Langage analyst visit – Centrica Energy and Centrica Storage · PDF fileGT13E2 MXL Lower firing temperature Extended inspection intervals ... MCL mode Higher temperature Output and

Sam LaidlawIntroduction

1

Introductions

Mark HanafinManaging Director, Centrica Energy

Sarwjit SambhiDirector of Power Generation, Centrica Energy

Andrew Le PoidevinFinance Director, Centrica Energy

Simon WillsManaging Director, Centrica Storage

2

Today’s agenda

Centrica Energy overview

Power Generation

Power Station Tour

Upstream Gas

Storage

Financials

Wrap-up / Final Q&A

Mark Hanafin

Sarwjit Sambhi

Mark Hanafin

Simon Wills

Andrew Le Poidevin

Sam Laidlaw

3

Strategic priorities now achieved

Transform British Gas

Sharpen the organisation and reduce costs

Reduce risk through increased integration

Build on our growth platforms

4

Note: proportion of UK floating gas and power demand covered by own assets. Floating gas demand includes non-fixed price BGR and BGB demand, I&C gas demand, power station fuel requirements and equivalent gas requirements to meet floating power demand in BGR and BGB.

0%

10%

20%

30%

40%

50%

60%

70%

2006 2007 2008 2009 2010 2011 2012 2013

Venture

20% ofBritish Energy

Drax contractsWind

North Sea

Morecambe

^

*

Integration improving our energy hedge ratio

5

Strong platform for growth across the Group

• Strong Group cash generative capability underpins o ngoing investment– Robust Group cash flow even in low commodity environment

• Broad range of investment and growth opportunities– British Gas – Integrated energy & services propositions in the existing business;

take advantage of evolution to low carbon economy (e.g. smart meter revolution)– North America – Potential for further building of the integrated energy model

(opportunities upstream and downstream)– Centrica Energy – Significant pipeline of opportunities under our control to

drive growth- Power generation (CCGT, Wind, Nuclear New Build)- Gas (near field exploration, development, LNG)

– Centrica Storage – Development pipeline of three new storage projects

• Capital allocation process will assess competing op portunities– Well positioned to ‘high grade’ and select from opportunity set – Value enhancing returns required

6

Mark HanafinCentrica Energy Overview

7

1. Support Centrica’s integrated energy model by procu ring or acquiring gas and power for the downstream busin ess

• Providing competitive cost of gas and power • Security of supply and • Contributing to a structural price hedge

2. Sustain and grow our upstream gas and power generation business contributing attractive returns for Centrica plc

Centrica Energy’s vision

8

Climate change

• Climate change policy driving need for low carbon energy

� Need for renewables and low carbon generation sources

Recession and recovery

• Global financial / economic environment searching for direction

� Portfolio requires flexibility – and ability to mitigate demand destruction

• Governments are looking at options to address market reform and incentives for investment in low carbon economy

� Potential change in policy and market mechanisms (e.g. carbon floor)

Government policy and incentives

Security of supply

• Declining gas reserves in the UK and increased dependence on imports

� Need for security of supply

Infrastructure investment required

• Need for infrastructure replacement in generation as a result of LCPD

� Challenge to ensure incentives necessary for investment

Forward market trends

• Forward market trends in gas / power supported by fundamentals

� Short term volatility, yet long term gas and power prices expected to increase

Centrica Energy strategy is based on fundamental beliefs in long term market trends

9

Our strategy – a sustainable business, balanced generation and leading UKCS/NCS gas positions

• Leading consolidator of mature and orphaned assets on the UKCS

• Exploration and development focused on existing hubs and infrastructure

• Develop Atlantic Basin LNG

Upstream Gas

• Provide cover for residential and SME load

• Market neutral generation mix, but with lower carbon intensity

• Competitive cost of generation• Leader in renewable generation

Power Generation

• Procurement, hedging, and risk management for downs tream (lower cost of gas/power)• Maximise value through trading and optimisation

. . . supported by a Midstream function

Centrica today Peer Group Average

~85% cover for Res & SME

Demand

Res

SME

I&C

Gen.

Own

Demand

Res

SME

I&C

Gen.

