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UK's Centrica could keep nuclear stake, eyes alternative upstream sale options

Highlights

Intended to sell 20% stake in UK nuclear fleet

To continue to manage Spirit during sale process

Rough gas field produced 1.4 million boe in H1 2021

The UK's Centrica could keep its 20% stake in the UK's operating nuclear fleet as part of its drive to net-zero, and at the same time is now looking at "alternative" sale options for its upstream business, it said July 22.

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Centrica said it wanted to divest its UK nuclear interest in 2018 and to sell its stake in upstream venture Spirit Energy in 2019, but both processes were subsequently put on hold.

"We have been reconsidering whether nuclear can play a role for Centrica in the future," it said in its first-half earnings report.

"Our nuclear stake provides us with an important source of zero-carbon electricity, therefore we may decide to retain our 20% interest," it said.

At the same time, Centrica said its intention remained to exit oil and gas production in line with its strategic shift to simplify the group and decarbonize the group's portfolio.

However, it said: "The disposal process has been impacted by the uncertain backdrop created by the COVID-19 pandemic and the joint venture structure which limited the number of parties interested in buying the business as a whole."

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, and UK waters.

"We have now made progress towards pursuing alternative sale options, which will simplify the sale structure and enable us to maximize the value of our assets," it said.

Centrica added that while it still owned Spirit, it would "actively manage it".

"The steps we have taken with our partner and the Spirit management team mean the business was free cash flow positive in H1 2021 and given current commodity prices we expect that to remain the case for the remainder of this year," it said.

Volume outlook

While the increase in oil and gas prices had benefited the upstream business, Centrica said full-year Spirit gas and oil production volumes were expected to be around 15%-20% lower in 2021 than in 2020 when volumes totaled 44.9 million boe (123,000 boe/d).

Spirit volumes fell by 28% in the first half of 2021 to 17.1 million boe (94,000 boe/d), it said.

This reflected a natural decline in the portfolio, production issues at a number of fields and a number of planned outages having been brought forward to H1 2021 from later in the year.

"Therefore, production is forecast to be higher in H2 2021 than H1 2021," it said.

In the first half, Centrica said its production volumes from the Rough gas field -- which are not part of its Spirit venture -- fell by 17% to 1.4 million boe (7,730 boe/d), reflecting the natural decline in the late-life field.

Centrica also said the remaining legacy gas contract in its Energy Marketing and Trading division was expected to make a full-year operating loss in 2021 around the "upper end" of the previously provided GBP50-100 million/year range.

It added that annual losses for the remaining four years of the contract were expected to fall back within the GBP50-100 million range.

Separately, Centrica said the Whitegate CCGT in Ireland remained offline having experienced a forced outage in December 2020. "It is currently expected the power station will be back online towards the end of 2021," Centrica said.