We will look to grow leadership positions in deregulated markets
on Direct Energy is available at www.directenergy.com
The North American macroeconomic environment was showing signs of recovery towards the end of 2009, with the US economy out of recession and unemployment beginning to fall from its peak of over 10% in October. However, consumer confidence remained low during 2009 and against this backdrop wholesale commodity prices were depressed.
Profitability* from our North American business was down year-on-year. Operating profit* was down 29% to £153 million (2008: £215 million) and on a constant currency basis was down 38%. However it was broadly flat after removing the impact of one-off charges in the residential energy business which, given the impact lower wholesale commodity prices had on our upstream business, was a good underlying result. North American revenue was up 5% to £6,108 million (2008: £5,824 million), but was down 7% on a constant currency basis, as higher revenue from business energy supply growth was more than offset by commodity price falls in residential energy and upstream and wholesale.
Although wholesale forward commodity prices remain low in 2010, our North American business is well placed, both upstream and downstream. We are the third largest supplier of power to the residential market in Texas and have built up a significant presence in the US North East, where we now have more than 500,000 customers. We have also significantly increased the scale and profitability of our business energy division following the acquisition of Strategic Energy, and are positioned as the third largest commercial and industrial power supplier in North America. We have invested in upstream assets to support our downstream positions and have an energy related services base in key markets. Under new management we will now look to grow leadership positions in deregulated markets, investing for incremental growth and value, with the aim over time of further developing the integrated energy model. We will do this alongside continuing to focus on improving returns from the existing business.
The economic downturn and the subsequent low wholesale
commodity price environment in the US and Canada resulted in
profitability* substantially below 2008 levels at £7 million (2008:
Our upstream gas business in Alberta was heavily impacted as the
achieved sales price fell by 29% to C$5.1 per gigajoule (GJ), although
this was higher than the average spot price of C$3.6 per GJ as we
saw some benefit from prior period forward sales. This low gas price
resulted in gas production volumes increasing by only 3% despite the
full-year impact of the acquisitions of Rockyview and TransGlobe
made in the first half of 2008, as we chose to defer development
activity in the low price environment. We instead made three small-scale
acquisitions and as a result our reserves base increased slightly
to 400 billion cubic feet equivalent (bcfe) by the end of 2009, even
after accounting for in-year production.
The wholesale business suffered from some loss-making power
auction positions, as power bought to cover expected load was
sold back into a lower priced market, while the stable and low prices
resulted in fewer proprietary trading opportunities and profit* here
was much reduced.
Power generation volumes were up by 6% as the thorough
maintenance on our three power plants in Texas, carried out when
prices were low in the first half of the year, resulted in increased
availability and lower outages. The Texas power price remained low
throughout the year, however we benefited from prior period forward
sales and as a result profitability* was improved year-on-year.
We are the third largest supplier of power
to the residential market in Texas, and the
third largest commercial and industrial
power supplier in North America
Electricity volumes increased by 22%
in our business energy supply division
Gas reserves increased to 400 billion cubic feet equivalent (bcfe) this
year through a series of acquisitions
We gained 150,000 new customers in the US North East as authorities look to open up markets to competition