Own

60TWh

10

Upstream gas production profile

targetband

Production (bcf)

50

100

150

200

300

350

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 20200

Morecambe

Pre-VentureProduction

Newacquisitions

Future prospects

Venture Production

250

Risked development

options

Integration provides significant support for Downstream business and additional incremental benefits

Centrica Energy provides a robust platform for earnings growth

We have built an advantaged suite of assets and capabilities

Balanced portfolio well positioned to deliver strong returns through the next 5 to 10 years

Centrica Energy presents an attractive proposition for shareholders

Strongreturns

Verticalintegration

benefits

Growthplatform

Competitivelyadvantaged

11

Vertical integration confers a number of benefits to Centrica

�Security of supply

�Reduced earnings volatility (margin migration)

� Improved headroom with lower credit thresholds

� Improved competitive position (in particular, gas i ntegration)

�Access to information and market insights across th e value chain(e.g. better hedging decisions)

�Timing / sequencing on investments, selective capit al allocation decisions

�Across gas, renewables, nuclear, storage and coal

�Access to more options (downstream, upstream, midst ream)

�Flexibility and optionality for trading decisions

�More ‘make’ or ‘buy’ options (e.g. Morecambe / CCGT)

�Lower balancing costs

�Lower weighted average cost of gas and power

�Less cash or collateral requirements

�Removes need to pay forward premium

Stability

Betterdecisions

Moreoptions

Lowercosts

12

NEW NUCLEAR

NEW GAS development & exploration

2 more Round 2 WIND farms & potential Round 3 NEW WIND

Baird, Bains and CaythorpeNEW STORAGE

A robust platform for growth

2010 + optionsBritish Energy NUCLEAR

Langage CCGT

Venture GAS

Lincs WIND farm

200920088 CCGT

Morecambe and non-operated JVs

Rough STORAGE

Accord TRADING

~4GW (power gen.)

~200 bcf (gas prod.)

~100 bcf (storage)

~7GW (power gen.)

~300 bcf (gas prod.)

~190 bcf (storage)

13

• Largest North Sea gas reserves for a UK Utility

• Leading position in Storage capability in UK

• Ability to manage shape and weather risk

• Sustainable production for the next decade

• Track record in new wind development

• JV with leading nuclear business

• Competitive new-build in CCGT

• Low carbon

• Balanced between peak and baseload

• Only ‘dual fuel’ hedged UK supply business

• Track record of asset reliability, operational exce llence

. . . will drive advantaged energy costs for Britis h Gas

Distinctive competitive advantages

Gas

Power

Advantagesfor Group

14

Well positioned to deliver strong returns through the next 5 to 10 years

• Despite recent volatility in commodity prices, Cent rica Energy remains a strong contributor to Group result s

– Strong EBITDA and cash generation

• Returns robust against changes in market fundamenta ls over the next 5 to 10 years

– Portfolio provides us the flexibility to choose investments withhighest returns

– Balanced portfolio positioned to deliver consistent returns through the cycle

• Capabilities allow us to capture additional value a nd exceed our hurdle rates

15

Sarwjit SambhiPower Generation

16

Agenda

• UK wholesale electricity market• Centrica power generation portfolio

– CCGT– Renewables– Nuclear

• Summary

17

Recent market dynamics

0

20

40

60

80

100Falling power prices

£/MWhBaseload power

J F M A M J J A S O N

2009

Coal at margin

0

20

40

60

J F M A M J J A S O N

2009

£/MWh

Gas

Coal

Marginal generation costs

30

40

50

60

-20

0

20

40

60

J F M A M J J A S O N

2009

Lower demand Relatively healthy spark spreads

Total UK demand Clean spark and dark spreadsGW £/MWh

J F M A M J J A S O N

CDS

CSS

20082009

Source: National Grid, Platts, Centrica

Source: Heren Source: TFS, Heren

Source: Heren, TFS

Ave

rage

pea

k de

man

d

18

Future market dynamics

Low carbon aspirations

2008 2020

Gas

Coal

Nuclear

Renewables

Othersources

0

50%

100%

51%

21%

378%

Change

Potential generating output if UK Government targets met

26%

75%

25%

Declining reserve margin due to plant closures . . .

Cumulative plant additions and closures

(25)

(20)

(15)

(10)

(5)

0

5

10

15

2010 2011 2012 2013 2014 2015 2016

GW

0%

5%

10%

15%

20%

25%

30%

35%

40%

Nuclear Wind @25%

Coal Oil

CCGT Reserve Margin (RHS)

19

• Target increased cover for downstream

• Target diversified generation fleet

• Specific strategies for:– Nuclear - JV with EDF– Wind - new build– Gas - asset replacement– Coal - contractual

Strategy aims for increased cover and balanced fleet

Strategy leads to a mix more closely aligned to the market but

with lower carbon risk

2009 2020e

Gas

Nuclear

Renewables

20

0

40

60

80

100

%

Centrica generation mix (TWh)

