UK's Centrica to resume upstream unit sale process once markets settle

London — The UK's Centrica said July 24 it would resume the process of selling its stake in upstream business Spirit Energy once commodity and financial markets are calmer.

Centrica had hoped to complete the sale of its 69% interest in Spirit by the end of 2020, but put the process on pause due to the coronavirus pandemic.

"Our intention remains to exit oil and gas production in line with our strategic shift towards the customer," the company said in its first-half earnings report.

"We were due to receive initial bids around the end of March, however we took the decision to pause the process against the uncertain backdrop created by the COVID-19 pandemic," it said.

"We still intend to exit E&P, and plan to restart the Spirit Energy process once commodity and financial markets have settled."

Spirit -- a joint venture between Centrica (69%) and Bayerngas Norge's former shareholders (31%) -- was set up in 2017 and has assets in Dutch, Norwegian, Danish and UK waters.

Centrica said that while it still owned the business, it would "actively manage it."

"The steps we have taken with our partner and the management team in Spirit mean we expect to be, at worst, free cash flow neutral in both 2020 and 2021, even in the current low commodity price environment," it said.

H1 performance

Spirit produced 23.7 million barrels of oil equivalent of oil and gas in the first half, or an average of 130,000 boe/d, down 3% year on year.

The performance in the first half, the company said, was "broadly in line with expectations."

"Natural field decline and lower Morecambe up-time were only partially offset by higher production from Cygnus and Chiswick in the North Sea, and Oda and Vale in Norway," it said.

Production volumes from the former Rough storage site offshore the UK totaled 1.7 million boe in H1, down 67% year on year, reflecting the natural decline of the field.

Centrica added that on the Greater Warwick Area oil development prospect, of which Spirit owns 50%, activity levels have been "significantly reduced" due to the current environment.

"Spirit continues to work with its partner Hurricane Energy on developing next steps, including on the Lincoln discovery," it said.

Direct Energy sale

Separately, Centrica said July 24 it had agreed to sell its North American energy supply, services and trading business, Direct Energy, to NRG Energy for $3.625 billion.

Centrica said the sale would enable it to focus on its core home markets of the UK and Ireland.

"This disposal is aligned to our strategy to become a simpler, leaner business and in addition it will materially strengthen our balance sheet and remove a source of earnings volatility from the group," Centrica CEO Chris O'Shea said.

"Combined with our focus on completing our intended exits from Spirit Energy and nuclear at the appropriate time, this is expected to lead to a more predictable and high-quality earnings stream moving forward."

"Alongside our recently announced organizational restructure, which puts the customer at the heart of everything we do and accelerates the delivery of targeted cost savings, this transaction is a fundamental step in the turnaround of Centrica," he said.