Centrica pulls back exploration

Centrica will focus on its customer-facing businesses, which include British Gas, US-based Direct Energy and the Irish Bord Gais. To do this management have allocated a further £1.5bn in operating and capital resources, relative to 2015, over the next five years. The corrolary is that the energy group plans to reduce its investment in exploration and production by the same amount. The group aims to transition to a smaller E&P business, focused on the North Sea and East Irish Sea and consuming £400m to £600m of capital expenditure a year.

Predictably, Centrica's upstream operations continued to be the group's weak spot during the first half. Adjusted operating profits for Centrica Energy were down by more than three quarters on the previous year to £116m, let down by a 90 per cent decline in gas profits. E&P capital expenditure was almost a quarter lower, with the division expecting to spend £800m in capex in the full year.

Colder-than-normal weather increased energy consumption at British Gas Residential. Combined with lower wholesale prices, this led to an almost doubling of adjusted profits to £528m. However, the implementation of a new billing system at British Gas Business resulted in significant delays in billing customers. After incurring an increased bad debt charge, a 95 per cent fall in profits offset some of the gains made in the residential arm. On the other side of the Atlantic, extremely cold weather - but not so cold as to damage the physical network, as the Polar Vortex did last year - meant adjusted profits more than quadrupled.

Broker Whitman Howard expects adjusted EPS of 17.7p for this full-year, down from 19.2p in 2014.