Centrica’s power generation strategy

20

Existing CCGT

Future CCGT

Existing Wind

Future Wind

Future Nuclear (20%)

Existing Nuclear (20%)

TWh

2010e generation

CCGTeconomicdispatch

Nuclear

CCGTTurnup

10

0

20

30

40

50

Wind

Strategy execution well underway

7

21

Agenda

• UK wholesale electricity market• Centrica power generation portfolio

– CCGT– Renewables– Nuclear

• Summary

22

7

CCGT generation portfolio - mix of vintages

Roosecote

Brigg

Peterborough

Killingholme

Kings Lynn

Humber

Barry

Spalding

Langage

1 x Alstom GT13E

4 x GE frame 6E

2 x GE 9E 9161/71

3 x Alstom 13-E1

1 x Siemens v94.3

3 x Alstom GT13E-22 x Alstom GT13E-2

1 x Siemens v94.2(Ansaldo)

2 x GE9FA-e

2 x Alstom GT26

44%

41%

43%

45%

47%

49%

44%

50%

53%

1991

1993

1993

1994

1997

19971999

1998

2004

2009

TechnologyStart Year

ThermalEfficiency

(HHV)MW

229

240

360

652

325

750500

230

760

885

1

462

8

35

7

9

1

2

3

4

5

6

7

8

9

23

Centrica plants are benefiting from low gas prices

November 09 merit order*

. . . and the market looks favourablefor much of 2010

Langage

Peak demand

0

10

20

30

40

50

0 20 40 60GW

Generation cost £/MWh

Other Nuclear Coal Gas Centrica Energy

Gas and coal generation costs

15

20

25

30

35

40

Apr

2009Jul Oct Jan Apr Jul Oct

£/MWh

Gas

Coal

2010

* Assumes 100% availability

Current gas prices benefit Centrica Energy’s CCGT fleet . . .

24

Focus on reliability

• Asset strategy and capital management

• Best practice powertrain overhauls

• Effective balance of plant maintenance

• Optimised plant performance and efficiency

Focus areas

2007

%

CCGT portfolio reliability

92

90

94

96

98

100

94.1%

95.1%

96.6%

2008 2009e

25

Efficiency improvement - Humber case study

• GT upgrade in 2009 outage for South Humber Phase II

• Observed performance improvement– efficiency: +1.5%– output: +26MW

• Interval between outages could be extended by 50%

South Humber Bank Phase II GT upgrade

GT13E2 MXL

� Lower firing temperature

� Extended inspection intervals

� Efficiency improvement

MCL mode

� Higher temperature

� Output and efficiency increase

� Inspection intervals unchanged

M - Blading

PerformanceLifetime

M-Series upgrade

26

Operational performance

Strong safety culturebuilt over time

Competitivecost performance

Benchmarking comparison

0

3,000

6,000

9,000

12,000

15,000

18,000

21,000

24,000

200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300Capacity MW

Controllable Cost £/MW

South Humber

Langage

Killingholme

Roosecote

Peterborough

King'sLynn

Barry

Brigg

Benchmark performance

Source: Solomon benchmarking

Rate

0

0.5

1.0

1.5

2.0

2.5

2006 2007 2008 2009

Total recordable injury rate *

Note: * Per 100,000 hours worked

27

Agenda

• UK wholesale electricity market• Centrica power generation portfolio

– CCGT– Renewables– Nuclear

• Summary

28

Leading position in offshore wind

• In house turnkey capability• Lynn and Inner Dowsing delivered on

budget and on time

Operators of offshore wind (Global) Access to scarce resource

A2 Sea- Sea Worker A2 Sea- Sea Jack

MPI Resolution Smit - Lisa

Jack-Up Barge BV-JB114

Siemens - Titan 2

Centrica

DONG

Vattenfall

EON

RWE

Others

29

Growing the offshore wind portfolio

Greater Wash developments Releasing capital

£375mto constructLID & GoF

£350mnet

proceeds

15 yearPPA

£340m

£84mfor 50%equity

Bankingconsortium

TCW

1

2

3

4

Centrica - Round 1 Projects

Centrica - Round 2 Projects

Other Developers

30

Round 3 is a different technology proposition

0

50

0 100Shore distance (km)

Water depth (m)

