Publication of the 1996 financial results of British Gas plc has revealed the cost of splitting the company into two separate firms, BG plc and Centrica plc.
The company unveiled the demerger plan last year. It was seen as a way of separating valuable U.K. transportation and storage and international exploration assets, now BG, from weak U.K. sales and retail operations under Centrica (OGJ, Dec. 23, 1996, p. 30).
Relative strength of the two companies became clear from the new figures. BG businesses made an operating profit, before exceptional charges, of £870 million ($1.392 billion) on a turnover of £4.383 billion ($7.013 billion).
For the same year, Centrica businesses booked an operating profit before exceptional charges of £86 million ($138 million) on a turnover of £5.07 billion ($8.112 billion).
After exceptional charges, BG operating profit came to £554 million ($886 million), while Centrica had a loss of £736 million ($1.178 billion).
Renegotiated contract costs
Richard Giordano, BG chairman, said exceptional charges for the two companies last year amounted to £1.138 billion ($1.821 billion), more than half of which was related to renegotiation of gas contracts and anticipated losses on sales contracts to Europe through the Interconnector pipeline and to Scottish Hydro-Electric plc.
So far, British Gas has negotiated new gas supply deals with Mobil North Sea Ltd. and BP Exploration Operating Co. Ltd.
The company found itself paying comparatively dearly for gas under long-term contracts, after the U.K. government began privatization of U.K. gas industry, causing a rush of gas field developments and a consequent fall in spot gas prices.
The company is also challenging contracts with Shell U.K. Ltd. and Esso Exploration & Production U.K. Ltd. through the courts (OGJ, Jan. 20, 1997, p. 26).
Giordano said a charge of £424 million ($678 million) was taken to complete the final phase of restructuring, begun in 1993. The company intended to reduce its staff by 25,000, but Giordano said 35,000 have since left the company.
"The exceptional charges," said Giordano, "reflect the cost to the company of meeting the pace and scale of change within the U.K. gas industry. They are an investment for the future to provide a platform for the two businesses going forward."
Copyright 1997 Oil & Gas Journal. All Rights Reserved.
