New North Sea oil taxes to hit Centrica

9th May 2011 07:06

Energy supplier Centrica expects profits growth in 2011 to be more subdued than previously anticipated due to the new tax regime on UK oil production.Centrica, which operates British Gas and also has oil and gas production operations, says the increase in the Supplementary Charge (SCT) rate from 20% to 32% on UK production announced in March in the Government's budget offsets the benefit of higher commodity prices on its production business."For the group as a whole, increased pre-tax profits from our UK upstream business are expected to more than offset lower profits from the UK downstream business and from storage," Centrica said. "We continue to expect growth in our 2011 group earnings but at a more modest rate than anticipated at the time of our last results announcement as upstream profits have become more highly taxed."While higher taxes are causing a headache in the upstream business, market conditions in the residential energy supply business are "significantly more challenging than in 2010," the company said. Average gas consumption in the first four months of the year was 19% lower than for the same period of 2010, due to warmer weather, particularly in April, and increased energy efficiency.The residential services business also faces increased competition from new entrants and "the economic climate remains difficult for many households."Centrica said that at its North American residential business the lower rate of customers moving to other suppliers seen towards the end of 2010 has continued, while the business energy supply business in the continent has seen volumes of power sales rise by 17% compared with the same period of 2010.---RG