Centrica Cuts Upstream Spend, Halts Sale

UK utility Centrica expects its upstream division Spirit Energy to take a £100mn hit following the rapid drop in dated Brent crude oil prices, it said April 2. It is cutting expenses there by an equal amount and it has identified further cost savings, it said, as it hopes to make the division at worst cash-flow neutral this year.

It now expects to spend £400mn upstream but it has shelved the divestment plan for Spirit Energy and also its stakes in Dungeness B and Hinkley Point B nuclear power stations until commodity and financial markets stabilise. But it continues to pursue the divestment of both assets in line with its strategic shift towards the customer. It had expected bids for Spirit Energy by the end of March. It is for this and other reasons abandoning any of its earlier guidance on 2020 income.

Total capital expenditure including upstream is now expected to be around £600mn, compared with around £800mn at the time of the preliminary results, it said. It is also delaying £100mn of restructuring expenses. Bonuses to management and non-customer-facing staff for 2019 have also been cancelled, and so has the dividend, the latter saving it £204mn.

Although more people nationally are working from home, this extra energy use does not offset demand from business customers as sites temporarily close. Centrica is also expecting bad debt, as certain customer segments defer payments owing to the reduction of household incomes and business revenues.

Despite the woes, ratings agency Moody’s confirmed a Baa2 (stable) credit rating March 13 and another, S&,P confirmed a BBB (stable) credit rating March 31.