British Gas to swap assets for voided contracts

British Gas plc has negotiated a deal with Mobil North Sea Ltd. under which Mobil will receive producing assets in return for cancellation of two long-term take-or-pay gas supply contracts. British Gas said that, in addition, during the next 5 years, prices will be reduced to spot market levels on a phased basis on three other contracts with Mobil. Although an estimated value for the deal was not disclosed, British Gas said the agreement with Mobil reduced its price and volume commitment on

Jan. 20, 1997

2 min read

British Gas plc has negotiated a deal with Mobil North Sea Ltd. under which Mobil will receive producing assets in return for cancellation of two long-term take-or-pay gas supply contracts.

British Gas said that, in addition, during the next 5 years, prices will be reduced to spot market levels on a phased basis on three other contracts with Mobil.

Although an estimated value for the deal was not disclosed, British Gas said the agreement with Mobil reduced its price and volume commitment on contracts involving a total 10 tcf of gas.

In return, Mobil has acquired 5% in Beryl field, 29.5% of Nevis field, and 2.5% in the Scottish Area Gas Evacuation (SAGE) pipeline system, all of which it already operates.

Mobil said these assets will bring the company an extra 27 million bbl oil equivalent reserves plus oil and gas production totaling about 9,000 b/d of oil equivalent.

This deal follows an earlier contract renegotiation with BP Exploration Operating Co. Ltd., under which British Gas reduced its undertaking to buy from BP in return for a cash sum (OGJ, Dec. 23, 1996, p. 30).

British Gas has been pushing to find ways to reduce costs of gas purchase commitments under long-term contracts, which were signed before the government liberalized the U.K. gas industry and the spot price of gas subsequently plummeted.

A British Gas official told OGJ the company is negotiating with other suppliers: "The combination of the Mobil and BP deals amounts to about 20% of the take-or-pay contracts we wish to renegotiate."

British Gas said the Mobil and BP deals reduce its price and volume commitments covering a total 26 tcf of gas. The company expects to make "more measured progress" on further similar agreements.

Gas sales agreements with Shell U.K. Ltd. and Esso Exploration & Production U.K. Ltd. are among a number being challenged in the courts by British Gas.