Slide 1: Centrica Energy Investor Day
Centrica Energy Investor Day 1 December 2011
Slide 2: Disclaimer
Disclaimer This presentation does not constitute an invitation to underwrite, subscribe for, or otherwise acquire or dispose of any Centrica shares or other securities. This presentation contains certain forward-looking statements with respect to the financial condition, results, operations and busi
Slide 3: Mark Hanafin
Mark Hanafin Managing Director, Centrica Energy 3
Slide 4: Sam Laidlaw
Sam Laidlaw Chief Executive, Centrica
Slide 5: Agenda
Agenda 9:00am Main presentation • Introduction Sam Laidlaw • Update on strategy and progress Mark Hanafin • Financial overview Andrew Le Poidevin • Q&A 11:00am Business unit presentations • Upstream gas and oil Jonathan Roger • Power Sarwjit Sambhi 1:30pm Breakouts • Upstream I: Maximising asset val
Slide 6: Our Strategic Priorities: Energy for a low carbon world
Our Strategic Priorities 1 Grow British Gas . . . leading the transition to low carbon homes and businesses 2 Deliver value from our growing upstream business . . . securing sustainable energy for our customers 3 Build an integrated North American business . . . with leading positions in deregulated
Slide 7: Centrica Energy provides an earnings hedge while delivering growth and value
Centrica Energy provides an earnings hedge to the group while delivering growth and value Energy hedge1, % Pre tax Post tax 87 • Provide appropriate level of hedge to ensure competitive position 67 – Norwegian asset acquisition 65 Hedge 49 restores post-tax hedge from ~50-60% 48 43 2012 onwards • Ge
Slide 8: Responding to the 'Energy Trilemma'
Responding to the ‘Energy Trilemma’ Security of supply The decarbonisation agenda Affordability UK gas supply from imports1, % Power carbon intensity2, gCO2/kWh Gas prices3, p/th 68 69 524 43 498 20 48 323 Power prices3, £/MWh 76 48 31 1 2000 2010 2020E 2000 2010 2020 2000 2010 2020E target Centrica
Slide 9: Delivering value from our growing upstream business
Delivering value from our growing upstream business Maximising returns Further investment for Deploying from existing assets growth and value distinctive capabilities • Performance improvement • World-class asset • Further attractive stewardship opportunities in gas, oil and • Cost efficiency offsho
Slide 10: Mark Hanafin
Mark Hanafin Managing Director, Centrica Energy
Slide 11: Centrica Energy is delivering on its strategy
Centrica Energy is delivering on its strategy Consistent delivery in 2010 and 2011 Maximising returns Deploying distinctive Further investment for from existing assets capabilities growth and value • Strong HSE performance • 8 new developments on • Attractive project pipeline stream developed • A to
Slide 12: The Centrica Energy leadership team
The Centrica Energy leadership team Mark Hanafin Jonathan Roger Sarwjit Sambhi Andy Netemeyer Managing Director MD Upstream MD Power MD Midstream Andrew Le Poidevin Niels van Buuren Carol Frost David Isenegger Finance Director Strategy Director HR Director General Counsel 12
Slide 13: Positioned to capitalise on opportunities in the changing global energy market
We are positioned to capitalise on opportunities in the changing global energy market Recent developments How we expect the market to evolve • Fukushima and German nuclear • Long-term UK and global prospects for gas closures are strong Gas • Asian LNG supply/demand balance • Attractive returns avail
Slide 14: Upstream gas and oil is delivering stable secure production
Upstream gas and oil is delivering stable secure production Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value 2009: Assets in decline 2011: Long-term sustainability1 Production, mmboe/a Production, mmboe/a kboe/d kboe/d 70 70 180 180 6
Slide 15: Our production has been lifted by the recent Statoil acquisition
Our production has been lifted by the recent Statoil acquisition Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value KvB pipe • $1,525m (£965m) transaction1 Kollsnes • Focused portfolio of producing operated and non-operated assets in th
Slide 16: Upstream performance is ahead of most industry benchmarks
Upstream performance is ahead of most industry benchmarks Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Upstream gas and oil performance metrics Industry Centrica Energy benchmark Exploration success rate • Centrica ahead of 56% 30
Slide 17: In Power we are investing in low carbon generation and improving existing assets