New technology required

25

3-4 GW

Round3 Zone

1.4 GW

Centrica R2 projects

Strategic zones

Round 3 Zones

31

Cost of offshore wind

£/MWh

20

0

40

60

80

Operatingcosts

100

Capitalcosts

2 ROCs

Implied power price

IRR Sensitivity14

2

4

6

8

10

12

0

ROC multiplier0 0.5 1 1.5 1.75 2

IRR %

14

2

4

6

8

10

12

0

Capex reduction0% 10% 20%

IRR* %

120

140

Future development dependent on economics

* Assumes 1.5 ROCs32

Agenda

• UK wholesale electricity market• Centrica power generation portfolio

– CCGT– Renewables– Nuclear

• Summary

33

Overview of the British Energy (BE) deal

20% equity stake in BE fleet

Rights to offtake 20% of uncommitted

power

Additional offtake rights 2011-2015(18 TWh in total)

Option to participate up to 20% in New

Nuclear Build

Key components Governance

Centrica

British Energy Group plc

British Energy Generation Ltd

80%20%

100%

100%

Existing Fleet

Centrica EDF

NNB Holding Company

NNB Gen Co.

80%20%

100%

New Build

Technical Committee

InformationRights

Lake Acquisitions

Ltd

EDF

34

• 2008 technically challenging year

• 2009 output improved

• 50.7TWh output for 11 months to November 2009

BE Nuclear fleet output

0

2

4

6

8

10

12

14

16

18

Jan-Mar

2006 2007 2008 2009

TWh

Apr-Jun

Jul-Sep

Oct-Dec

Jan-Mar

Apr-Jun

Jul-Sep

Oct-Dec

Jan-Mar

Apr-Jun

Jul-Sep

Apr-Jun

Jul-Sep

Oct-Dec

Jan-Mar

55.5 TWh 40.2 TWh51.9 TWh 42.5 TWhQ1 - Q3

Significant improvement in performance of BE fleet

35

Scope for possible life extensions

Current position of BE station lifetimes

1995 2000 2005 2010 2015 2020 2025 2030 2035

Sizewell B

Heysham 2

Torness

Heysham 1

Hartlepool

Hinkley Point B

Hunterston B

Dungeness B

Original asset accounting life

Life extensions already declared

Lifetime extension assessment

36

2009 2010 2011 2012

���� EDF sites in NPS • NPS designated• Planning regime implemented• FDP guidance issued• Justification decision

• Planning approval• FDP approval

• Generic Design Assessment complete• NSL approved

���� Nominate EDF sites • Submit planning application• Submit NSL application• ITT for main civils

• FID• Excavations begin

• Construction begins

Government Activity

Regulator Activity

EDF/Centrica Activity

New build development

Abbreviations: NPS = National Policy Statement, FDP = Funded Decommissioning Programme, NSL = Nuclear Site Licence, ITT = Invitation to Tender, FID = Final Investment Decision

Key future decision is new build final investment decision

37

Summary

• Increasingly diversified generation portfolio– Range of fuel mix– Lowest carbon intensity– Combination of baseload and mid-merit

• Performance of existing plant improving

• Proven capability in wind development and financing• World class nuclear joint venture• Significant pipeline of future projects

• New investment must meet required hurdle rate• Economics dependent on incentives

Strongreturns

Growthplatform

Competitivelyadvantaged

38

Mark HanafinUpstream Gas

39

Agenda

• UK gas market fundamentals• Strategic rationale for investment• Benefits from strategy

– Capability– Sustainability– Flexibility

• Summary

40

UK, as the 5th biggest gas market, is rapidly becoming a major importer

• Relative price

• Availability of supply

• Perceived reliability/security of supply

Balance of supply sources will be driven by:

Note: 2008 UK demand and supply show slight variation due to IUK flows, storage and variability within data setsSource: National Grid

bcf

2,000

4,000

6,000

1996 2000 2004 2008 2012 2016 20200

UK demand

Projected

UKCS

UK annual gas supply and demand

5,000

3,000

1,000

41

UK gas will need to be sourced increasingly from NCS, LNG and potentially continental pipeline gas

bcf

1,000

2,000

3,000

4,000

5,000

6,000

1996 2000 2004 2008 2012 2016 20200

UK demand

UKCS

NCS

LNG / Continentalpipeline gas

Note: Imports from NCS are low case, based on 90% utilisation rates of Norwegian pipelines to continent, with UK taking remaining gasSource: National Grid

UK annual gas supply and demand

42

Qatar EgyptUK NigeriaNorway RussiaTrinidadNetherlands

North Sea fields are currently the best value source of gas for the UK

Average cost for UK delivery

$/mmbtu

Pipeline LNG

43

• UK increased dependence on imports – Need for security of supply

• Volatile prices and potential supply disruptions in creasing value of production flexibility

