Sam LaidlawIntroduction
1
Introductions
Mark HanafinManaging Director, Centrica Energy
Sarwjit SambhiDirector of Power Generation, Centrica Energy
Andrew Le PoidevinFinance Director, Centrica Energy
Simon WillsManaging Director, Centrica Storage
2
Today’s agenda
Centrica Energy overview
Power Generation
Power Station Tour
Upstream Gas
Storage
Financials
Wrap-up / Final Q&A
Mark Hanafin
Sarwjit Sambhi
Mark Hanafin
Simon Wills
Andrew Le Poidevin
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
Note: proportion of UK floating gas and power demand covered by own assets. Floating gas demand includes non-fixed price BGR and BGB demand, I&C gas demand, power station fuel requirements and equivalent gas requirements to meet floating power demand in BGR and BGB.
0%
10%
20%
30%
40%
50%
60%
70%
2006 2007 2008 2009 2010 2011 2012 2013
Venture
20% ofBritish Energy
Drax contractsWind
North Sea
Morecambe
^
*
Integration improving our energy hedge ratio
5
Strong platform for growth across the Group
• Strong Group cash generative capability underpins o ngoing investment– Robust Group cash flow even in low commodity environment
• Broad range of investment and growth opportunities– British Gas – Integrated energy & services propositions in the existing business;
take advantage of evolution to low carbon economy (e.g. smart meter revolution)– North America – Potential for further building of the integrated energy model
(opportunities upstream and downstream)– Centrica Energy – Significant pipeline of opportunities under our control to
drive growth- Power generation (CCGT, Wind, Nuclear New Build)- Gas (near field exploration, development, LNG)
– Centrica Storage – Development pipeline of three new storage projects
• Capital allocation process will assess competing op portunities– Well positioned to ‘high grade’ and select from opportunity set – Value enhancing returns required
6
Mark HanafinCentrica Energy Overview
7
1. Support Centrica’s integrated energy model by procu ring or acquiring gas and power for the downstream busin ess
• Providing competitive cost of gas and power • Security of supply and • Contributing to a structural price hedge
2. Sustain and grow our upstream gas and power generation business contributing attractive returns for Centrica plc
Centrica Energy’s vision
8
Climate change
• Climate change policy driving need for low carbon energy
� Need for renewables and low carbon generation sources
Recession and recovery
• Global financial / economic environment searching for direction
� Portfolio requires flexibility – and ability to mitigate demand destruction
• Governments are looking at options to address market reform and incentives for investment in low carbon economy
� Potential change in policy and market mechanisms (e.g. carbon floor)
Government policy and incentives
Security of supply
• Declining gas reserves in the UK and increased dependence on imports
� Need for security of supply
Infrastructure investment required
• Need for infrastructure replacement in generation as a result of LCPD
� Challenge to ensure incentives necessary for investment
Forward market trends
• Forward market trends in gas / power supported by fundamentals
� Short term volatility, yet long term gas and power prices expected to increase
Centrica Energy strategy is based on fundamental beliefs in long term market trends
9
Our strategy – a sustainable business, balanced generation and leading UKCS/NCS gas positions
• Leading consolidator of mature and orphaned assets on the UKCS
• Exploration and development focused on existing hubs and infrastructure
• Develop Atlantic Basin LNG
Upstream Gas
• Provide cover for residential and SME load
• Market neutral generation mix, but with lower carbon intensity
• Competitive cost of generation• Leader in renewable generation
Power Generation
• Procurement, hedging, and risk management for downs tream (lower cost of gas/power)• Maximise value through trading and optimisation
. . . supported by a Midstream function
Centrica today Peer Group Average
~85% cover for Res & SME
Demand
Res
SME
I&C
Gen.
Own
Demand
Res
SME
I&C
Gen.
