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Centrica First-Half Profit Rises After Cold Winter Spurs Natural-Gas Use
Centrica Plc, Britain’s biggest energy supplier, said first-half profit surged 65 percent, boosted by an increase in customers and gas demand during the coldest U.K. winter in 30 years.
Operating profit rose to 1.56 billion pounds ($2.43 billion) from 945 million pounds a year earlier, the Windsor, England-based company said today. Sales were little changed at 11.7 billion pounds as tariffs for U.K. business customers declined, the company said.
A “significant differential in price” between Centrica and its competitors helped win customers, Financial Director Nick Luff said on a conference call. “Wholesale gas and power prices are looking quite a lot higher for this coming winter.”
U.K. gas demand rose almost 11 percent in the first six months of 2010 from 2009, according to analysts at Citigroup Inc. The increase helped to almost doubled profits at Centrica’s British Gas unit, which also added 223,000 customers to 15.9 million. Full-year profits will be “heavily weighted towards the first half of the year,” Centrica said.
Centrica’s shares fell 3.7 pence, or 1.2 percent, to 304 pence in London.
Strong Margin
“The combination of cold weather and low gas prices helped them achieve really strong downstream margins,” John Musk, an analyst at Nomura International Plc, said by telephone. British Gas margins improved to about 13 percent from 7 percent a year earlier and are likely to be in the “high single digits” for the full-year, he said.
The company “won’t maintain the very rapid pace of customer numbers we saw in the first half,” Luff said.
Having strengthened its production position with the purchase of Venture Production Plc and Suncor Energy Inc.’s gas assets in Trinidad and Tobago, Centrica is seeking to buy more gas and power assets in North America, the executive said.
He declined to comment on whether the company is considering assets owned by BP Plc or International Power Plc.
“We’re interested in some very specific areas of the world and there are number of companies that have assets in those areas,” he said. Areas of interest include those near markets where Centrica sells energy, such as the North Sea, Canada and Trinidad and Tobago, he said.
Downstream
Higher gas production and power generation volumes in the first half offset lower gas and power prices, Centrica said. Overall gas production rose 41 percent while the average gas sale price dropped 29 percent. Operating profit for the upstream business rose to 485 million pounds from 334 million pounds.
The utility postponed a decision on investing in its Caythorpe gas storage project after U.K. regulator Ofgem said it may force Centrica to give other companies access. The short- term storage would offer some protection against volatile commodity prices. Centrica was planning to make an investment decision this month.
Seven out of 10 wells drilled by Venture and partners this year have shown “positive results,” Centrica said. An additional six wells will be drilled through the end of 2010.
To contact the reporter on this story: Kari Lundgren in London at klundgren2@bloomberg.net
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