production in a way that maximises shareholder value.
Advertisement
“With the disposal of these largely oil-producing assets to buyers who will be able to meet the material decommissioning costs, we can now focus on realising value for our shareholders from Spirit’s remaining gas reserves.”
Centrica said it would retain the proceeds from the sale as cash on its balance sheet while it continues discussions with its pension scheme trustees. The group, which suspended dividend payments last year, said it intended to recommence when “prudent to do so”.
Shares in Centrica closed down 0.15 per cent at 67½p.