• Long term gas prices expected to rise in the UK– Downstream business must have access to competitive cost gas

• Opportunity as major players refocus their global p ortfolio

• We have the capabilities to execute– Delivery of synergies

These fundamentals drive our strategy for upstream gas investment

44

Upstream Strategy Benefits

Norway - Partner with leading NCS operators, progress into operation

LNG off-taker - Develop LNG structures with path to direct off-take rights into the Atlantic Basin

UK, Netherlands Offshore -Be the leading consolidator and operator of mature and orphaned assets

Flexibility

Capability

Sustainability

Upstream Strategy: Sustain and grow an upstream gas business contributing strong returns

45

Key benefits of Venture acquisition

• Experienced Venture team with industry leading skil ls – commercial, geoscience and engineering

• Strong presence in the UKCS

• A full service operator (89% of Venture’s productio n for 2009 is operated)

• Greater control and flexibility in ‘make or buy’ dec isions

• Transform Centrica Upstream business from ‘blow down’ to sustainable production

• Portfolio of valuable development options going for ward

Venture acquisition fundamental to strategy

Flexibility

Capability

Sustainability

46

• Five core regions in the portfolio, each with a P&L

• Benefits of regional / hub based strategy– Builds detailed area knowledge and focus– Lower risk step-out exploration and

appraisal drilling– Control of infrastructure– Diversifies export routes– Marginal cost of development and supply

reduced

• E&P capabilities leading to higher value– Stewardship of mature assets– Efficient field development, sub-sea

tiebacks– Directional drilling and horizontal wells– Subsurface engineering

Capability: Aligned around ‘regional / hub’based strategy, with well-defined E&P capabilities

Original Centrica acreage

Original Venture acreage

Norway

NNS/CNS

SNS UKNLEIS

Windsor

Aberdeen

Stavanger

Hoofddorp

Heysham

47

• Venture acquired operated interest in the GMA in 2006

– At that time production was ~3 mboepd (net)

• Venture initiated a programme of upgrading facilities and has brought 2 new developments onstream

– Current production is ~20 mboepd(net)

• In 2009, Centrica developed Grove with off-take via Markham

• Production to grow further in 2010 -2012 with new Chiswick wells coming on stream

• Significant other growth opportunities are being pursued

Capability Case Study: Greater Markham Area (GMA) - strategic hub investment

48

• Venture acquired a 50% operated interest in the GKA in 2003

• At that time ~5,000 boepd (gross) with forecast abandonment ~2005

• Venture initiated a programme of maintenance catch-up and has brought 3 new discoveries onstream with a 4 th in planning

– In 2007 a new pipeline was constructed from Kittiwake to the Forties Pipeline system

• Current production is ~25,000 boepd (gross) with abandonment ~2016

• Significant added value through focus and investment

Capability Case Study:Greater Kittiwake Area (GKA) rejuvenation

49

Capability: Combined business has substantial scale and capability in the UKCS

• Centrica Energy now 7th largest gas producer in the UKCS

• #1 UK Utility with access to gas hedge

• #3 largest owner of net acreage

• Excellent portfolio fit between Centrica and Venture assets

• Industry leading operating and project development capability

0

100

200

300

2009 production (mboe/d est.)

CentricaBP

Shell

Total

ExxonMobil

ConocoPhillips

BG Nexen

Chevron

Eni

Talisman

SuncorEnergy

MarathonApache

TAQA

0

1,000

2,000

3,000Net acreage (square miles)

ExxonMobil

BP

ConocoPhillips

Centrica

Nexen Talisman

Chevron

BG

Total

Eni

Shell

Suncor

Apache TAQA

Marathon50

Total accident rate

Strong HSE culturebuilt over time

People looking after people

Total reportable accident rate

Sustainability: Strong HSE track record built over a period of time

0.0

0.5

1.0

1.5

2.0

1996 1998 2000 2002 2004 2006 2008 2010

0.0

0.1

0.2

0.3

0.4

0.5

0.6

1996 1998 2000 2002 2004 2006 2008 2010

per 100,000 hours worked

per 100,000 hours worked

51

Upstream gas production profile

target band

Production (bcf)

Sustainability: Leading operator of mature and orphaned fields, delivering sustainable level of production

50

100

150

200

300

350

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

0

Morecambe

Pre-VentureProduction

Newacquisitions

Future prospects

Venture Production

250 Risked developmentoptions

52

• Longer term development flexibility and control

• A majority operated portfolio across combined assets

− 53% of fields operated− 66% of production operated− 65% of undeveloped fields

operated

• Significant opportunities to target and time investments

• Short term flexibility: Morecambe provides unique operating flexibility benefits

