Rise in gas prices boosts BP but puts Centrica under pressure

THE boss of British Gas laid bare the company’s struggles with competition and costs yesterday, on the same day that his former colleagues at BP toasted a fourfold profit boom.

Iain Conn, chief executive of the energy supplier’s FTSE 100 parent company Centrica, said operating profits fell by a fifth compared to the first half of last year to £430m as rising market prices drove its costs higher.

British Gas grappled with the climbing costs while saddled with a government price cap for homes using pre-payment meters, and the loss of around 340,000 customers in the first six months of this year alone.

Meanwhile, Mr Conn’s former employers at BP toasted the group’s first dividend hike in four years after the rise in oil and gas prices quadrupled profits to $28bn (£21bn).

BP’S return to growth following the double-blow of the market downturn and the cost of the Deepwater Horizon oil spill includes a $10.5bn deal to take on BHP Billiton’s US shale gas assets and plans to produce an extra 120,000 barrels of oil a day from the North Sea.

“BP has spent the past eight years addressing big problems, with first the Gulf of Mexico disaster and then the oil price crash throwing the group into disarray,” said Nicholas Hyett, of Hargreaves Lansdown. “But those events are slowly moving from newspaper pages to the history books.”

The oil major believes it can break even with oil prices at around $50 a barrel. In the market, prices for crude have climbed by over 50pc in the last year to around $75 a barrel. As BP’S market value climbed, Centrica’s share price fell 2.6pc to 148.75p, nearly half what the group was worth when Mr Conn joined Centrica as chief executive in early 2015.

The former BP executive left the oil major at the depths of the oil market collapse to lead Centrica’s billionpound strategy shift away from oil and gas towards household energy supply.

But the gamble on household energy supply has coincided with a government crackdown on the Big Six energy suppliers, which are already battling against rising competition from new market entrants.

The Big Six supplier lifted its standard tariff price by 5.5pc to keep up with rising energy market prices, but British Gas is unable to lift tariffs for homes using pre-payment meters, which are protected by a new government cap.

Further pain for the supplier is likely to emerge in the years ahead after the Government’s market-wide price cap takes effect from the end of this year.

Mr Conn assured investors that the group would still manage to meet its full-year financial targets in the second half of 2018, and will keep its 12p-ashare dividend intact, but hinted that a second price rise might be on the cards.

Mr Conn said: “Although we are awaiting the final outcome of regulation to impose a temporary cap on all default tariffs for residential customers in the UK, we have plans in place to manage this.

“We continue to make progress on implementing our strategy,” he said. “We have developed new propositions and delivery capabilities in both customer divisions and our cost efficiency programme is on track.”