Own
60TWh
10
Upstream gas production profile
targetband
Production (bcf)
50
100
150
200
300
350
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200
Morecambe
Pre-VentureProduction
Newacquisitions
Future prospects
Venture Production
250
Risked development
options
Integration provides significant support for Downstream business and additional incremental benefits
Centrica Energy provides a robust platform for earnings growth
We have built an advantaged suite of assets and capabilities
Balanced portfolio well positioned to deliver strong returns through the next 5 to 10 years
Centrica Energy presents an attractive proposition for shareholders
Strongreturns
Verticalintegration
benefits
Growthplatform
Competitivelyadvantaged
11
Vertical integration confers a number of benefits to Centrica
�Security of supply
�Reduced earnings volatility (margin migration)
� Improved headroom with lower credit thresholds
� Improved competitive position (in particular, gas i ntegration)
�Access to information and market insights across th e value chain(e.g. better hedging decisions)
�Timing / sequencing on investments, selective capit al allocation decisions
�Across gas, renewables, nuclear, storage and coal
�Access to more options (downstream, upstream, midst ream)
�Flexibility and optionality for trading decisions
�More ‘make’ or ‘buy’ options (e.g. Morecambe / CCGT)
�Lower balancing costs
�Lower weighted average cost of gas and power
�Less cash or collateral requirements
�Removes need to pay forward premium
Stability
Betterdecisions
Moreoptions
Lowercosts
12
NEW NUCLEAR
NEW GAS development & exploration
2 more Round 2 WIND farms & potential Round 3 NEW WIND
Baird, Bains and CaythorpeNEW STORAGE
A robust platform for growth
2010 + optionsBritish Energy NUCLEAR
Langage CCGT
Venture GAS
Lincs WIND farm
200920088 CCGT
Morecambe and non-operated JVs
Rough STORAGE
Accord TRADING
~4GW (power gen.)
~200 bcf (gas prod.)
~100 bcf (storage)
~7GW (power gen.)
~300 bcf (gas prod.)
~190 bcf (storage)
13
• Largest North Sea gas reserves for a UK Utility
• Leading position in Storage capability in UK
• Ability to manage shape and weather risk
• Sustainable production for the next decade
• Track record in new wind development
• JV with leading nuclear business
• Competitive new-build in CCGT
• Low carbon
• Balanced between peak and baseload
• Only ‘dual fuel’ hedged UK supply business
• Track record of asset reliability, operational exce llence
. . . will drive advantaged energy costs for Britis h Gas
Distinctive competitive advantages
Gas
Power
Advantagesfor Group
14
Well positioned to deliver strong returns through the next 5 to 10 years
• Despite recent volatility in commodity prices, Cent rica Energy remains a strong contributor to Group result s
– Strong EBITDA and cash generation
• Returns robust against changes in market fundamenta ls over the next 5 to 10 years
– Portfolio provides us the flexibility to choose investments withhighest returns
– Balanced portfolio positioned to deliver consistent returns through the cycle
• Capabilities allow us to capture additional value a nd exceed our hurdle rates
15
Sarwjit SambhiPower Generation
16
Agenda
• UK wholesale electricity market• Centrica power generation portfolio
– CCGT– Renewables– Nuclear
• Summary
17
Recent market dynamics
0
20
40
60
80
100Falling power prices
£/MWhBaseload power
J F M A M J J A S O N
2009
Coal at margin
0
20
40
60
J F M A M J J A S O N
2009
£/MWh
Gas
Coal
Marginal generation costs
30
40
50
60
-20
0
20
40
60
J F M A M J J A S O N
2009
Lower demand Relatively healthy spark spreads
Total UK demand Clean spark and dark spreadsGW £/MWh
J F M A M J J A S O N
CDS
CSS
20082009
Source: National Grid, Platts, Centrica
Source: Heren Source: TFS, Heren
Source: Heren, TFS
Ave
rage
pea
k de
man
d
18
Future market dynamics
Low carbon aspirations
2008 2020
Gas
Coal
Nuclear
Renewables
Othersources
0
50%
100%
51%
21%
378%
Change
Potential generating output if UK Government targets met
26%
75%
25%
Declining reserve margin due to plant closures . . .
