Centrica, the owner of British Gas, is to combine its exploration and production business with Oslo-based Bayerngas Norge in the latest example of European utilities trimming their legacy oil and gas portfolios to concentrate on core services such as energy supply and services.
Centrica will own 69 per cent of the new joint venture and the remaining 31 per cent will be held by Bayerngas Norge’s shareholders, who are led by Stadtwerke München (SWM), a Munich-based company whose investments include energy, transport and swimming pools.
The joint venture will have have its own board and will operate as a separate company but will remain on Centrica’s balance sheet, the UK company said on Monday. It is expected to lead to up to £150m of cost savings.
The combined business will own exploration and development assets in the UK, Netherlands, Norway and Denmark, two-thirds of which will be gas. Combined production this year is estimated at 50-55 million barrels of oil equivalent from 27 producing fields.
The deal, which is expected to close in the fourth quarter of this year, subject to regulatory approvals, is the latest example of European utilities distancing themselves from legacy exploration and production businesses. French utility Engie earlier this year struck a $3.9bn deal to sell its exploration and production assets to Neptune Energy, a company set up by Sam Laidlaw, the former chief executive of Centrica.
Mr Laidlaw’s successor at Centrica, Iain Conn, has since 2015 been re-shaping the business, scaling back exploration production and also selling large, centralised power stations to focus on consumer and business-facing services such as energy supply. Centrica will continue to own and operate smaller power plants to generate electricity at peak times as it believes the boom in renewable energy and more households owning their own solar panels will dramatically reduce the need for large, central power stations.
Mr Conn said:
As part of our strategy of 2015, we have been aiming to develop a more focused and stronger E&P business which will contribute to the resilience of the Group while limiting Centrica’s E&P participation. Alongside the recently-announced disposals of our Canada and Trinidad & Tobago assets, this joint venture creates a larger, more sustainable and more capable European E&P business and brings together like-minded shareholders who have a shared strategic vision on the role of E&P.