Centrica, the owner of one of Britain’s biggest energy providers British gas, had a terrible 2014.
The energy firm reported a 35% plunge in profits to £1.7 billion.
But it wasn’t just a 60% drop in oil prices that hit the group hard, it was also a range of weather and political issues.
Centrica said record mild weather in Britain as well as extreme cold weather in America hurt its profits because of the “highly competitive market environment on both sides of the Atlantic.”
Furthermore, Britain’s general election in this year is still causing a headache for Centrica. This is mainly because the UK’s main opposition Labour repeatedly pledged, over the last two years, so fix energy prices should the group come into power after May.
Meanwhile, the launch of the Competition and Markets Authority investigation into the whole energy sector led to uncertainty for investors over the past year.
“2014 was a very difficult year for Centrica and the recent fall in oil and gas prices creates further challenge,” said Iain Conn, CEO at Centrica in a statement. “We are cutting investment and costs in response. However, it is with regret that, along with reducing capital expenditure and driving efficiency beyond planned levels, we have taken the difficult decision to rebase the dividend by 30%, commencing with the final distribution for 2014.”
Centrica said in the statement that it plans to take urgent measures to address the tumble in profits.
“We are taking immediate actions to improve cash flows, focusing on reducing exploration and production capital expenditure relative to 2014 levels by around £250 million in 2015 and a further £150 million in 2016, and reducing cash production costs,” said Conn, in his overview statement.
“In addition, we have initiated Group-wide performance improvement efforts, including a strong cost focus, and we will also pay close attention to working capital management.”
But bad news for Centrica means bad news for Scotland.
The group said in a BBC radio interview that the cut in capital investment will hit that in the North Sea. In fact, by 40%.
“2014 was not the year we had planned it to be,” said Conn on the radio. “[Our planned returns from the North Sea] were being completely compressed.”
According to the National Institute of Economic and Social Research (NIESR), the North Sea contributes around £10 billion to the Scottish economy.
However, Bank of England Governor Mark Carney warned that the oil price plunge alone is estimated to hit Scottish GDP by £6 billion over the next year, as around two thirds of the industry’s profits and employment are borne in Scotland.
Already, BP and a range of other energy giants cut jobs and investment in the sector as oil prices still remain starkly lower than the triple digit highs of June 2014.
In 2012 and 2013, oil prices averaged $US100 per barrel. In the summer of 2014, oil averaged $US115 per barrel.