Introductions Mark Hanafin Managing Director, Centrica Energy Sarwjit Sambhi Director of Power Generation, Centrica Energy Andrew Le Poidevin Finance Director, Centrica Energy Simon Wills Managing Director, Centrica…
Todays agenda Centrica Energy overview Mark Hanafin Power Generation Sarwjit Sambhi Power Station Tour Upstream Gas Mark Hanafin Storage Simon Wills Financials Andrew Le Poidevin Wrap-up / Final Q&A Sam Laidlaw 3
Strategic priorities now achieved Transform British Gas Sharpen the organisation and reduce costs Reduce risk through increased integration Build on our growth platforms 4
Integration improving our energy hedge ratio 70% 60% 50% Venture 40% 20% of 30% British Energy Drax contracts 20% Wind North Sea 10% Morecambe 0% 2006 2007 2008 2009 2010 2011 2012 2013 Note: proportion of UK floating…
Strong platform for growth across the Group Strong Group cash generative capability underpins ongoing investment Robust Group cash flow even in low commodity environment Broad range of investment and growth opportunities British Gas…
Centrica Energy Overview Mark Hanafin 7
Centrica Energys vision 1. Support Centricas integrated energy model by procuring or acquiring gas and power for the downstream business Providing competitive cost of gas and power Security of supply and Contributing to a…
Centrica Energy strategy is based on fundamental beliefs in long term market trends Security of supply Climate change Declining gas reserves in the UK and increased dependence on imports Climate change policy driving need for low…
Our strategy a sustainable business, balanced generation and leading UKCS/NCS gas positions Upstream Gas Power Generation Leading consolidator of mature and Provide cover for residential and orphaned assets on the UKCS SME load…
Centrica Energy presents an attractive proposition for shareholders Vertical Integration provides significant support for integration Downstream business and additional benefits incremental benefits Growth Centrica Energy provides…
Vertical integration confers a number of benefits to Centrica Security of supply Reduced earnings volatility (margin migration) Stability Improved headroom with lower credit thresholds Improved competitive position (in particular,…
A robust platform for growth 2008 2009 2010 + options 8 CCGT British Energy NUCLEAR NEW NUCLEAR Morecambe Langage CCGT NEW GAS development & and non-operated JVs Venture GAS exploration Rough STORAGE Lincs WIND farm 2 more Round 2…
Distinctive competitive advantages Largest North Sea gas reserves for a UK Utility Gas Leading position in Storage capability in UK Ability to manage shape and weather risk Sustainable production for the next decade Track record…
Well positioned to deliver strong returns through the next 5 to 10 years Despite recent volatility in commodity prices, Centrica Energy remains a strong contributor to Group results Strong EBITDA and cash generation Returns robust…
Power Generation Sarwjit Sambhi 16
Agenda UK wholesale electricity market Centrica power generation portfolio CCGT Renewables Nuclear Summary 17
Recent market dynamics Falling power prices Coal at margin 100 60 /MWh /MWh Baseload power Marginal generation costs 80 40 60 Coal 40 20 Gas 20 Source: Heren Source: TFS, Heren 0 0 J F M A M J J A S O N J F M A M J J A S…
Future market dynamics Declining reserve margin Low carbon aspirations due to plant closures . . . Potential generating output if 15 40% UK Government targets met GW Cumulative plant additions and closures 10 35% Change 100%…
Centricas power generation strategy Strategy aims for increased Strategy leads to a mix more cover and balanced fleet closely aligned to the market but with lower carbon risk Centrica generation mix (TWh) Target increased cover %…
Agenda UK wholesale electricity market Centrica power generation portfolio CCGT Renewables Nuclear Summary 22
CCGT generation portfolio - mix of vintages Thermal Start Efficiency Technology MW Year (HHV) 1 Roosecote 1 x Alstom GT13E 1991 229 44% 2 Brigg 4 x GE frame 6E 1993 240 41% 3 Peterborough 2 x GE 9E 9161/71 1993 360 43% 4…
Centrica plants are benefiting from low gas prices Current gas prices benefit . . . and the market looks favourable Centrica Energys CCGT fleet . . . for much of 2010 November 09 merit order* Gas and coal generation costs…
Focus on reliability CCGT portfolio reliability Focus areas % 100 Asset strategy and capital management 98 96.6% Best practice powertrain overhauls 96 95.1% Effective balance of plant 94.1% maintenance 94 Optimised plant…
Efficiency improvement - Humber case study M-Series upgrade M - Blading Lifetime Performance GT13E2 MXL MCL mode Lower firing temperature Higher temperature Extended inspection intervals Output and efficiency increase Efficiency…
Operational performance Strong safety culture Competitive built over time cost performance Rate Controllable Cost /MW 2.5 24,000 * Total recordable injury rate Brigg Benchmarking comparison 21,000 Roosecote 2.0 18,000 Barry…
Agenda UK wholesale electricity market Centrica power generation portfolio CCGT Renewables Nuclear Summary 28
