NGI The Weekly Gas Market Report / NGI All News Access

Centrica Leaps into North American Retail Energy

Centrica Leaps into North American Retail Energy

One of the United Kingdom's leading natural gas suppliers took a huge step across the Big Pond last week, agreeing to purchase one of Canada's largest gas marketers. Centrica Plc will pay $612 million in cash and assumed debt for Calgary's Direct Energy Marketing Ltd. and its associated marketer, Natural Gas Wholesalers.

Although Centrica would not disclose how much debt it was assuming, the company said it did not expect to add to its earnings with this purchase before 2002. Direct Energy's net assets were C$225 million on Dec. 31, 1999.

Direct Energy, the largest unregulated natural gas retailer in North America, has about 820,000 customers, mostly in Ontario. It also owns and operates natural gas reserves in Alberta, which provide up to 20% of its required supply. Direct Energy's customer services unit, Natural Gas Wholesalers, provides marketing and call center services to Direct Energy and Energy America LLC customers - giving Centrica the opportunity to secure more customers and more important, to secure inroads into not just Canada but the U.S. marketplace as well.

A key part of the purchase agreement is a 27.5% stake that Direct Energy holds in Energy America, a unit of Sempra Energy. Energy America supplies gas and electricity to about 450,000 U.S. customers, and Centrica is expected to use its new holdings to expand further into the U.S. marketplace. Energy America customers are centered in six U.S. states: Georgia, Maryland, Michigan, New Jersey, Ohio and Pennsylvania.

"This provides us with the ideal vehicle for rolling out our strategy into the North American markets," said Centrica CEO Roy Gardner. "Our expertise in building customer relationships and operating in deregulating markets, combined with Direct Energy's risk management and sales skills, will make us a powerful combination."

Centrica, which maintained a 73% share of UK's domestic gas market at the end of 1999, offers electricity supply and home services under the British Gas and Scottish Gas brands, vehicle services under the AA brand and insurance and financial services under the AA and Goldfish brands. It also plans to launch a telecommunications service in September. It owns and operates the Morecambe gas fields in the East Irish Sea, and has other gas and oil reserves in the southern North Sea and Liverpool Bay. It also is a leading player in the emerging European wholesale energy trading market.

At the end of 1999, Centrica signed up 2.6 million power customers through its British Gas unit, and is expected to become the largest regional supplier of natural gas in Britain by the end of this year.

Following the announcement of the planned acquisition of Direct Energy, Standard & Poors affirmed its single-'A' long-term rating and 'A-1' short-term rating on Centrica and its related entities. The S&P said the acquisition was "complementary to Centrica's core business activity," and said it is positioned to participate in the "deregulating North American energy market...and in the Canadian electricity market that is expected to be opened to competition in 2001."

Following the announcement on Thursday, Direct Energy's stock on the Toronto Stock Exchange was up almost 19%, selling in the range of C$128 a share, up nearly C$20. Centrica, which trades on the London Stock Exchange, has a market capitalization of C$20 billion. Its shares have risen about 27% this year alone. Centrica was formed in 1997 from the de-merger of the sales, trading, servicing, retailing and Morecambe Bay production operations of British Gas PLC, now BG Transco Holdings PLC.

Carolyn Davis, Houston

©Copyright 2000 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus