Centrica pays pounds 440m to settle take-or-pay North Sea contracts

Centrica, the demerged British Gas supply business, yesterday lifted a huge burden from its balance sheet, with pounds 440m worth of deals to settle the bulk of its long running "take-or-pay" problem from high- price North Sea gas contracts. As Chris Godsmark, Business Correspondent, reports, the agreements with three oil companies yesterday mark the end of a two years of marathon negotiations.

At signing ceremonies in Amsterdam yesterday Centrica agreed to pay pounds 365m to buy itself out of high-priced gas contracts with Conoco, Elf and Total in the biggest of renegotiation package so far unveiled by the company.

The contracts, most of which were signed in the early to mid-1980s, were to supply 6 million therms of gas. Though Centrica declined to specify the cost of the gas, it was thought to be committed to paying near to 20p a therm in the contracts, around twice the current market price.

The company also refused to reveal the new prices in the renogotiated contracts, but they are believed to near to the market price. It means the group's average purchase cost of gas has fallen from about 18p a therm to about 14p a therm. Centrica, which split itself off from the old British Gas in February, also revealed options to spend pounds 155m by 2008 to buy out further contracts with Conoco. The arrangement, which will depend on the future level of gas reserves, involves a further provision of pounds 75m from Centrica's profits this year, bringing the total bill to pounds 440m.

It means Centrica has renegotiated about two thirds of its take-or-pay burden, or 46 billion therms, over the past year. Earlier deals included paying pounds 295m to British Petroleum and an agreement with Mobil which cost pounds 340m.

Ken Gardener, a director of Charterhouse Bank who has spent the past two years renegotiating the deals on secondment with Centrica, said the new prices were in line with the market price.

He said there were "two or three" smaller deals in the pipeline, the first of which would be revealed in the new year. Centrica shares rose 2.75p, to 92.5p.

"Centrica has a fighting chance to compete on a level playing field. We're clearing away the legacy of the past."

Rachel Beaver, analyst with ABN Amro Hoare Govett, said the deal had all but eliminated the take-or-pay problem. "This is also a major endorsement for the management. They said they would do this by the end of the year and they've delivered."

The take-or-pay burden emerged spectacularly in 1995, when the market price of gas plummeted to less than 10p a therm. British Gas had committed itself to buying gas at high prices in contacts which obliged the company to take delivery of supplies from producers or pay the equivalent cost in compensation, leaving a pounds 30bn burden in its accounts.

Mr Gardener rejected suggestions that Centrica was paying too high a price to extricate itself from the contracts.

Start your day with The Independent, sign up for daily news emails
Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Steve Bruce and Gus Poyet clash
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths surrounding the enigmatic singer
ebooksA special investigation by Andy McSmith
Life and Style
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
Amazon misled consumers about subscription fees, the ASA has ruled
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive - OTE £40,000

£15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

Austen Lloyd: Law Costs HOD - Southampton

£50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

SThree: Recruitment Resourcer

£20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Day In a Page

Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

Climate change key in Syrian conflict

And it will trigger more war in future
How I outwitted the Gestapo

How I outwitted the Gestapo

My life as a Jew in wartime Berlin
The nation's favourite animal revealed

The nation's favourite animal revealed

Women like cuddly creatures whilst men like creepy-crawlies
Is this the way to get young people to vote?

Getting young people to vote

From #VOTESELFISH to Bite the Ballot
Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

Poldark star Heida Reed

'I don't think a single bodice gets ripped'
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn