British Gas to offload contract burden

British Gas is to transfer some of its gas production assets for the first time in a deal with Mobil to renegotiate some of its pounds 40bn-worth of so-called "take or pay" contracts to buy gas at inflated prices.

It is the second time this month that British Gas has managed to offload some of its massive take-or-pay burden with the leading oil and gas production companies. The first successful renegotiation,with British Petroleum, represented just under 10 per cent of its total take or pay liabilities, at a cost thought to be around pounds 250m. The company would not disclose the cost of the Mobile deal yesterday, but said it was similar in scale to that with BP.

After months of negotiations Mobil has agreed to terminate two contracts which involved British Gas buying gas from the company at well above the market price. On average, British Gas has to pay around 20p a therm for gas in its take-or-pay contracts, compared with the current market price of 15p. Earlier this year gas on the spot market was selling for as little as 9p a therm.

In addition, Mobil will reduce the price of gas on three other contracts in phases over the next few years to what British Gas said would be "market levels". In total, the deal involves some 10 billions therms of gas. The first renegotiation with BP, which also involved some internal contracts between British Gas divisions, terminated agreements to buy 2.8 billion therms of gas and cut the price on 13.5 billion.

In compensation, British Gas has for the first time transfered some of its gas production assets, though not in the huge Morecambe Bay field off the North-west Coast. Mobil's north sea arm will take over BG's 5 per cent stake in the Beryl field to the east of the Shetlands, along with stakes in two other fields and a Scottish pipeline system.

The Mobil deal puts the spotlight on Shell and Esso, which operate in partnership in the North Sea, and have some of the largest take or pay contracts with BG. The group's shares closed up 6p at 227.5p.