Cumulative plant additions and closures
(25)
(20)
(15)
(10)
(5)
0
5
10
15
2010 2011 2012 2013 2014 2015 2016
GW
0%
5%
10%
15%
20%
25%
30%
35%
40%
Nuclear Wind @25%
Coal Oil
CCGT Reserve Margin (RHS)
19
• Target increased cover for downstream
• Target diversified generation fleet
• Specific strategies for:– Nuclear - JV with EDF– Wind - new build– Gas - asset replacement– Coal - contractual
Strategy aims for increased cover and balanced fleet
Strategy leads to a mix more closely aligned to the market but
with lower carbon risk
2009 2020e
Gas
Nuclear
Renewables
20
0
40
60
80
100
%
Centrica generation mix (TWh)
Centrica’s power generation strategy
20
Existing CCGT
Future CCGT
Existing Wind
Future Wind
Future Nuclear (20%)
Existing Nuclear (20%)
TWh
2010e generation
CCGTeconomicdispatch
Nuclear
CCGTTurnup
10
0
20
30
40
50
Wind
Strategy execution well underway
7
21
Agenda
• UK wholesale electricity market• Centrica power generation portfolio
– CCGT– Renewables– Nuclear
• Summary
22
7
CCGT generation portfolio - mix of vintages
Roosecote
Brigg
Peterborough
Killingholme
Kings Lynn
Humber
Barry
Spalding
Langage
1 x Alstom GT13E
4 x GE frame 6E
2 x GE 9E 9161/71
3 x Alstom 13-E1
1 x Siemens v94.3
3 x Alstom GT13E-22 x Alstom GT13E-2
1 x Siemens v94.2(Ansaldo)
2 x GE9FA-e
2 x Alstom GT26
44%
41%
43%
45%
47%
49%
44%
50%
53%
1991
1993
1993
1994
1997
19971999
1998
2004
2009
TechnologyStart Year
ThermalEfficiency
(HHV)MW
229
240
360
652
325
750500
230
760
885
1
462
8
35
7
9
1
2
3
4
5
6
7
8
9
23
Centrica plants are benefiting from low gas prices
November 09 merit order*
. . . and the market looks favourablefor much of 2010
Langage
Peak demand
0
10
20
30
40
50
0 20 40 60GW
Generation cost £/MWh
Other Nuclear Coal Gas Centrica Energy
Gas and coal generation costs
15
20
25
30
35
40
Apr
2009Jul Oct Jan Apr Jul Oct
£/MWh
Gas
Coal
2010
* Assumes 100% availability
Current gas prices benefit Centrica Energy’s CCGT fleet . . .
24
Focus on reliability
• Asset strategy and capital management
• Best practice powertrain overhauls
• Effective balance of plant maintenance
• Optimised plant performance and efficiency
Focus areas
2007
%
CCGT portfolio reliability
92
90
94
96
98
100
94.1%
95.1%
96.6%
2008 2009e
25
Efficiency improvement - Humber case study
• GT upgrade in 2009 outage for South Humber Phase II
• Observed performance improvement– efficiency: +1.5%– output: +26MW
• Interval between outages could be extended by 50%
South Humber Bank Phase II GT upgrade
GT13E2 MXL
� Lower firing temperature
� Extended inspection intervals
� Efficiency improvement
MCL mode
� Higher temperature
� Output and efficiency increase
� Inspection intervals unchanged
M - Blading
PerformanceLifetime
M-Series upgrade
26
Operational performance
Strong safety culturebuilt over time
Competitivecost performance
Benchmarking comparison
0
3,000
6,000
9,000
12,000
15,000
18,000
21,000
24,000
200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300Capacity MW
Controllable Cost £/MW
South Humber
Langage
Killingholme
Roosecote
Peterborough
King'sLynn
Barry
Brigg
Benchmark performance
Source: Solomon benchmarking
Rate
0
0.5
1.0
1.5
2.0
2.5
2006 2007 2008 2009
Total recordable injury rate *
Note: * Per 100,000 hours worked
27
Agenda
• UK wholesale electricity market• Centrica power generation portfolio
– CCGT– Renewables– Nuclear
• Summary
28
Leading position in offshore wind
• In house turnkey capability• Lynn and Inner Dowsing delivered on
budget and on time
Operators of offshore wind (Global) Access to scarce resource
A2 Sea- Sea Worker A2 Sea- Sea Jack
MPI Resolution Smit - Lisa
Jack-Up Barge BV-JB114
Siemens - Titan 2
Centrica
DONG
Vattenfall
EON
RWE
Others
29
Growing the offshore wind portfolio
Greater Wash developments Releasing capital
£375mto constructLID & GoF
£350mnet
proceeds
15 yearPPA
£340m
£84mfor 50%equity
Bankingconsortium
TCW
1
2
3
4
Centrica - Round 1 Projects
Centrica - Round 2 Projects
Other Developers
30
Round 3 is a different technology proposition
0
50
0 100Shore distance (km)
Water depth (m)
New technology required
25
3-4 GW
Round3 Zone
1.4 GW
Centrica R2 projects
Strategic zones
Round 3 Zones
31
Cost of offshore wind
£/MWh
20
0
40
60
80
Operatingcosts
100
Capitalcosts
2 ROCs
Implied power price
IRR Sensitivity14
2
4
6
8
10
12
0
ROC multiplier0 0.5 1 1.5 1.75 2
IRR %
14
2
4
6
8
10
12
0
Capex reduction0% 10% 20%
IRR* %
120
140
Future development dependent on economics
* Assumes 1.5 ROCs32
Agenda
• UK wholesale electricity market• Centrica power generation portfolio
– CCGT– Renewables– Nuclear
• Summary
33
Overview of the British Energy (BE) deal
20% equity stake in BE fleet
Rights to offtake 20% of uncommitted
power
Additional offtake rights 2011-2015(18 TWh in total)
Option to participate up to 20% in New
Nuclear Build
Key components Governance
Centrica
British Energy Group plc
British Energy Generation Ltd
80%20%
100%
100%
Existing Fleet
Centrica EDF
NNB Holding Company
NNB Gen Co.
80%20%
100%
New Build
Technical Committee
InformationRights
Lake Acquisitions
Ltd
EDF
34
• 2008 technically challenging year
• 2009 output improved
• 50.7TWh output for 11 months to November 2009
BE Nuclear fleet output
0
2
4
6
8
10
12
14
16
18
Jan-Mar
2006 2007 2008 2009
TWh
Apr-Jun
Jul-Sep
Oct-Dec
Jan-Mar
Apr-Jun
Jul-Sep
Oct-Dec
Jan-Mar
Apr-Jun
Jul-Sep
Apr-Jun
Jul-Sep
Oct-Dec
Jan-Mar
55.5 TWh 40.2 TWh51.9 TWh 42.5 TWhQ1 - Q3
Significant improvement in performance of BE fleet
35
Scope for possible life extensions
Current position of BE station lifetimes
1995 2000 2005 2010 2015 2020 2025 2030 2035
Sizewell B
Heysham 2
Torness
Heysham 1
Hartlepool
Hinkley Point B
Hunterston B
Dungeness B
Original asset accounting life
Life extensions already declared
Lifetime extension assessment
36
2009 2010 2011 2012
���� EDF sites in NPS • NPS designated• Planning regime implemented• FDP guidance issued• Justification decision
• Planning approval• FDP approval
• Generic Design Assessment complete• NSL approved
���� Nominate EDF sites • Submit planning application• Submit NSL application• ITT for main civils
• FID• Excavations begin
• Construction begins
Government Activity
Regulator Activity
EDF/Centrica Activity
New build development
Abbreviations: NPS = National Policy Statement, FDP = Funded Decommissioning Programme, NSL = Nuclear Site Licence, ITT = Invitation to Tender, FID = Final Investment Decision
Key future decision is new build final investment decision
37
Summary
• Increasingly diversified generation portfolio– Range of fuel mix– Lowest carbon intensity– Combination of baseload and mid-merit
• Performance of existing plant improving
• Proven capability in wind development and financing• World class nuclear joint venture• Significant pipeline of future projects
• New investment must meet required hurdle rate• Economics dependent on incentives
Strongreturns
Growthplatform
Competitivelyadvantaged
38
Mark HanafinUpstream Gas
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
• Relative price
• Availability of supply
• Perceived reliability/security of supply
Balance of supply sources will be driven by:
Note: 2008 UK demand and supply show slight variation due to IUK flows, storage and variability within data setsSource: National Grid
bcf
2,000
4,000
6,000
1996 2000 2004 2008 2012 2016 20200
UK demand
Projected
UKCS
UK annual gas supply and demand
5,000
3,000
1,000
41
UK gas will need to be sourced increasingly from NCS, LNG and potentially continental pipeline gas
bcf
1,000
2,000
3,000
4,000
5,000
6,000
1996 2000 2004 2008 2012 2016 20200
UK demand
UKCS
NCS
LNG / Continentalpipeline gas
Note: Imports from NCS are low case, based on 90% utilisation rates of Norwegian pipelines to continent, with UK taking remaining gasSource: National Grid
UK annual gas supply and demand
42
Qatar EgyptUK NigeriaNorway RussiaTrinidadNetherlands
North Sea fields are currently the best value source of gas for the UK
Average cost for UK delivery
$/mmbtu
Pipeline LNG
43
• UK increased dependence on imports – Need for security of supply
• Volatile prices and potential supply disruptions in creasing value of production flexibility
• Long term gas prices expected to rise in the UK– Downstream business must have access to competitive cost gas
• Opportunity as major players refocus their global p ortfolio
• We have the capabilities to execute– Delivery of synergies
These fundamentals drive our strategy for upstream gas investment
44
Upstream Strategy Benefits
Norway - Partner with leading NCS operators, progress into operation
LNG off-taker - Develop LNG structures with path to direct off-take rights into the Atlantic Basin
UK, Netherlands Offshore -Be the leading consolidator and operator of mature and orphaned assets
Flexibility
Capability
Sustainability
Upstream Strategy: Sustain and grow an upstream gas business contributing strong returns
45
Key benefits of Venture acquisition
• Experienced Venture team with industry leading skil ls – commercial, geoscience and engineering
• Strong presence in the UKCS
• A full service operator (89% of Venture’s productio n for 2009 is operated)
• Greater control and flexibility in ‘make or buy’ dec isions
• Transform Centrica Upstream business from ‘blow down’ to sustainable production
• Portfolio of valuable development options going for ward
Venture acquisition fundamental to strategy
Flexibility
Capability
Sustainability
46
• Five core regions in the portfolio, each with a P&L
• Benefits of regional / hub based strategy– Builds detailed area knowledge and focus– Lower risk step-out exploration and
appraisal drilling– Control of infrastructure– Diversifies export routes– Marginal cost of development and supply
reduced
• E&P capabilities leading to higher value– Stewardship of mature assets– Efficient field development, sub-sea
tiebacks– Directional drilling and horizontal wells– Subsurface engineering
Capability: Aligned around ‘regional / hub’based strategy, with well-defined E&P capabilities
Original Centrica acreage
Original Venture acreage
Norway
NNS/CNS
SNS UKNLEIS
Windsor
Aberdeen
Stavanger
Hoofddorp
Heysham
47
• Venture acquired operated interest in the GMA in 2006
– At that time production was ~3 mboepd (net)
• Venture initiated a programme of upgrading facilities and has brought 2 new developments onstream
– Current production is ~20 mboepd(net)
• In 2009, Centrica developed Grove with off-take via Markham
• Production to grow further in 2010 -2012 with new Chiswick wells coming on stream
• Significant other growth opportunities are being pursued
Capability Case Study: Greater Markham Area (GMA) - strategic hub investment
48
• 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 maintenance catch-up and has brought 3 new discoveries onstream with a 4 th in planning
– In 2007 a new pipeline was constructed from Kittiwake to the Forties Pipeline system
• Current production is ~25,000 boepd (gross) with abandonment ~2016
• Significant added value through focus and investment
Capability Case Study:Greater Kittiwake Area (GKA) rejuvenation
49
Capability: Combined business has substantial scale and capability in the UKCS
• Centrica Energy now 7th largest gas producer in the UKCS
• #1 UK Utility with access to gas hedge
• #3 largest owner of net acreage
• Excellent portfolio fit between Centrica and Venture assets
• Industry leading operating and project development capability
0
100
200
300
2009 production (mboe/d est.)
CentricaBP
Shell
Total
ExxonMobil
ConocoPhillips
BG Nexen
Chevron
Eni
Talisman
SuncorEnergy
MarathonApache
TAQA
0
1,000
2,000
3,000Net acreage (square miles)
ExxonMobil
BP
ConocoPhillips
Centrica
Nexen Talisman
Chevron
BG
Total
Eni
Shell
Suncor
Apache TAQA
Marathon50
Total accident rate
Strong HSE culturebuilt over time
People looking after people
Total reportable accident rate
Sustainability: Strong HSE track record built over a period of time
0.0
0.5
1.0
1.5
2.0
1996 1998 2000 2002 2004 2006 2008 2010
0.0
0.1
0.2
0.3
0.4
0.5
0.6
1996 1998 2000 2002 2004 2006 2008 2010
per 100,000 hours worked
per 100,000 hours worked
51
Upstream gas production profile
target band
Production (bcf)
Sustainability: Leading operator of mature and orphaned fields, delivering sustainable level of production
50
100
150
200
300
350
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
0
Morecambe
Pre-VentureProduction
Newacquisitions
Future prospects
Venture Production
250 Risked developmentoptions
52
• Longer term development flexibility and control
• A majority operated portfolio across combined assets
− 53% of fields operated− 66% of production operated− 65% of undeveloped fields
operated
• Significant opportunities to target and time investments
• Short term flexibility: Morecambe provides unique operating flexibility benefits
– If spot market prices fall below economic signals, options exist to shut-in production and buy gas from the market- In November, we shut in production for 19 days
– Where production is forward sold, we have the option to buy back at spot market prices- e.g. September gas was
