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Centrica draws a bow at a Venture

July 13, 2009

(Refiles on October 19, 2010 to add disclaimer for author’s personal investment. Neil Collins owned shares in Centrica when he wrote this article.)
neil collins- Neil Collins is a Reuters columnist. The opinions expressed are his own. -

Venture Production sounds like one of those ephemeral companies employing a bunch of enthusiastic, well-bred young things who are trying to break into television. In fact, it’s run by a bunch of enthusiastic, well-qualified not-so-young things breaking into the business of picking over old North Sea oil and gas finds that others have discarded.

The bunch has done well enough to attract the attention of Centrica, the owner of British Gas. As the dominant domestic supplier, Centrica wants to send Venture’s gas into its millions of  homes. The logic of a merger is overwhelming, but there’s the little matter of price.

Centrica paid 725 pence a share for 22 per cent of Venture in March. On July 10, one business day before a Takeover Panel deadline, Centrica paid 845 pence for the shares owned by 3i, and launched an old-fashioned contested takeover bid.

It now owns 29.9 percent, the most it can buy under the rules, a couple of other shareholders have rubbished the price, and now the battle can commence. The nub of this 1.3 billion pound barney is the balance between the price of natural gas and security of its supply.

North Sea output has dwindled to half UK consumption today, but retains the attraction of being nearby and secure. Ownership of Venture’s gas by Centrica would also provide a strong disincentive to a government tempted to raise taxes, because of the impact on British Gas consumers.

The price of gas has plunged on the growing realisation that there are huge amounts of it, and unlike oil, plenty is in places where the political regime is stable.

As much by luck as judgment, the UK finds itself well placed for the new, cheap gas environment. Two major LNG terminals in Wales are opening up the market just when imports to the US are falling rapidly, offering the prospect of a glut of cargoes looking for a buyer. The exploration of America triggered by last year’s boom stumbled upon vast quantities of gas at depths not previously drilled. The result is the promise of a decade of low prices.

It’s hard to see Venture being worth 1.3 billion pounds to anyone else, and while other buyers may have paid more for reserves than Centrica is offering, it is only recently that the extent of the gas glut has become apparent. Unless those not-so-young things can come up with something really special, it looks as though this Production may be drawing to a close.

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