– If spot market prices fall below economic signals, options exist to shut-in production and buy gas from the market- In November, we shut in production for 19 days

– Where production is forward sold, we have the option to buy back at spot market prices- e.g. September gas was

sold at 58.8p/th, and bought back at 20.6p/th

Flexibility: A unique portfolio of options

53

Flexibility: Significant opportunities to target and time investments

~£100m

~£350m

~£250m

~£1,100m~£300m

• Statfjord

• Chiswick

• F3 FA

• York

• Cygnus

• Peik

• Sycamore

• Ensign

• Accord & Beechnut

• Kew

• Fulham

• Christian

• Carna

2012ExplorationCoreIn flightExistingProduction

2009 Furtheroptionality

2012

X Capex £m2010-2012

0

25

50

Development OptionalityProduction

(mmboe)

Development options

54

• Centrica represents a ‘major demand holder’ in the UK, a market well placed for LNG

– Significant partner for major resource holders

• Centrica is the largest holder of LNG import capacity and storage facilities in the UK

– A significant buyer and shipper of LNG – Bought 26 LNG cargoes to date in 2009

• LNG represents flexibility to meet security of supply and create future value

• An attractive investment partner in new Atlantic Basin LNG liquefaction

UK LNG Imports

Flexibility: Centrica capabilities makes us well positioned to procure LNG

0

200

400

600

Jul 07 Jan 08 Jul 08 Jan 09 Jul 09

mmth/month

Dragon

South Hook

Teeside GasPort

Isle of Grain 2

Isle of Grain 1500

300

100

55

• Strong support for ‘dual fuel’ gas hedge

• Well defined capabilities across our core markets

• Significant flexibility to react to market conditio ns

• Sustainable gas business, rather than ‘blow down’reserves

• Access to a strong platform of growth options

• Able to target and time investments with strong returns

Strongreturns

Growthplatform

Competitivelyadvantaged

Summary

56

Simon WillsCentrica Storage

57

• UK storage market fundamentals• Centrica Storage

– Rough– New projects

• Summary

Agenda

58

• UKCS decline will continue and Norwegian production will plateau

– Gap created by declining UKCS and NCS supplies expected to be replaced by LNG and continental gas

– After Norway, future UK prices expected to be set by LNG or Russian gas

• Europe’s most gas intensive economy will have moved from being a source of cheap gas to “end of pipe” importer requiring highest prices to support transportation costs across Russia and Europe

• Gas storage forms a critical part of ensuring security of supply for UK market stability

In future, the UK will need to import and store more gas to satisfy its requirements

100%

20202009

LNG + Continental pipeline gas

UK gas supply

6%

61%

UKCS +NCS

39%

94%

59

Gas storage is required to address seasonal variations and short-term volatility

• Seasonal variations in UK heating demand

• NBP pricing fluctuations• Increased imports

Storage needed for seasonality…• Geo-political issues / supply shocks• Climate change (intermittent wind)• Increased imports

Storage needed for volatility…

Fluctuations in UK gas demand

MCM

100

150

200

250

300

350

400

450

J F M A M J J A S O N D2009

0

10

20

30

40

50

60

70

80

2008Jan Jul JulJan

2009

p/therm

Volatility in UK gas prices

60

UK storage capacity one of lowest in Europe, making strong case for additional investment

Construction

UKFrance NetherlandsGermany

Gas storage as a %of annual demand

15 days1024.2UK

43 days12%435.1Netherlands

81 days22%8919.8Germany

92 days25%4912.3France

0%

5%

10%

15%

20%

25%

30%

Existing

Rough

4%

Present storage capacity

as days of average demand

Present storage capacity as a % of demand

Annual demand (BCM)

Workingvolume(BCM)

61

Centrica Storage (CSL) owns and operates the Rough Storage facility in the UK

Rough is the 2nd largest gas storage facility in Eu rope and accounts for 75% of UK storage capacity

Our vision is to become the leading multi-asset, multi-product gas storage business in the UK

62

Our innovative storage offerings instrumental in creating additional value through optimisation

• S Store - Standard Storage– WD and DA options– Customer books NTS capacity– Asset based

• C Store - Entry Paid Storage– WD and DA options– NTS capacity built into the service– Asset based

CSL Product and Service Offerings

Note: WD = Within Day, DA = Day Ahead, NTS = National Transmission System, SIS = Standard Inter ruptible Service , SBU = Standard Bundled Unit

