Centrica May Sell Shares in New Gas Production CompanyBy
Plans exploration, production unit with Stadtwerke Muenchen
Potential IPO of new energy business in two to five years
Centrica Plc and Stadtwerke Muenchen GmbH agreed to combine assets to set up a new European exploration and production company and may sell shares in the venture after two years.
The U.K.’s biggest energy supplier to homes will own 69 percent of the business and the transaction is expected to close in the fourth quarter, Centrica said Monday in a statement. The organization allows for further consolidation and joint ventures, potentially through an initial public offering in two to five years.
Centrica is seeking to create a more sustainable, European-focused E&P business after selling its Canadian natural gas unit last month and its gas assets in Trinidad and Tobago in May. The new venture will allow Centrica to benefit from the German utility’s early life-cycle assets, which will complement the London-based company’s more mature exploration and production, or E&P, business.
The potential for an IPO of the new company “will continue Centrica’s journey towards a downstream customer-focused energy and services provider,” John Musk, an analyst at RBC Europe Ltd., said in an emailed note.
The joint venture will comprise Centrica’s assets in the U.K., Netherlands and Norway and the U.K., Norway and Denmark business of Bayerngas Norge AS, a unit controlled by Stadtwerke Muenchen and Bayerngas GmbH. About two-thirds of the total reserves and resources comprise natural gas, containing a mix of producing assets, development options and exploration licenses, as well as the U.K. onshore terminal at Barrow-in-Furness.
Stadtwerke Muenchen and Bayerngas will contribute all of their shares in Bayerngas Norge in exchange for a 31 percent stake.
Centrica will contribute the whole of its European E&P business and make a series of deferred payments totaling about 340 million pounds ($445 million) after tax to the new company between 2017 and 2022. The payments will cover the loss of cash generation from assets that are or will be decommissioned, Centrica’s chief executive officer Iain Conn said on a conference call with analysts.
Chris Cox, currently managing director of Centrica E&P, will be the new venture’s chief executive officer.
The venture is expected to provide cost savings and asset optimization of 100 million pounds to 150 million pounds, which “looks manageable in our view and will be aided by the overlap between the two portfolios,” Deepa Venkateswaran, an analyst in London at Sanford C. Bernstein & Co., said in an emailed research note. Centrica’s share of those benefits will be 70 million pounds to 100 million pounds, she said, citing management estimates.
The new company would become the biggest or equal-biggest of the independent European exploration and production companies, which excludes the super-major oil groups, and would be big enough to benefit from continued consolidation in the oil-and-gas industry, Conn said.
Centrica rose 0.5 percent to 207.4 pence in London at 11:05 a.m.. The stock has fallen 11 percent this year, the worst performer in the Stoxx 600 utilities index that rose 6.7 percent in the period.