sold at 58.8p/th, and bought back at 20.6p/th
Flexibility: A unique portfolio of options
53
Flexibility: Significant opportunities to target and time investments
~£100m
~£350m
~£250m
~£1,100m~£300m
• Statfjord
• Chiswick
• F3 FA
• York
• Cygnus
• Peik
• Sycamore
• Ensign
• Accord & Beechnut
• Kew
• Fulham
• Christian
• Carna
2012ExplorationCoreIn flightExistingProduction
2009 Furtheroptionality
2012
X Capex £m2010-2012
0
25
50
Development OptionalityProduction
(mmboe)
Development options
54
• Centrica represents a ‘major demand holder’ in the UK, a market well placed for LNG
– Significant partner for major resource holders
• Centrica is the largest holder of LNG import capacity and storage facilities in the UK
– A significant buyer and shipper of LNG – Bought 26 LNG cargoes to date in 2009
• LNG represents flexibility to meet security of supply and create future value
• An attractive investment partner in new Atlantic Basin LNG liquefaction
UK LNG Imports
Flexibility: Centrica capabilities makes us well positioned to procure LNG
0
200
400
600
Jul 07 Jan 08 Jul 08 Jan 09 Jul 09
mmth/month
Dragon
South Hook
Teeside GasPort
Isle of Grain 2
Isle of Grain 1500
300
100
55
• Strong support for ‘dual fuel’ gas hedge
• Well defined capabilities across our core markets
• Significant flexibility to react to market conditio ns
• Sustainable gas business, rather than ‘blow down’reserves
• Access to a strong platform of growth options
• Able to target and time investments with strong returns
Strongreturns
Growthplatform
Competitivelyadvantaged
Summary
56
Simon WillsCentrica Storage
57
• UK storage market fundamentals• Centrica Storage
– Rough– New projects
• Summary
Agenda
58
• UKCS decline will continue and Norwegian production will plateau
– Gap created by declining UKCS and NCS supplies expected to be replaced by LNG and continental gas
– After Norway, future UK prices expected to be set by LNG or Russian gas
• Europe’s most gas intensive economy will have moved from being a source of cheap gas to “end of pipe” importer requiring highest prices to support transportation costs across Russia and Europe
• Gas storage forms a critical part of ensuring security of supply for UK market stability
In future, the UK will need to import and store more gas to satisfy its requirements
100%
20202009
LNG + Continental pipeline gas
UK gas supply
6%
61%
UKCS +NCS
39%
94%
59
Gas storage is required to address seasonal variations and short-term volatility
• Seasonal variations in UK heating demand
• NBP pricing fluctuations• Increased imports
Storage needed for seasonality…• Geo-political issues / supply shocks• Climate change (intermittent wind)• Increased imports
Storage needed for volatility…
Fluctuations in UK gas demand
MCM
100
150
200
250
300
350
400
450
J F M A M J J A S O N D2009
0
10
20
30
40
50
60
70
80
2008Jan Jul JulJan
2009
p/therm
Volatility in UK gas prices
60
UK storage capacity one of lowest in Europe, making strong case for additional investment
Construction
UKFrance NetherlandsGermany
Gas storage as a %of annual demand
15 days1024.2UK
43 days12%435.1Netherlands
81 days22%8919.8Germany
92 days25%4912.3France
0%
5%
10%
15%
20%
25%
30%
Existing
Rough
4%
Present storage capacity
as days of average demand
Present storage capacity as a % of demand
Annual demand (BCM)
Workingvolume(BCM)
61
Centrica Storage (CSL) owns and operates the Rough Storage facility in the UK
Rough is the 2nd largest gas storage facility in Eu rope and accounts for 75% of UK storage capacity
Our vision is to become the leading multi-asset, multi-product gas storage business in the UK
62
Our innovative storage offerings instrumental in creating additional value through optimisation
• S Store - Standard Storage– WD and DA options– Customer books NTS capacity– Asset based
• C Store - Entry Paid Storage– WD and DA options– NTS capacity built into the service– Asset based
CSL Product and Service Offerings
