Centrica in the middle of sales process for Canadian gas assets
CALGARY — The U.K.’s largest residential energy utility company is closing in on the sale of all of its natural gas production business in Canada.
Centrica plc, along with jointventure partner Qatar Petroleum, are in the middle of a sales process to dispose of natural gas producing assets they jointly bought from Suncor Energy Inc. for $1 billion in 2013, the Financial Post has learned. Centrica confirmed its sales process will result in its exit of the Canadian upstream natural gas business.
“We’ve started the process to dispose of them. That started in the summer,” Centrica spokesperson Ross Davidson said, adding, “Our exploration and production business is going to be focused on Europe.”
Centrica produced an average of 63,835 barrels of oil equivalent per day in Canada last year. About 90 per cent of that production is natural gas from formations in southern Alberta and southern Saskatchewan, Davidson confirmed. The Canadian volumes represent about 30 per cent of Centrica’s total production.
Analysts expect Centrica will sell the assets for less than it spent to acquire them.
Centrica has previously said it is looking to trim its overall oil and natural gas production by over 40 per cent as it refocuses on its downstream business, which includes its natural gas and energy delivery business in Canada called Direct Energy.
The company’s chief executive, Iain Conn, said in February that Canada’s upstream business was non-core for the U.K. based company. Bloomberg reported at that time that Conn said Centrica was not “in any rush” to divest its exploration and production business “and it’s not a wise time given where prices are now.”
Natural gas prices have since risen sharply. The spot price for gas in southern Alberta, called the AECO price, has risen over 104 per cent since March and closed at $2.81 per thousand cubic feet on Thursday.
First Energy Capital Corp. analyst Martin King said in a research note this week that Canadian natural gas markets are currently in a “delicate” balance, but warned that AECO pricing could plunge if demand for natural gas exports to the U.S. fade.
Simmons and Co. analyst Pearce Hammond said in a research note that he expects gas demand in the U.S., measured by withdrawals from gas storage, “should support higher prices over the next few months.”
Upstream natural gas producers in Alberta have been under extreme pressure in recent years as persistently low commodity prices have forced many producers to shift capital away from gas and toward oil production. Delays in sanctioning gas export terminals in B.C. have also weighed on many producers.
Davidson said Centrica “is turning downstream” in its decision to sell off its gas production business.
“We had a strategic review at the start of the year and at that point we said that we wanted to keep our exploration and production business but it needs to be a much reduced business,” he said.
Davidson couldn’t say when Centrica expects its ongoing sales process will end. “I don’t think there’s a target date,” he said.