20042003 2007 20082005 2006

Cushion Gas

Optimisation

Additional value through optimisation

20052004 2006 20082007

SB

U r

even

ue fo

r ca

lend

ar y

ear

(£m

)

Ave

rage

SB

U p

rice

for

cale

ndar

yea

r (p

)

SBU revenue and price for calendar year

£m

Average SBU price

• V Store – ‘Virtual’ Storage– Available as DA only– Includes NTS capacity – Non asset specific

• Incremental Capacity– Extra space, extra injection,

extra withdrawal, gas in store sales

• Interruptible Products– SIS– Bronze

0

50

100

150

200

250

300

0

10

20

30

40

50

60

2009e

SBU revenue

0

15

30

45

60

63

CSL’s operational performance is strong across all key parameters

Man

hou

rs

Total offshore (3B & 8A) & Easington Terminal combined maintenance backlog (hours)

LTI Rate per 100,000 man hours

2009 YTD200820072006200520042003LTI r

ate

per

100,

000

man

hou

rs

Availability performance

With

out

inci

dent

200820072006

99%

20052004

Com

bine

d av

aila

bilit

y (%

)

99%99%98%99%96%94%

0%

20%

40%

60%

80%

100%

2009(YTD Oct)

63%

2003

0.0

0.2

0.4

0.6

0.8

1.0

1.2

0

10,000

20,000

30,000

40,000

50,000

Oct02

Easington

Offshore

Apr03

Oct03

Apr04

Oct04

Apr05

Oct05

Apr06

Oct06

Apr07

Oct07

Apr08

Oct08

Apr09

Oct09

64

In particular, our Rough storage facility has seen a record withdrawal and injection season

5 Year historical profile (2004 – 2009)

BC

F

Earlier withdrawal

10

30

50

70

90

110

130

Min-Max Range

2009

5yr Average

J F M A M J J A S O N D

Higher injection rate

Increased storage capacity

65

CSL has announced new storage projects to address future UK requirements

2013/14

Q3 2010

FEED commenced October 2009

60

50-70

60

70.0%

Existing gas field in Southern North

Sea

Baird

2012

Q3 2010

Planning permission

granted; FEED completing

December 2009

20 - 30

4

7.5

100.0%

Onshore depleted gas

field

Caythorpe

Onshore planning granted

Planning Status

2013/14Operational

Q4 2010Final Investment Decision

60Injection / Withdrawal

Duration (Days)

27Cushion Gas Required (bcf)

15-20Working Gas (bcf)

52.8%% Owned by Centrica

Existing gas field in East

Irish Sea

Description

Bains

BainsCaythorpe

Rough

Baird

66

Development of CSL’s three storage assets will make significant contribution to UK storage capacit y

CSL storage capacity(BCF)

CSL withdrawal capability(BCF/day)

185

20152010

128

+45%

Caythorpe (100%) Bains (52.8%)

2.87

20152010

1.50

+91%

118118

10109

42

7.5

1.50

0.16

0.94

0.27

Baird (70%) Rough Improvement Initiatives

Rough (100%)

67

Summary

• Unique position in UK storage market– Knowledge of UK storage market– Extensive third party sales experience– Excellent HSE & operational record

• Proven capability in storage operation• Proven development capability via Centrica Energy• Pipeline of future projects • Development of portfolio business/risk diversificat ion

• Continued strong performance of Rough• New build must meet hurdle rate

Strongreturns

Growthplatform

Competitivelyadvantaged

68

FinancialsAndrew Le Poidevin

69

• Balance sheet• Investment programme• Cash generation• Hedging• Costs

Agenda

70

Capital Employed

£bn

• Venture Acquisition– Fair value uplift of producing and

development assets– Incremental depreciation will be separately

identified – excluded from underlying EPS– Mark to market of hedging transactions

through middle column

• Stake in British Energy– Segment disclosure will include 20% of

BE’s operating profit – Share of interest and tax shown separately – Fair value uplift of existing nuclear plants – Incremental depreciation will be separately

identified – excluded from underlying EPS – Mark to market of hedging transactions

through middle column

British Energy and Venture represent a step change in the size of Centrica Energy

