May 9, 2011 / 6:31 AM / 6 years ago

UPDATE 3-Centrica shares drop after slower growth warning

* Higher taxes to lead to more modest earnings growth

* Sees effective tax rate for 2011 at 45 percent

* Residential energy supply mkt more challenging than 2010

* Residential gas use down 19 pct, electricity down 4 pct

* Shares down 3 percent, hit nine-month low

(Adds details on prior UK investment plans, analyst comment)

By Adveith Nair

LONDON, May 9 (Reuters) - British utility Centrica Plc (CNA.L) warned that rising taxes on North Sea oil and gas production would erode profit growth this year and prompt it to scale back investments, sending its shares to a nine-month low.

In March, Britain unexpectedly raised a supplementary tax charge on North Sea oil and gas producers to 32 percent from 20 percent to help lower fuel duty for motorists. [ID:nLDE72M1PB]

"We continue to expect growth in our 2011 group earnings but at a more modest rate than anticipated at the time of our last results announcement as upstream profits have become more highly taxed," the company said in a statement on Monday.

The company, which planned to spend about half its 1.5 billion pounds ($2.46 billion) 2011 capital expenditure budget on UK upstream, no longer expects to maintain those "high levels of investment" in the UK.

Centrica shares were down 3.3 percent at 305 pence at 0909 GMT, the top percentage loser on Britain's blue-chip FTSE 100 .FTSE index and hitting their lowest since August.

Last week, Britain's Economic Secretary to the Treasury Justine Greening acknowledged the impact of higher taxes on investments in the UK and said the government would work with the oil and gas industry to limit the impact of the unexpected tax hike on marginal North Sea fields. [ID:nLDE7431TD]

Centrica had said a week ago it may shut one of its gas fields as the tax rise made it unprofitable to run, echoing a decision by Norway's Statoil (STL.OL) in March to put some developments on hold. [ID:nLDE72S1J0] [ID:nLDE73T092]

On Monday, the company said the higher tax rates would lead to reduced cash flow and higher fiscal uncertainty.

The group expects an effective tax rate of about 45 percent for 2011 -- an increase of nearly 300 million pounds in the tax charge over last year -- and sees "significant" one-off deferred tax charges due to the increase in upstream tax rates.

Investec analyst Angelos Anastasiou, however, said he was still positive on the company's prospects and maintained a "buy" recommendation. He said the statement suggested a relatively tough trading environment, but most factors were already known.

"Despite higher taxation, earnings are still set to grow," he said, and kept his 424 pence price target on Centrica shares, 35 percent higher than the stock's Friday closing price.

According to Thomson Reuters StarMine, which weighs analysts' forecasts according to their track record, the company is expected to report earnings of 27.22 pence per share for 2011, 17 percent higher than last year.

Centrica, which owns Britain's biggest household energy supplier British Gas, said the number of residential energy accounts on supply has grown to about 16 million, slightly above the level reached at the end of 2010.

But the company warned market conditions for its residential energy supply business were significantly more challenging than last year, due in part to warmer weather.

Average residential gas consumption in the first four months of the year was 19 percent lower, while electricity consumption was down 4 percent, Centrica said. (Editing by Matt Scuffham and Mike Nesbit) ($1=.6100 pounds)

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