Note: WD = Within Day, DA = Day Ahead, NTS = National Transmission System, SIS = Standard Inter ruptible Service , SBU = Standard Bundled Unit
20042003 2007 20082005 2006
Cushion Gas
Optimisation
Additional value through optimisation
20052004 2006 20082007
SB
U r
even
ue fo
r ca
lend
ar y
ear
(£m
)
Ave
rage
SB
U p
rice
for
cale
ndar
yea
r (p
)
SBU revenue and price for calendar year
£m
Average SBU price
• V Store – ‘Virtual’ Storage– Available as DA only– Includes NTS capacity – Non asset specific
• Incremental Capacity– Extra space, extra injection,
extra withdrawal, gas in store sales
• Interruptible Products– SIS– Bronze
0
50
100
150
200
250
300
0
10
20
30
40
50
60
2009e
SBU revenue
0
15
30
45
60
63
CSL’s operational performance is strong across all key parameters
Man
hou
rs
Total offshore (3B & 8A) & Easington Terminal combined maintenance backlog (hours)
LTI Rate per 100,000 man hours
2009 YTD200820072006200520042003LTI r
ate
per
100,
000
man
hou
rs
Availability performance
With
out
inci
dent
200820072006
99%
20052004
Com
bine
d av
aila
bilit
y (%
)
99%99%98%99%96%94%
0%
20%
40%
60%
80%
100%
2009(YTD Oct)
63%
2003
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0
10,000
20,000
30,000
40,000
50,000
Oct02
Easington
Offshore
Apr03
Oct03
Apr04
Oct04
Apr05
Oct05
Apr06
Oct06
Apr07
Oct07
Apr08
Oct08
Apr09
Oct09
64
In particular, our Rough storage facility has seen a record withdrawal and injection season
5 Year historical profile (2004 – 2009)
BC
F
Earlier withdrawal
10
30
50
70
90
110
130
Min-Max Range
2009
5yr Average
J F M A M J J A S O N D
Higher injection rate
Increased storage capacity
65
CSL has announced new storage projects to address future UK requirements
2013/14
Q3 2010
FEED commenced October 2009
60
50-70
60
70.0%
Existing gas field in Southern North
Sea
Baird
2012
Q3 2010
Planning permission
granted; FEED completing
December 2009
20 - 30
4
7.5
100.0%
Onshore depleted gas
field
Caythorpe
Onshore planning granted
Planning Status
2013/14Operational
Q4 2010Final Investment Decision
60Injection / Withdrawal
Duration (Days)
27Cushion Gas Required (bcf)
15-20Working Gas (bcf)
52.8%% Owned by Centrica
Existing gas field in East
Irish Sea
Description
Bains
BainsCaythorpe
Rough
Baird
66
Development of CSL’s three storage assets will make significant contribution to UK storage capacit y
CSL storage capacity(BCF)
CSL withdrawal capability(BCF/day)
185
20152010
128
+45%
Caythorpe (100%) Bains (52.8%)
2.87
20152010
1.50
+91%
118118
10109
42
7.5
1.50
0.16
0.94
0.27
Baird (70%) Rough Improvement Initiatives
Rough (100%)
67
Summary
• Unique position in UK storage market– Knowledge of UK storage market– Extensive third party sales experience– Excellent HSE & operational record
• Proven capability in storage operation• Proven development capability via Centrica Energy• Pipeline of future projects • Development of portfolio business/risk diversificat ion
• Continued strong performance of Rough• New build must meet hurdle rate
Strongreturns
Growthplatform
Competitivelyadvantaged
68
FinancialsAndrew Le Poidevin
69
• Balance sheet• Investment programme• Cash generation• Hedging• Costs
Agenda
70
Capital Employed
£bn
• Venture Acquisition– Fair value uplift of producing and
development assets– Incremental depreciation will be separately
identified – excluded from underlying EPS– Mark to market of hedging transactions
through middle column
• Stake in British Energy– Segment disclosure will include 20% of
BE’s operating profit – Share of interest and tax shown separately – Fair value uplift of existing nuclear plants – Incremental depreciation will be separately
identified – excluded from underlying EPS – Mark to market of hedging transactions
through middle column
British Energy and Venture represent a step change in the size of Centrica Energy
0.0
1.0
2.0
3.0
4.0
June '09 Dec '09e0.0
0.5
1.0
1.5
2.0
2.5
3.0
June '09 Dec '09e
PowerGas
71
Investment opportunities offer a growth platform with embedded optionality
BairdCaythorpe
CygnusYork
Chiswick IIEnsign
BainsRace Bank
PeikSeven Seas II