0.0

1.0

2.0

3.0

4.0

June '09 Dec '09e0.0

0.5

1.0

1.5

2.0

2.5

3.0

June '09 Dec '09e

PowerGas

71

Investment opportunities offer a growth platform with embedded optionality

BairdCaythorpe

CygnusYork

Chiswick IIEnsign

BainsRace Bank

PeikSeven Seas II

SycamoreKew

Fulham

New NuclearHeimdal EastKey

InvestmentDecisions

~60%

£bn

~30% ~25%

2010e 2011e 2012e

Potential project pipeline – investment opportunitie s*

* includes maintenance capex

0.0

0.5

1.0

1.5

2.0

2010 2011 2012

Gas Wind CCGT Nuclear Storage Committed

72

Group capital allocation process ensures a portfolio view when prioritising investments

• Identification and prioritisation of opportunity pi peline• Business level screening• Assessment of risks – e.g. commodity, financial, ope rational

• Ensure investments are ‘on strategy’• Tie investment choices to competitive advantages • Growing technical expertise provides capability to deliver

• Financial metrics consider both the long and short term• Alternate financing options considered • Invest in projects with returns in excess of hurdle rates

• Option to select projects with the highest returns and exercise choices around timing

• Hurdle rates established to deliver strong returns• Post investment reviews ensure learning transferred• Provides balanced portfolio of investments across G roup

Strongreturns

StrategicFit

BusinessDevelopment

Economicimpact

73

• Business case developed • Based on LID development, area

knowledge, and expertise

• Aligned with power generation strategy

• Investment returns too low• Financial risks too high• Project rejected

• Improved cost base through supplier negotiation

• Flexibility on timing with vessel optionality

• Financing template established for recycling capital, crystallising development gains and diversifying risk

• Business case revisited• Additional revenue from two ROC’s• Project approved

• £725m investment• 11 to 12% IRR

2008 2009

Case Study – Lincs offshore wind

Strongreturns

StrategicFit

BusinessDevelopment

Economicimpact

74

£bn

Operating Cash Flow*

Tax

Investments

£bn

2008 2009e

Windfarm Proceeds

* From Centrica Energy and Centrica Storage

Strong cash generation from underlying business to fund investments

0.0

0.4

0.8

1.2

1.6

2.0

Source Use0.0

0.4

0.8

1.2

1.6

2.0

Source Use

75

• Hedging Principles– Rateable selling strategies, profile approaching 100% by month ahead– Flexibility to deviate to exploit fundamental view, maximise extrinsic

value and asymmetric returns, subject to PaR limits

2010 Profit at Risk (PaR)2010 Production Hedging

Hedging underpins financial returns

0 20 40 60 80 100

Gas

CCGT SparkSpread

Oil

Nuclear

Risks

Portfolio diversity

£m

Individual Asset Overall RiskI&C Gas Gas Equity

Oil Power (CCGT)

Consolidated

76

Gas and Power cost structure

Fixed and overheads

DDA - variableTariff - variable

Gas and Oil(full year Venture)

CCGT *

£/boe £/MWh

Fixed costs & overheadsDDA - fixed

BSUoS - variable

DDA - variable

• Oil and Gas– DD&A charged on unit of

production basis by field– Product and field mix affect

Upstream average – New developments leading to

higher unit costs

• Power Stations– Production varies with spark

spread– Langage operational in 2010,

increasing unit costs– Depreciation charged on unit of

production basis by station

* Own assets

0

5

10

15

20

25

2009e0

2

4

6

8

10

12

2009e

77

UK Upstream Energy’s tax rate will decline over time

28%Gas Storage

28%Power Generation

75%50%50%

~78%48%

Morecambe, Statfjord, BraeOther UKVenture

NorwayNetherlands

2010Tax Rate

• Morecambe production highly taxed

• Tax rate will reduce as Morecambe declines

78

Summary

• Capital allocation process ensures risk assessment and investment prioritisation

• Business capabilities allow us to create value

• Investment pipeline of ~£5bn (2010-2012)

• Portfolio provides flexibility around options and t iming

• Balanced portfolio is cash generative

• Value creating investments

• Well positioned for market fundamentals

Strongreturns

Growthplatform

Competitivelyadvantaged

79

Sam LaidlawWrap up / Q&A

80

Appendix 1: Centrica Group Weighted Average Cost of Capital (WACC)

7.0%WACC

20%Equity / (Debt + Equity)

3.7%Cost of Debt (after tax)

5.1%Cost of Debt (before tax)

1.5%Debt Premium3

28%Tax Rate

7.8%Cost of Equity

0.70Beta

6.0%Market Risk Premium2

3.6%Risk Free Rate1

Note: 1) 10yr GILT 2) Implied market risk premium 3) Current credit spread81

Appendix 2: Displays

82

83

84

85

86