Centrica:Venture Report Lacks Credibility, 845P Cash Bid Final
August 05 2009 - 9:31AM
Dow Jones News
Centrica PLC (CNA.LN), a utility company, said Wednesday that
the Resource Investment Strategy Consultants, or RISC report,
posted by Venture Production PLC (VPC.LN) lacks credibility and is
relying on overly optimistic assumptions regarding the outlook for
gas prices.
MAIN FACTS:
-70% 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% increase in nominal terms over the next five years, from a
starting level that is almost double the current price of 23
pence/therm.
-Gas prices in the U.K. 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, or LNG, in the U.K..
-The RISC Report values Venture's reserves without appropriate
regard to the risks associated with their possible development.
-Proven reserves account for only 37% of Venture's total 2P
reserves, per the D&M 2P reserves estimate of 243
millionmboe.
-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 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.
-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 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 1200 GMT on August 13.
-By London Bureau, Dow Jones Newswires; Contact Ian Walker; +44 (0)20 7842 9296; ian.walker@dowjones.com
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