Overview of Centrica Storage Analyst site visit 26th October 2006
Agenda Introduction to Centrica Storage Achievements since Centrica acquisition Roughs place in the storage and wider gas market Value of storage Financial drivers Opportunities Wrap up 2
An introduction to Centrica Storage Centrica Storage Limited is a wholly owned subsidiary of Centrica plc Centrica Storage is a ring-fenced part of Centrica plc, separated from the supply side legally, physically and financially…
A brief history of Rough October 1975 Rough field, 18 miles off East Yorkshire coast originally developed to produce natural gas 1983/1984 Rough field converted to a storage facility 1st October 1997 - BG Storage established as a…
Facilities overview 47/3B Installed 1983 24 wells 24/7 Operation Hedon, near Hull Administration/engineering York ROUGH 29 km 36 29 km 16 47/8A AMETHYST Installed 1977 EASINGTON TERMINAL 0 10 20 km 6 wells 24/7…
Centrica Storage assets Represents over 70% of UK storage and supplies 10% of UK peak winter demand York Largest offshore gas storage facility in Western Europe (strategically 18Inter-field important). CD Pipeline BP 1.25 Miles…
An exceptionally good storage reservoir Reservoir Characteristics Size and wells Approx 10 x 3 km, 9,000 ft deep Thickness from 80 to 117 ft 30 wells in place Homogeneous high quality reservoir rock Uniform properties allow…
How the reservoir is made up 90 bcf Space 72 bcf SBU sales volume -28 bcf -31 bcf Cushion Gas sales 2005 185 bcf NRV Net Reservoir recoverable reserves Cushion Gas Volume 185 bcf non- recoverable…
Achievements since acquisition Immediate priorities: Cleared backlog (c37,000 man hours) of maintenance work from previous operators Lifted HSE deferred prohibition notice Restored manning and competence levels Undertakings agreed…
resulting in Operational reliability nearly 100% in 2005 (compared to 90% in 2000/1/2/3) Maximum deliverability rate increased by 8% enabling sale of additional peak product last winter 8A 3B bypass Improved sand monitoring and…
Focused on reducing risk and management of health, safety and environmental issues 12 month LTIFR (since 1 January 2004) Total Combined Maintenance Backlog Hours Trendlines, 2002-2006 12 60000 10 50000 Increase entirely due…
.and operational availability Availability on Demand Performance 99.9% 99.3% 98.9% 100% 96.1% 95.0% 95.3% 92.0% 90% Injection: Availability post recovery 98.9% Production: Recommences October 2006 80% 70%…
P&L trend since acquisition FY FY FY H1 2003 2004 2005 2006 Average SBU price (calendar year) 15.6 24.6 34.8 47.1 (pence) Turnover (m) Standard SBUs 74 113 159 103 Extra space 3 8 19 13 Native gas sales 0 0 20 Gas sales 30 21 30…
Roughs place in the storage and wider gas market Average Injection - Sum m er 06 Deliverability National Grid National Grid Hole House LNG LNG 13% 40% 3% Humbly Grove 6% Hornsea Hole House 8% Rough 2% Rough 66% 35%…
UK gas storage current picture - still largely the old British Gas facilities - Rough dominates seasonal storage market 4000 LNG Partington LNG Glenmavis LNG Dynevor Arms 3500 LNG Avonmouth Hole House Farm Hornsea 3000…
UK gas storage including all planned projects - Assumes all current / planned projects built - Rough remains the major part of seasonal storage 4000 Holford H165 LNG Partington LNG Glenmavis LNG Dynevor Arms 3500 LNG Avonmouth…
Impact of gas surpluses - winter 2007/08 Theoretical Maximum Case All planned infrastructure built on time and utilised 100% Additional projects significantly boost supply potential Winter appears amply supplied CSL mid…
.further ahead winter 2010/11 Theoretical Maximum Case All projects are implemented on time and utilised 100% Potential supply surpluses This is reflected in the forward curve with 2010/11 being the dip in the curve Too many…
Expected UKCS decline Beach Production decline - 2006 - 2012 vs Rough Production 300 Peak Beach Decline Rough Storage Deliverability - 42 mcm/d 250 Size 2006 Duration - 76 days 200 Beach Swing - 2006 mcm/d 150…
Substitutes for long range storage (LRS) Competition to storage may come from a variety of sources Can European Storage compete against Rough European public supply Obligations (PSOs) limit market access Access to transportation…
Competitive Environment - Summary UKCS indigenous gas remains today the major competitor to Rough in supplying seasonal swing but is in steep decline Most new storage is relatively low volume and short duration and is not designed…
Value of storage Storage sold as Standard Bundled Units of injectability, space and deliverability Rough intrinsic value driven by price spreads in the forward market Volatility in spot and forward markets adds significant extrinsic…
Rough SBU pricing and intrinsic value Standard Bundled Unit (SBU) The Q1-Summer spread fits Withdrawal 1 kWh/day Purchases the shape of the SBU and provides a good hedge in Space 67 kWh forward markets. act ontr Injection 0.35…
Unlocking the extrinsic value Good Rough Reliability from high availability of the asset to CSL and customers Customers able to reshape the CSL product or sell/buy unused capacity as firm or interruptible Extrinsic Customers…
Forward Curve Price Spread 2005/6 Maximum Forward 25% - Different from and not a good predictor of spot/out-turn Price - Rough valued using forward price spreads and volatility not Central 50% absolute level of prices 50% - For Rough,…
Volatility drives extrinsic storage value - Low prices do not necessarily imply lower volatilities - Already evidence of high-volatility with low prices - Future risk of negative prices Volatility vs Spot Prices 500% 200.0000…
Market Value No direct market comparator for Rough : Other storage facilities are less transparent Byley reportedly sold to Eon for 96m with a further 100m development cost required Ongoing contractual terms are unknown Byley…
Financial drivers for Centrica Storage Revenue and profit trends Detailed financials Drivers of future SBU revenue 29
Revenue profit trends since acquisition SBU remains the m 2002 2003 2004 2005 main driver of profit, but other revenue SBU revenue 59 74 113 159 and costs impact 2004 Operating profit 24 40 69 154 - higher revenue project…
Detailed financials m 2002 2003 2004 2005 2006 H1 SBU revenue 59 74 113 159 107 Processing Income Mainly Amethyst 11 10 10 6 field limited remaining life Incremental Bundled Units 20 1 Gas Sales & fuel gas 30 23 30 25 Commodity,…
Drivers of future SBU revenue Summer/Q1 forward price spreads and volatility - current forward curve - risk premium in forward curve and forward price spread behaviour - impact of summer surpluses and put option value Multiplier of…
Opportunities Now - restore and enhance Roughs reliability and reputation and recover to 2005 levels 2008/09 2009/10 - increase injection rates and further increase deliverability 2008/09 2010/11 Use increased injection and…
Wrap Up Centrica Storage has demonstrated its operational and commercial skills in storage through significant challenges Rough is in a strong competitive position to meet growing market need for long duration seasonal storage…
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