In Power we are investing in low carbon generation and improving the performance of our existing assets Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Power production has been diversified Operational performance has improved Produc
Slide 18: Consistent with CE's role in providing an earnings hedge while delivering growth
This is consistent with CE’s role in providing an earnings hedge while delivering growth and value Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Post tax energy hedge1 (%) • Appropriate level of hedge to maintain competitive Hedge
Slide 19: We are deploying distinctive capabilities in Upstream
We are deploying distinctive capabilities in Upstream Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value World-class stewardship • Focus on HSE, maximising production and cost-efficiency of production hubs • Identification of growth opp
Slide 20: Our capabilities in Upstream are delivering value
Our capabilities in Upstream are delivering value Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Case Study: Redeveloping the Greater Markham Area hub Centrica share of production1, mmboe/a kboe/d 12 Acquisition Excludes 30 Strate
Slide 21: Deploying leading capabilities across the wind value chain
We are deploying leading capabilities across the wind value chain Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Effective project • Identifying and acquiring advantaged sites development and • Well developed pipeline of projects pa
Slide 22: We have a strong pipeline of new wind capacity
We have a strong pipeline of new wind capacity Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value UK offshore wind development pipeline Our wind generation locations GW, excluding sites under construction 5.6 5.3 5.2 3.7 3.6 2.4 Cable 2
Slide 23: CE's five-year growth strategy: Upstream
CE’s five-year growth strategy: Upstream Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Further investment for • Grow upstream production to reach 75 mmboe/a in the growth and value next 3-5 years – Delivering additional value from
Slide 24: CE's five-year growth strategy: Power
CE’s five-year growth strategy: Power Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Further investment for Offshore wind growth and value • Deliver Lincs first power second half of 2012 (135MW1) • Complete the construction of Race
Slide 25: Building on our established business model
Building on our established business model CE’s five year strategy Maximising returns Deploying distinctive Further investment for from existing assets capabilities growth and value • Strong portfolio of assets, • World-class asset • Grow upstream production to reflecting disciplined stewardship 75
Slide 26: Andrew Le Poidevin
Andrew Le Poidevin Finance Director, Centrica Energy
Slide 27: Forward markets indicate a higher commodity price environment
Forward markets indicate a higher commodity price environment Gas price1 Oil price2 p/th, month average US$ per barrel, month average 80 150 60 100 40 50 20 Actual Month-ahead Actual Month-ahead 0 0 2009 2010 2011 2012 2013 2014 2009 2010 2011 2012 2013 2014 Baseload power price Clean spark spread £
Slide 28: CE has seen significant recent growth and is well positioned for future upside
CE has seen significant recent growth and is well positioned to capture future upside Operating profit £bn Upstream Power Maximising returns from existing assets 1.5 • Sustainable production outlook 1.0 • Active cost base management • Declining production from highly-taxed 0.5 PRT fields 0.0 2009 20
Slide 29: We are actively managing our cost base
We are actively managing our cost base Other1 Upstream costs increasing but managed Lifting Costs DD&A Total production costs, £bn Average unit cost, £/boe 1.2 1.1 20 • Industry trend toward higher cost 0.2 18 0.8 16 production 0.5 8 10 7 • Cost management initiatives in progress 0.5 10 9 10 2009 20
Slide 30: Our production mix will drive tax rates
Our production mix will drive tax rates Oil and gas production by tax regime % by volume Marginal rate1 • Supplementary Corporation Tax (SCT) on all UK fields was NL2 45% raised unexpectedly in March 2011 from 20% to 32% T&T3 55% • UK non-PRT fields growing in significance 2011 - 2014 Norway2 78% •
Slide 31: Significant internal cash generation is available to fund growth
Significant internal cash generation is available to fund growth Centrica Energy cash flow and investments 2010 2011E 2012E – 2015E £bn £bn £bn, total over 4 years 1.1 1.1 1.0 5.2 5.3 0.9 0.7 Statoil Statoil acquisition 1.3 acquisition3 Up to 3.0 3.1 In plan2 Upstream 4.5 Base 1.0 – 1.5 Power 0.9 Co
Slide 32: Disciplined capital approval and project management process
