Back to the day job, eh? In September we wrote this:
And so it comes to pass, according to the WSJ, which reports that Centrica has put its fair-sized global LNG portfolio on the block. It further reckons that the company "may actually need to pay any potential buyer to take the LNG business off its hands, underscoring the uncertain outlook for gas prices internationally".
Oo-er. That won't be what Centrica has in mind. Can we form an independent view on the sales value?
Not readily. Firstly, in its published reports Centrica wraps up LNG in the results of its trading division, a traditional smokescreen behind which all manner of things can easily be hidden. Next, it only publishes sketchy info on the individual deals that comprise the portfolio (commercial confidentiality: fair enough).
Most importantly, however, Centrica very explicitly declines to offer a mark-to-market valuation for its big long-term LNG contracts (page 108 of the 2019 AR), of which it has several. Its *reasoning* for this omission is that there are as yet no transparent long-term forward curves for global LNG. That can be argued either way**, so their case can indeed be made. BUT - the trouble is this excuse has frequently been used disingenuously, nay, culpably, by energy companies in a similar stew to skate lightly over eye-wateringly large negatives (in the billions, in some cases) that, although nobody could calibrate them accurately, are known by everyone in the industry to be very much on the red side of the ledger. And here? Who knows: I don't. But it means that literally nowhere in the accounts does a full valuation lurk - even an estimate, even bundled with other stuff. Institutional shareholders could easily take fright at that, when they consider what lay behind the scenes in other such cases in the past.
If prospective bidders all put a negative value on the LNG portfolio, I can't imagine a deal being struck. But what other stand-alone assets does Centrica have to sell next? And - are they due for a nasty downside surprise in the forthcoming Energy White Paper, which is set to pronounce on the fate of future UK large nukes, probably impacting on the value of Centrica's fateful 20% holding in EDF's UK nuke portfolio. All rather uncomfortable.
** I'd argue that a pretty good forward value could be put on the LNG deals out three years. Further, though I'm not an accountant, doesn't the conservatism principle require that forseeable losses should promptly be disclosed?