SycamoreKew
Fulham
New NuclearHeimdal EastKey
InvestmentDecisions
~60%
£bn
~30% ~25%
2010e 2011e 2012e
Potential project pipeline – investment opportunitie s*
* includes maintenance capex
0.0
0.5
1.0
1.5
2.0
2010 2011 2012
Gas Wind CCGT Nuclear Storage Committed
72
Group capital allocation process ensures a portfolio view when prioritising investments
• Identification and prioritisation of opportunity pi peline• Business level screening• Assessment of risks – e.g. commodity, financial, ope rational
• Ensure investments are ‘on strategy’• Tie investment choices to competitive advantages • Growing technical expertise provides capability to deliver
• Financial metrics consider both the long and short term• Alternate financing options considered • Invest in projects with returns in excess of hurdle rates
• Option to select projects with the highest returns and exercise choices around timing
• Hurdle rates established to deliver strong returns• Post investment reviews ensure learning transferred• Provides balanced portfolio of investments across G roup
Strongreturns
StrategicFit
BusinessDevelopment
Economicimpact
73
• Business case developed • Based on LID development, area
knowledge, and expertise
• Aligned with power generation strategy
• Investment returns too low• Financial risks too high• Project rejected
• Improved cost base through supplier negotiation
• Flexibility on timing with vessel optionality
• Financing template established for recycling capital, crystallising development gains and diversifying risk
• Business case revisited• Additional revenue from two ROC’s• Project approved
• £725m investment• 11 to 12% IRR
2008 2009
Case Study – Lincs offshore wind
Strongreturns
StrategicFit
BusinessDevelopment
Economicimpact
74
£bn
Operating Cash Flow*
Tax
Investments
£bn
2008 2009e
Windfarm Proceeds
* From Centrica Energy and Centrica Storage
Strong cash generation from underlying business to fund investments
0.0
0.4
0.8
1.2
1.6
2.0
Source Use0.0
0.4
0.8
1.2
1.6
2.0
Source Use
75
• 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 to PaR limits
2010 Profit at Risk (PaR)2010 Production Hedging
Hedging underpins financial returns
0 20 40 60 80 100
Gas
CCGT SparkSpread
Oil
Nuclear
Risks
Portfolio diversity
£m
Individual Asset Overall RiskI&C Gas Gas Equity
Oil Power (CCGT)
Consolidated
76
Gas and Power cost structure
Fixed and overheads
DDA - variableTariff - variable
Gas and Oil(full year Venture)
CCGT *
£/boe £/MWh
Fixed costs & overheadsDDA - fixed
BSUoS - variable
DDA - variable
• Oil and Gas– DD&A charged on unit of
production basis by field– Product and field mix affect
Upstream average – New developments leading to
higher unit costs
• Power Stations– Production varies with spark
spread– Langage operational in 2010,
increasing unit costs– Depreciation charged on unit of
production basis by station
* Own assets
0
5
10
15
20
25
2009e0
2
4
6
8
10
12
2009e
77
UK Upstream Energy’s tax rate will decline over time
28%Gas Storage
28%Power Generation
75%50%50%
~78%48%
Morecambe, Statfjord, BraeOther UKVenture
NorwayNetherlands
2010Tax Rate
• Morecambe production highly taxed
• Tax rate will reduce as Morecambe declines
78
Summary
• Capital allocation process ensures risk assessment and investment prioritisation
• Business capabilities allow us to create value
• Investment pipeline of ~£5bn (2010-2012)
• Portfolio provides flexibility around options and t iming
• Balanced portfolio is cash generative
• Value creating investments
• Well positioned for market fundamentals
Strongreturns
Growthplatform
Competitivelyadvantaged
79
Sam LaidlawWrap up / Q&A
80
Appendix 1: Centrica Group Weighted Average Cost of Capital (WACC)
7.0%WACC
20%Equity / (Debt + Equity)
3.7%Cost of Debt (after tax)
5.1%Cost of Debt (before tax)
1.5%Debt Premium3
28%Tax Rate
7.8%Cost of Equity
0.70Beta
6.0%Market Risk Premium2
3.6%Risk Free Rate1
Note: 1) 10yr GILT 2) Implied market risk premium 3) Current credit spread81
Appendix 2: Displays
82
83
84
85
86
Top Related