Centrica won’t have much change left after selling all the spare fuel it keeps at a North Sea gas facility it’s decided to close.
The so-called cushion gas, sitting in a reservoir 18 miles (29 kilometers) off the English coast, is worth about 750 million pounds ($950 million), according to Lakis Athanasiou, a utilities analyst at Agency Partners LLP in London.
But he added the eventual cost of decommissioning Rough will probably come in at about 300 million pounds, with the rest disappearing in taxes and running costs.
The facility was previously an offshore gas field but it’s been used as a store for the fuel since 1985 to benefit from higher prices during winter.
Centrica will close the site permanently because its wells are degrading to the point where they’re not safe.
After taking a 176 million-pound impairment for Rough in the first half last year, the company hasn’t ruled out further write downs and losses for its storage unit are poised to widen this year.
Athanasiou said: “At least the cushion gas will allow Centrica to pay for the decommissioning costs.”
He values Rough at zero, but without the cushion gas it would be a big liability, he added
The sale will take several years, Ross Davidson, a spokesman for the Windsor, England-based utility, said on Tuesday. He declined to comment on the value of the gas.
Rough contains approximately 183 billion cubic feet (5.2 billion cubic meters) of gas right now, the company said in a statement. That’s almost 7 percent of the country’s consumption last year.
Sanford C Bernstein & Co. analyst Deepa Venkateswaran said: “For Centrica, this is positive as they can close a loss-making asset and extract value from it,”
But she added that during future gas shortages, such as in cold snaps during winter months, the closure of the site will put greater upward pressure on gas prices to divert liquefied natural gas cargoes to the UK.
Facilities such as Rough once generated healthy profits because they charge gas traders a fee to inject during the summer when prices are supposed to be low and take gas out during winter when prices have traditionally been much higher.
Centrica’s profits turned to losses partly because the gap between summer and winter prices narrowed, Athanasiou said.
Getting approval to close the site may take several months, according to Davidson. The U.K. doesn’t plan to stop Centrica from going ahead with its plans, a government official said.
Centrica rose as much as 1.6 percent to 205.8 pence and traded at 202.9 pence at 3:55 p.m. in London. The stock is down 13 percent this year, compared with an 11 percent gain for the Stoxx 600 Utilities Index.
About 40 percent of Centrica’s revenue from the cushion gas will be paid as tax, Athanasiou said.
Wood Mackenzie Ltd.T principal analyst for European gas and power Graham Freedman said the amount of gas Centrica has in the store means the company has a big incentive to just shut the site and extract the fuel
He said: “Commercially they obviously decided it is the best way forward for them.
“There will be a short period when they can extract gas and make some short-term gains.”
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