Centrica Flags Launch of Spirit Energy JV
Centrica has announced that Spirit Energy, the joint venture that combines Centrica and Bayerngas Norge’s upstream businesses, has begun trading. This follows receipt of all required regulatory approvals and the July 17 announcement of the upstream merger plan.
Centrica owns 69% of Spirit Energy, with Bayerngas Norge’s former shareholders* owning 31% predominant among which is Munich city utility, Stadtwerke Munchen (SWB).
Spirit Energy's production in 2017 is expected to be around 50mn barrels of oil equivalent (137,000 boe/d) from 27 producing fields, while its 2016 year end 2P reserves and 2C resources were 625mn boe. It employs over 700 staff in the UK, Norway, Netherlands and Denmark and also has more than 70 exploration licences. It also owns the Barrow (Morecambe Bay) gas terminals in northwest England.
Centrica said the new company will be a "robust, self-financing entity [that] will invest in the range £400mn-£600mn ($535mn-$803mn) per annum to deliver sustainable medium-term production of 45-55mn boe. The transaction is expected to generate £100mn-£150mn net present value of synergies and the joint venture will have the opportunity to strengthen through further consolidation and joint ventures."
Centrica said that Spirit Energy’s focus in 2018 will be to maximise efficiency from its producing assets, as well as progressing several key projects including the developments of Maria and Oda, appraisal drilling at the Fogelberg discovery and drilling on a number of exploration prospects; it will also partner with Wintershall in submitting a plan for development and operation for the Skarfjell development.
Centrica CEO Iain Conn said: “I’m delighted that the Spirit Energy joint venture has completed, creating a more focused and sustainable European E&P business which will contribute to the resilience of Centrica while limiting the group’s E&P participation." He said that Centrica would now reallocate resources towards its customer-facing businesses.
Centrica's share price plummeted by 15% in one day when, on November 23, it announced that it had lost 820,000 retail customers in the UK since June to rival household energy suppliers; its share price has not substantially recovered since.
SWB chief executive Florian Bieberbach said his group "is looking forward to the future co-operation with Centrica in the joint company Spirit Energy.” Conn added: “As one of the largest independent E&P companies in North-West Europe, Spirit Energy will have the possibility to participate in further consolidation and joint ventures, and creates further optionality for Centrica’s shareholders."
Chris Cox will be Spirit Energy's new CEO, working alongside Andrew le Poidevin (finance chief) and Gerry Harrison (chief of staff). Its board will be made up of Cox, plus four appointees from Centrica and two from SWM and be chaired by Centrica group executive director Mark Hanafin.
The merger echoes BP and Aker's formation of Norwegian upstream joint venture Aker BP in 2016, plus the merger of Germany's Wintershall and DEA announced December 8. Several utilities have divested, or are divesting, upstream such as Dong, Engie and E.ON, while Danish group AP Moeller-Maersk has agreed to sell its E&P business Maersk Oil to Total but will become Total's third largest shareholder.
* Bayerngas Norge former shareholders were SWM 79.49%, Munich-based Bayerngas group 19.9% and West Austrian utility Tigas-Erdgas Tirol 0.61%. Bayerngas group in turn is 56.3% controlled by SWM.