LONDON – Centrica and Stadtwerke Muenchen agreed to combine assets to set up a new European exploration and production company and may sell shares in the venture after two years.
The UK’s biggest energy supplier to homes will own 69% of the business and the transaction is expected to close in the fourth quarter, Centrica said Monday in a statement. The organisation allows for further consolidation and joint ventures, potentially through an initial public offering in two to five years.
Centrica is seeking to create a more sustainable, European-focused E&P business after selling its Canadian natural gas unit last month and its gas assets in Trinidad and Tobago in May. The new venture will allow Centrica to benefit from the German utility’s early life-cycle assets, which will complement the London-based company’s more mature exploration business.
The potential for an IPO of the new company “will continue Centrica’s journey towards a downstream customer-focused energy and services provider,” John Musk, an analyst at RBC Europe, said in an emailed note.
The joint venture will comprise Centrica’s assets in the UK, Netherlands and Norway and the UK, Norway and Denmark business of Bayerngas Norge AS, a unit controlled by Stadtwerke Muenchen and Bayerngas GmbH. About two-thirds of the total reserves and resources comprise natural gas, containing a mix of producing assets, development options and exploration licences, as well as the UK onshore terminal at Barrow-in-Furness.
Stadtwerke Muenchen and Bayerngas will contribute all of their shares in Bayerngas Norge in exchange for a 31% stake.
Centrica will contribute the whole of its European E&P business and make a series of deferred payments totalling about 340-million pounds after tax to the new company between 2017 and 2022. The payments will cover the loss of cash generation from assets that are being or will be decommissioned, Centrica’s CEO Iain Conn said on a conference call with analysts.
Chris Cox, currently MD of Centrica E&P, will be the new venture’s CEO.
Centrica rose 0.3% to 206.9 pence in London. The stock has fallen 12% this year, the worst performer in Stoxx 600 utilities index that rose 7% in the period.