* Lower costs make U.S. more interesting for M&A than UK
* But UK still core market - Finance Director
* Adjusted earnings rise 2 pct to 767 million pounds
* Gas power generation loses 64 million pounds
* Shares up 1 pct vs 0.6 pct FTSE 100 increase
By Karolin Schaps
LONDON, July 31 Centrica Plc sees the
United States as a more attractive market for acquisitions than
its home ground, it said on Wednesday, implying a shift in focus
to North America for one of Britain's largest energy investors.
The comments from the group, owner of Britain's biggest
natural gas supplier British Gas, came a day after it said it
was buying Hess Corp's U.S. energy retail arm for around
$1 billion, a move that followed a joint deal with Qatar in
April to buy oil and gas assets in Canada from Suncor Energy Inc
"The low gas price makes acquisitions in North America
relatively attractive compared to the UK, where costs are
increasing," Centrica said on Wednesday.
The shale gas boom in the United States has caused a
collapse in gas prices in the world's second-largest energy
consuming nation, while a turn to greener energy has increased
costs in European markets.
Capacity oversupply in the power market and high gas prices
have hit Centrica as much as its peers across Europe, with the
company's gas-fired power generation fleet posting a 64 million
Centrica's UK retail arm saw a 1 percent rise in adjusted
operating profit to 569 million pounds, while operating costs
also rose by 1 percent.
This compared with a better performance in its U.S. retail
business, where operating profit rose 6 percent to 165 million
pounds ($251.8 million).
"The U.S. clearly is an interesting market for us ... It
does remain fragmented, so the opportunities to grow via M&A are
there and we'll continue to look at that," said Centrica Finance
Director Nick Luff on a conference call on Wednesday.
"I would say though, remember the UK does remain our core
market. Most of our organic investment, in particular in the
upstream business, is in the UK or for the UK," Luff added.
Centrica signed a 20-year deal in March to import liquefied
natural gas (LNG) from the United States from 2018 and has
long-term supply deals with Qatar and Norway.
The group posted a 2 percent rise in adjusted earnings to
767 million pounds ($1.2 billion) over the first half of the
year, in line with expectations, spurred by higher output from
North Sea gas fields.
Revenue rose 14 percent to 13.7 billion.
Its upstream business posted a 16 percent rise in operating
profit to 802 million pounds, as production from its Norwegian
fields more than doubled year on year.
In its power generation business as well as its gas storage
activities, Centrica said it was expecting a weak performance in
the second half of the year.
"Weak spark spreads (profit from burning gas for power
production) will continue to make our UK gas-fired power
stations loss making, and reduced seasonal gas price spreads
will impact the profitability of our UK gas storage activities,"
The gas storage business is expected to see lower profits in
the second half of the year, after the average price at which
Centrica sold storage space at its huge Rough site fell to 23.3
pence, compared with 33.9p in the previous year.
Luff said even though Britain needs additional gas storage
capacity, the government needs to provide incentives.
"Our view is the most cost effective (mechanism) would be to
... operate in a similar way to the capacity mechanism (in the
power market) in terms of bidding into an auction mechanism to
get to the lowest floor price," he said.
The government is expected to publish its view on how to
incentivise gas storage construction in the coming months.
Centrica shares were little changed, up 1 percent at 390.4p
while the FTSE 100 blue-chip index was up 0.6 percent.