Leading position in offshore wind Operators of offshore wind (Global) Access to scarce resource DONG Others A2 Sea- Sea Worker A2 Sea- Sea Jack RWE Centrica EON MPI Resolution Smit - Lisa Vattenfall In house turnkey…
Growing the offshore wind portfolio Greater Wash developments Releasing capital Centrica - Round 1 Projects 2 TCW Centrica - Round 2 Projects 84m Other Developers for 50% equity 4 350m 1 net 375m proceeds to construct…
Round 3 is a different technology proposition Strategic zones New technology required Water depth (m) 50 3-4 GW Round 3 Zone 25 1.4 GW Centrica R2 projects 0 0 Shore distance (km) 100 Round 3 Zones 31
Agenda UK wholesale electricity market Centrica power generation portfolio CCGT Renewables Nuclear Summary 33
Overview of the British Energy (BE) deal Key components Governance Existing Fleet New Build Rights to offtake Centrica EDF 20% equity stake in Centrica EDF 20% of uncommitted BE fleet power 20% 80% 20% 80% Lake NNB Holding…
Significant improvement in performance of BE fleet TWh BE Nuclear fleet output 18 16 55.5 TWh 51.9 TWh 40.2 TWh 42.5 TWh 2008 technically Q1 - Q3 challenging year 14 12 2009 output 10 improved 8 50.7TWh output for 6 11…
Scope for possible life extensions Current position of BE station lifetimes Dungeness B Hunterston B Hinkley Point B Hartlepool Heysham 1 Torness Heysham 2 Sizewell B 1995 2000 2005 2010 2015 2020 2025 2030 2035…
Key future decision is new build final investment decision New build development 2009 2010 2011 2012 Government Activity EDF sites in NPS NPS designated Planning approval Planning regime implemented FDP approval FDP guidance…
Summary Increasingly diversified generation portfolio Competitively Range of fuel mix advantaged Lowest carbon intensity Combination of baseload and mid-merit Performance of existing plant improving Proven capability in wind…
Upstream Gas Mark Hanafin 39
Agenda UK gas market fundamentals Strategic rationale for investment Benefits from strategy Capability Sustainability Flexibility Summary 40
UK, as the 5th biggest gas market, is rapidly becoming a major importer UK annual gas supply and demand 6,000 bcf Projected Balance of supply 5,000 sources will be driven by: 4,000 UK demand Relative price Availability of supply…
UK gas will need to be sourced increasingly from NCS, LNG and potentially continental pipeline gas UK annual gas supply and demand 6,000 bcf 5,000 4,000 UK demand 3,000 LNG / Continental pipeline gas 2,000 NCS UKCS…
North Sea fields are currently the best value source of gas for the UK Average cost for UK delivery Pipeline LNG /mmbtu UK Netherlands Norway Qatar Trinidad Egypt Nigeria Russia 43
These fundamentals drive our strategy for upstream gas investment UK increased dependence on imports Need for security of supply Volatile prices and potential supply disruptions increasing value of production flexibility Long term…
Upstream Strategy: Sustain and grow an upstream gas business contributing strong returns Upstream Strategy Benefits UK, Netherlands Offshore - Be the leading consolidator and operator of mature and Capability orphaned assets…
Venture acquisition fundamental to strategy Key benefits of Venture acquisition Experienced Venture team with industry leading skills Capability commercial, geoscience and engineering Strong presence in the UKCS Transform Centrica…
Capability: Aligned around regional / hub based strategy, with well-defined E&P capabilities Five core regions in the portfolio, each with Original Centrica acreage Original Venture acreage a P&L Benefits of regional / hub based…
Capability Case Study: Greater Markham Area (GMA) - strategic hub investment Venture acquired operated interest in the GMA in 2006 At that time production was 3 mboepd (net) Venture initiated a programme of upgrading facilities…
Capability Case Study: Greater Kittiwake Area (GKA) rejuvenation Venture acquired a 50% operated interest in the GKA in 2003 At that time 5,000 boepd (gross) with forecast abandonment 2005 Venture initiated a programme of…
Capability: Combined business has substantial scale and capability in the UKCS 2009 production (mboe/d est.) 300 Centrica Energy now 7th largest 200 gas producer in the UKCS 100 1 UK Utility with access to gas hedge 0 BP…
Sustainability: Strong HSE track record built over a period of time Total accident rate 2.0 per 100,000 hours worked 1.5 1.0 Strong HSE culture built over time 0.5 People looking after people 0.0 1996 1998 2000 2002 2004…
Sustainability: Leading operator of mature and orphaned fields, delivering sustainable level of production Upstream gas production profile 350 Production (bcf) 300 Venture Risked target band 250 Production development New…
Flexibility: A unique portfolio of options Short term flexibility: Morecambe Longer term development provides unique operating flexibility and control flexibility benefits A majority operated portfolio If spot market prices fall…
