Centrica, Bayerngas Norge to form European E&P combine

July 17, 2017
Centrica PLC, Windsor, UK, has agreed to merge its European oil and gas exploration and production business with Bayerngas Norge AS, Oslo, to form a newly incorporated joint venture.

Centrica PLC, Windsor, UK, has agreed to merge its European oil and gas exploration and production business with Bayerngas Norge AS, Oslo, to form a newly incorporated joint venture.

Centrica will own 69% of the JV and Bayerngas Norge’s existing shareholders, led by Stadtwerke Munchen GMBH (SWM) and Bayerngas GMBH, will own 31%. The deal is effective Jan. 1 and expected to close in the fourth quarter.

The JV “will create a strong and sustainable European E&P business by combining Centrica’s cash-generative and relatively near-term production profile with Bayerngas Norge’s more recently on-stream producing assets and development portfolio,” the firms said in a press release.

The combine will comprise Centrica’s assets in the UK, the Netherlands, and Norway and Bayerngas Norge’s assets in the UK, Norway, and Denmark. Its total 2016 yearend 2P reserves were 409 million boe, 2016 yearend 2C resources were 216 million boe, and expected 2017 production is 50-55 million boe from 27 producing fields. Some 66% of the total reserves and resources are gas.

The portfolio includes near- and medium-term production from established assets such as Morecambe, Greater Markham, Kvitebjorn, and Statfjord, and from recently on-stream assets Valemon, Cygnus, and Ivar Aasen. It also includes development assets such as Maria, Oda, Fogelberg, and Skarfjell in Norway and Hejre and Solsort in Denmark.

The JV will operate 22% of its 2017 production. Centrica plans to acquire and market all production from the assets under marketing and sales agreements.

Day-to-day operations of the combine will be managed independently of Centrica and SWM as shareholders. Chris Cox, currently managing director of Centrica E&P, will serve as the JV’s chief executive officer.

Early partnership expectations

It’s expected that the JV will invest 80% of its posttax operating cash flow to bring medium-term production of 45-55 million boe/year. In the near term, it’s expected to invest £400-600 million/year.

Centrica and Bayerngas Norge intend for the combine to be capable of self-financing through operating cash flow in low commodity price environments including the Centrica low case of $35/bbl Brent crude oil price and 35 pence/therm UK NBP gas.

In addition to contributing its E&P business, Centrica will earn its share in the JV by making a series of deferred payments totaling £340 million, posttax, to the JV between 2017 and 2022, covering near-term funding for fields where decommissioning is under way or due to begin in 2017-18.

Existing shareholders of Bayerngas Norge, led by SWM and Bayerngas GMBH, will contribute 100% of the shares in Bayerngas Norge for their share of the JV, held through Bayerngas HoldCo.

The firms have agreed to restrictions on transfers of interests in the JV for 2 years following its establishment. After the term, SWM and Centrica will have customary exit rights, including the ability to initiate an initial public offering of the JV.

In an effort to focus its upstream operations solely on Europe, Centrica last month agreed to sell its 60% interest in the CQ Energy Canada Partnership to a consortium that includes MIE Holdings Corp., the Can-China Global Resource Fund, and Mercuria (OGJ Online, June 12, 2017).

Centrica late last year agreed to sell its portfolio of gas assets in Trinidad and Tobago to Shell Exploration & Production. The deal included Centrica’s 17.3% interest in the producing Block NCMA-1 and respective 80% and 90% operated interests in the undeveloped Blocks NCMA-4 and 22.

Contact Matt Zborowski at [email protected].