UPDATE 2-Centrica sees upstream business driving growth

Thu Feb 23, 2012 5:05am EST

Related Topics

* Says plans to deliver improved earnings growth in 2012

* Says focus remains on growing the upstream business

* Adjusted operating profit up 1 pct to 2.42 bln stg

* Upstream gains offset by mild weather, lower power use

* Shares rise 0.9 percent

By Adveith Nair

LONDON, Feb 23 (Reuters) - British utility Centrica expects to deliver improved growth this year helped by higher profits from its upstream oil and gas business, after lower consumption at its supply business pegged back growth in 2011.

Centrica, which owns Britain's biggest household energy supplier British Gas, on Thursday said full-year adjusted operating profit was flat year-on-year as higher commodity prices and mild weather drove down power use in Britain.

Higher commodity prices, however, benefited the company's UK upstream oil and gas business, where profits grew 33 percent. That unit will be key to the company's plans to deliver improved year-on-year earnings growth in 2012, analysts say.

Centrica, already the third largest producer of gas on the UK continental shelf, said it plans to increase upstream UK gas and oil production by more than 25 percent this year.

"In our upstream UK business, we will progressively benefit from the higher wholesale commodity price environment," the company said. "We will also benefit from the recently acquired gas and oil assets in the North Sea."

Centrica added that its focus would remain on growing the upstream business through acquisition and organic development.

The company, which spent 1.6 billion pounds in 2011, said it expects to invest 1.4 billion in this year, with half of that on the upstream gas and oil business.

Shares in the company, which have dropped more than ten percent in the past year, were up 0.89 percent at 296.10 pence at 0956 GMT.

"Analysts are expecting our earnings to go up more in 2012 than they did in 2011," Chief Executive Sam Laidlaw told reporters after reporting a 2.4 percent rise in full-year earnings per share. "The outlook is positive in that sense."

The company is expected to report earnings of 27.59 pence per share in 2012 according to a Thomson Reuters I/B/E/S poll of analysts, up more than 8 percent from the 25.8 pence per share profit it reported in 2011.

Full-year adjusted operating profit at Centrica was largely flat at 2.42 billion pounds ($3.79 billion), broadly in line with consensus estimates. Analysts expect this to rise 5 percent to 2.54 billion pounds in 2012.

BRITISH GAS PROFITS FALL

Profit at the company's downstream supply business dropped 17 percent, hurt primarily by higher gas prices, and mild weather, which led to a 21 percent dip in average household gas consumption and a 4 percent fall in electricity use.

"We had high gas and oil prices driven by the Arab spring and events in Japan," Laidlaw said. "The other big factor was that we were going from one of the coldest years on record in 2010 to one of the warmest, which has an impact on consumption."

The company said the number of UK residential customer dropped 1 percent, or nearly 100,000, to 15.9 million.

Similarly, Spain's largest power utility Iberdrola < IBE.MC > on Thursday posted a 2.3 percent decline in full-year net profit, also depressed by weak power demand in some of its core markets and rising commodity prices. [ID: nL5E8DN1MY]

Centrica, among the first of the 'big six' UK suppliers to cut prices, warned however that the longer term trend in wholesale energy prices and non-commodity costs "remains upwards".

UK energy regulator Ofgem had said earlier this week the country's six dominant utilities should auction off a quarter of their power supplies to encourage the entry of independent suppliers and in a bid to lower retail energy prices.

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