Flexibility: Significant opportunities to target and time investments Development Optionality Production (mmboe) 300m 50 1,100m 250m 350m Peik Sycamore 100m York Ensign Cygnus Accord & 25 Statfjord Beechnut Chiswick Kew…
Flexibility: Centrica capabilities makes us well positioned to procure LNG Centrica represents a major demand mmth/month UK LNG Imports holder in the UK, a market well placed 600 Dragon Isle of Grain 2 for LNG South Hook Isle of…
Summary Strong support for dual fuel gas hedge Competitively advantaged Well defined capabilities across our core markets Significant flexibility to react to market conditions Sustainable gas business, rather than blow down…
Centrica Storage Simon Wills 57
Agenda UK storage market fundamentals Centrica Storage Rough New projects Summary 58
In future, the UK will need to import and store more gas to satisfy its requirements UK gas supply UKCS decline will continue and Norwegian 6% 100% production will plateau Gap created by declining UKCS and NCS supplies expected to…
Gas storage is required to address seasonal variations and short-term volatility Fluctuations in UK gas demand Volatility in UK gas prices 450 80 MCM p/therm 400 70 60 350 50 300 40 250 30 200 20 150 10 100 0 J F M A M J…
UK storage capacity one of lowest in Europe, making strong case for additional investment Gas storage as a % of annual demand 30% Construction Present Present storage 25% Existing storage capacity Working Annual capacity as days…
Centrica Storage (CSL) owns and operates the Rough Storage facility in the UK Our vision is to become the leading multi-asset, multi-product gas storage business in the UK Rough is the 2nd largest gas storage facility in Europe…
Our innovative storage offerings instrumental in creating additional value through optimisation CSL Product and Service Offerings SBU revenue and price for calendar year Average SBU price for calendar year (p) SBU revenue for…
CSLs operational performance is strong across all key parameters Total offshore (3B & 8A) & Easington Terminal Availability performance combined maintenance backlog (hours) 99% 99% 98% 99% 99% 50,000 100% 96% 94% Without…
In particular, our Rough storage facility has seen a record withdrawal and injection season 5 Year historical profile (2004 2009) 130 110 Higher injection rate BCF 90 Increased 70 storage capacity 50 Min-Max Range…
CSL has announced new storage projects to address future UK requirements Caythorpe Baird Bains Description Onshore Existing gas field Existing gas depleted gas in Southern North field in East field Sea Irish Sea % Owned by 100.0%…
Development of CSLs three storage assets will make significant contribution to UK storage capacity CSL storage capacity CSL withdrawal capability (BCF) (BCF/day) 185 2.87 7.5 0.27 42 +45% 128 0.94 +91% 9 10 10 1.50 0.16…
Summary Unique position in UK storage market Competitively Knowledge of UK storage market advantaged Extensive third party sales experience Excellent HSE & operational record Proven capability in storage operation Growth Proven…
British Energy and Venture represent a step change in the size of Centrica Energy Capital Employed Venture Acquisition Fair value uplift of producing and 3.0 development assets bn Gas Power 4.0 Incremental depreciation will be…
Group capital allocation process ensures a portfolio view when prioritising investments Business Identification and prioritisation of opportunity pipeline Development Business level screening Assessment of risks e.g. commodity,…
Case Study Lincs offshore wind 2008 2009 Business Business case developed Improved cost base through Development Based on LID development, area supplier negotiation knowledge, and expertise Flexibility on timing with vessel…
Strong cash generation from underlying business to fund investments 2008 2009e 2.0 2.0 bn bn 1.6 1.6 1.2 1.2 0.8 0.8 0.4 0.4 0.0 0.0 Source Use Source Use Operating Cash Flow* Windfarm Proceeds Investments Tax *…
Hedging underpins financial returns Hedging Principles Rateable selling strategies, profile approaching 100% by month ahead Flexibility to deviate to exploit fundamental view, maximise extrinsic value and asymmetric returns, subject…
Gas and Power cost structure Gas and Oil CCGT * Oil and Gas (full year Venture) DD&A charged on unit of 25 12 production basis by field /boe /MWh 10 Product and field mix affect 20 Upstream average 8 New developments leading to…
UK Upstream Energys tax rate will decline over time 2010 Tax Rate Morecambe, Statfjord, Brae 75% Morecambe production highly taxed Other UK 50% Venture 50% Tax rate will reduce as Morecambe declines Norway 78% Netherlands 48%…
Summary Capital allocation process ensures risk Competitively assessment and investment prioritisation advantaged Business capabilities allow us to create value Growth Investment pipeline of 5bn (2010-2012) platform Portfolio…
Wrap up / Q&A Sam Laidlaw 80
Appendix 1: Centrica Group Weighted Average Cost of Capital (WACC) Risk Free Rate1 3.6% Market Risk Premium2 6.0% Beta 0.70 Cost of Equity 7.8% Tax Rate 28% Debt Premium3 1.5% Cost of Debt (before tax) 5.1% Cost of Debt…
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