Each project is subject to a disciplined capital approval and project management process Strict project governance Capital allocation framework Continuous Improvement 1. Project Information Consideration Sterling Currency Name of Project Brief Description Key Financial Indicators £m $m USD Equity va
Slide 33: High return projects approved in 2010 and 2011
High return projects approved in 2010 and 2011 Upstream development projects approved, 2010 - 2011 IRR at FID1, % • Exploration-led developments benefitting from deep regional sub- surface knowledge 60 • Rapid cycle times, with typical FID 50 to first gas/oil in 14 – 24 months 40 • Leveraging owned
Slide 34: Sam Laidlaw
Sam Laidlaw Chief Executive, Centrica 34
Slide 35: Building on our established business model
Building on our established business model CE’s five year strategy Maximising returns Deploying distinctive Further investment for from existing assets capabilities growth and value • Strong portfolio of assets, • World-class asset • Grow upstream production by reflecting disciplined stewardship 50%
Slide 36: i HEA
i HEA Bia } centrica energy
Slide 37: Jonathan Roger
Jonathan Roger Managing Director, Centrica Energy Upstream
Slide 38: Centrica Energy Upstream: significant progress in 2010 and 2011
Centrica Energy Upstream We have made significant progress in 2010 and 2011 • Top three gas producer on UKCS UK and NL • Most active exploration and appraisal drilling programme • Largest net acreage in 2010; 7 blocks in 26th round • Acquired Shell interests in Statfjord Norway • Statoil partnership
Slide 39: We are creating a large, diversified business
Centrica Energy Upstream We are creating a large, diversified business We now have ~1.0bn boe reserves and resources Net resources at end-20101 19% 19% Oil T&T 48% Contingent 28% Norway (2C) 81% Gas Proved + 52% probable 53% UK and NL (2P) By resource type By country By product 1. Estimated reserves
Slide 40: Our portfolio delivers a sustainable 60-70mmboe/a
Centrica Energy Upstream Our portfolio delivers a sustainable 60 – 70mmboe/a Upstream oil and gas production profile Production volume, mmboe1 kboe/d 70 180 60 Exploration 150 • Sustainable 60 - 70mmboe/a to 2020 50 Current Future developments developments 120 • Track-record of growing the base 40 •
Slide 41: World-class stewardship of production hubs
Base production We have world-class stewardship of production hubs Production hub1 characterisation and strategy Cornerstone: 280mmboe Cornerstone – maximise value: High • Manage unit costs Kvitebjørn Morecambe • Enhance production performance Enhance: 85mmboe Statfjord • Identify growth opportuniti
Slide 42: We are delivering challenging mid-size capital projects
Current developments We are delivering challenging mid-size capital projects Delivering significant near-term reserves into Utilising strong capabilities in project production1 delivery 2P reserves, mmboe; planned year of first-production 80 • Technical innovation and supplier management focus, e.g.
Slide 43: Cygnus – one of the largest undeveloped UK gas fields
Current developments Cygnus – one of the largest undeveloped UK gas fields Top reservoir depth surface above gas water contact • ~100mmboe gross of recoverable reserves • Located 160km offshore the Norfolk coast in Blocks 44/11 and 44/12a • Centrica has the largest working interest at 48.7%, with GD
Slide 44: We have a broad portfolio of medium-term options
Future developments We have a broad portfolio of medium-term options Our development funnel is healthy We plan to add significant production through future developments2 In-plan mmboe, plan production kboe/d 45 120 ~350mmboe ~140mmboe Trinidad and Tobago 2C3 2P4 40 Expected post- 35 FID capex: 90 £1
Slide 45: Exploration: a stable programme supports long-term production
Exploration A stable programme supports long-term production We expect to add 30mmboe/a of 2C by exploration Leveraging our capabilities and Maturation funnel, exploration spend of £100m per year commitment • Extensive knowledge of key basins and plays, including tight gas • Successful track-record
Slide 46: Fogelberg - our exploration strategy in action
Exploration Fogelberg - our exploration strategy in action Deploying our capabilities 6506/9-2S • Fogelberg used our subsurface knowledge of the Jurassic Brent formation developed at Statfjord and Heimdal • Development could establish a new operated production hub – 2010 Maria discovery in same regi
Slide 47: We plan a balanced approach to reserve replacement
