Response to Venture Announcement

Centrica notes the posting by Venture of a circular to its Shareholders dated 4 August 2009 (the “Circular”). Centrica also notes that the Circular includes a valuation report prepared by Resource Investment Strategy Consultants (the “RISC Report”), rather than DeGolyer & MacNaughton (“D&M”), the firm that prepared Venture’s 'Independent Reserves and Contingent Resources Assessment' dated 14 May 2009.

Centrica believes that the RISC Report and the conclusions drawn from it in the Circular lack credibility in a number of important respects:

  • The Circular and the RISC Report rely on overly optimistic assumptions regarding the outlook for gas prices.
    • 70 per cent. of Venture’s reported 2P reserves are natural gas. Therefore, gas prices are the key driver of Venture’s fundamental valuation.
    • The RISC Report is based on theoretical gas prices that include an 80 per cent. increase in nominal terms over the next five years, from a starting level that is almost double the current price of approximately 23 pence/therm.
    • Gas prices in the UK have continued to be weak and volatile and have not improved as oil prices have done this year. Structural factors are impacting gas prices, including uncertainty around global gas demand, increases in global gas supplies, and the availability of import facilities for liquefied natural gas (LNG) in the UK.
  • The RISC Report values Venture’s reserves without appropriate regard to the risks associated with their possible development.
    • Proven reserves account for only 37 per cent. of Venture‘s total 2P reserves, per the D&M 2P reserves estimate of 243mmboe. Non-proven reserves are subject to a range of risks including the potential need for further appraisal drilling. The RISC Report makes insufficient adjustment in this respect, in Centrica’s view.
    • As disclosed in Venture’s 2008 Annual Report, almost half of Venture’s 2P reserves relate to assets that are not in production. Such reserves are therefore subject to risk as to both timing and cost of development and indeed it is uncertain whether all of these reserves can be developed on a commercially viable basis.
    • Venture will require significant and sustained investment over the coming years and as a standalone company will need to raise the necessary funding. The total capital expenditure in relation to the reserves covered in the RISC Report alone is £1.3 billion.
  • Venture continues to draw valuation comparisons on a 2P multiple basis, as well as to “peer group” share price performance. Centrica's view is that such comparisons are inappropriate.
    • Per barrel metrics can be impacted by gas/oil mix, cost structure and the phasing of development. Venture cites transaction multiples for “producing upstream acquisitions”, whereas almost half of Venture’s 2P reserves relate to assets that are not in production.
    • In addition, the 2P transaction multiples cited by Venture do not appropriately highlight other sources of value apart from the 2P reserve base, such as tax allowances.
    • The “peer group” selected by Venture for the purposes of analysing its share price performance (Tullow Oil plc, Dana Petroleum plc, Premier Oil plc and Valiant Petroleum plc) comprises companies with different characteristics, most of whom are more oil-weighted than Venture and have benefited from positive news flow.

In conclusion, Centrica continues to believe that the Offer is highly attractive to Venture’s shareholders, representing a 46 per cent. premium to Venture’s share price before the commencement of the Offer Period and 88 per cent. to the price prior to market speculation about a potential offer for Venture by Centrica. The Offer represents a compelling opportunity for Venture shareholders to realise the value of their shares in cash at a time of continued economic uncertainty and market volatility.

Centrica reminds Venture shareholders that the Offer of 845 pence in cash is final and will not be increased, except that Centrica Resources reserves the right to revise and/or increase the Offer if a competitive situation arises. The first closing date is 1.00 p.m. on 13 August 2009.