It has been announced today that Centrica has negotiated substantial price reductions on all its "Take or Pay" contracts with Conoco and the bulk of its high priced gas purchase commitments with Elf and Total. As a result, prices will be reduced to current market levels on about 6 billion therms.
In return, Centrica has agreed to pay compensation of £365 million (before tax). There may be a further payment to Conoco for additional volumes, at the end of 2008, depending on the gas reserves then identified. (Centrica has made a provision of £75 million to cover this payment).
In aggregate, Centrica has now negotiated reduced price and volume commitments on over 46 billion therms.
Commenting, Roy Gardner, Chief Executive, Centrica plc said:
"I am delighted that these important gas contracts have been renegotiated. Conoco, Elf and Total are among our most important suppliers. The reduction in our gas purchase costs resulting from these deals, taken together with the earlier deals we have concluded with other suppliers, places us in a much improved position as the gas market opens to further competition. I now believe that unless we see a decline in market prices in the UK and the Continent, our inherited gas contract exposures have been reduced to a manageable level."
Commenting, Ron Walsh, Managing Director, Conoco Europe Gas Ltd, said:
"These new arrangements are appropriate in view of the way the UK gas markethas changed over the last few years. Conoco is pleased to be able to workwith Centrica to reach these new terms. We have been supplying BritishGas from our fields for over 25 years and look forward to supplying Centricain a mutually profitable relationship for the next 25 years."
In a joint statement Pierre Godec, Managing Director of Elf Exploration UK plc and Lucien Lallier, Managing Director, Total Oil Marine, said:
"We are very pleased that this agreement has been reached, thanks to thepositive attitude of all parties involved. We believe that the terms of our new gas supply contracts will be a good basis for a continued constructiverelationship with Centrica".