Centrica Energy Upstream We plan a balanced approach to reserve replacement Our current model is a targeted blend of organic and inorganic growth Current Exploration 2C 2P 2P production ~30 – 35mmboe/a undeveloped undeveloped developed ~60 - 70mmboe/a Acquisitions ~30 - 35mmboe/a Balanced replacemen
Slide 48: Statoil acquisition moves us towards our strategic goal
Centrica Energy Upstream Statoil acquisition moves us towards our strategic goal Production • We have established a production target mmboe/a of 75mmboe/a over the next three years 100 • The Statoil acquisition moves us significantly towards our target +50% • Any further acquisitions will be made in
Slide 49: Our strategy builds on our established business model
Centrica Energy Upstream Our strategy builds on our established business model CE’s five year strategy Maximising returns Deploying distinctive Further investment for from existing assets capabilities growth and value • Strong portfolio of assets, • World-class asset • Grow upstream production to re
Slide 50: Sarwjit Sambhi
Sarwjit Sambhi Managing Director, Centrica Energy Power
Slide 51: Our power business has been transformed since 2008
Centrica Energy Power Our power business has been transformed since 2008 Generation capacity has grown and diversified Year-end capacity, Centrica share, GW 6.8 6.8 5.1 1.8 1.8 Nuclear 4.1 0.2 0.2 0.2 Wind 0.1 4.9 4.9 4.9 CCGT 4.0 2008 2009 2010 2011 • CCGT: Langage completed 2009, 885 MW • Wind: LI
Slide 52: We are benefitting from our diversified portfolio
Centrica Energy Power We are benefitting from our diversified portfolio Base-load clean spark spreads are low However, base-load power prices are high £/MWh, month average £/MWh, month average 14 80 12 70 10 60 50 8 40 6 30 4 20 2 10 Actual Month-ahead Actual Month-ahead 0 0 2009 2010 2011 2012 2013
Slide 53: Over-supply will remain a challenge for CCGT
CCGT However over-supply will remain a challenge for CCGT Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value We expect marked capacity withdrawal from 2015 With short-term oversupply to persist Expected change in capacity, GW Peak syste
Slide 54: Given these challenges we are restructuring the portfolio
CCGT Given these challenges we are restructuring the portfolio Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Plant Start Year MW Langage 2010 885 Operate Humber 1997/9 1260 Modern, large, efficient plants Killingholme 1994 652 Pres
Slide 55: Further growth options are being developed
Biomass and CCGT Further growth options are being developed Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Roosecote biomass project • Option on 80 MW of dedicated biomass capacity • Feedstock from UK and imports • IPC submission 20
Slide 56: Our track record demonstrates strong capabilities
Offshore Wind Our track record demonstrates strong capabilities Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Effective project development and partnering • Identifying and acquiring advantaged sites • Well developed pipeline of pr
Slide 57: Lincs is progressing well
Offshore Wind Lincs is progressing well Maximising Further Deploying returns investment for distinctive Turbines Offshore substation from existing assets capabilities growth and value Installation commencing Fully installed, Spring 2012 commissioning underway Onshore substation Fully constructed and
Slide 58: We have a large, advantaged development pipeline
Offshore Wind We have a large, advantaged development pipeline Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Large wind development pipeline Significant offshore wind growth2 Equity capacity, GW MW1 2012 2013 2014 2015 2016 2017 20
Slide 59: Strong performance from EDF existing nuclear fleet
Nuclear Strong performance from EDF existing nuclear fleet Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Strong nuclear performance in 2011 YTD Upside potential from life extensions TWh Sizewell B Current life Recently Life extensi
Slide 60: We will only invest in new nuclear if conditions are met
Nuclear We will only invest in new nuclear if conditions are met Maximising Further Deploying returns investment for distinctive from existing growth and capabilities assets value Key milestones to FID Requirements • Robust CfD1 including appropriate strike price Target IRR met • High confidence in
Slide 61: Our strategy builds on our established business model
Centrica Energy Power Our strategy builds on our established business model CE’s five year strategy Maximising returns Deploying distinctive Further investment for from existing assets capabilities growth and value • Responding to challenging • Successful business • Grow offshore wind capacity by ma