It’s not a great time to be in oil and gas. The production end of the industry has been rocked by the plummeting price of crude, which has refused to bounce back after nose-diving at the end of last year. At the consumer end utilities companies are facing renewed pressure from politicians and regulators, while most of the public doesn’t think that goes far enough.
All of that’s not stopped British Gas, the UK retail arm of Centrica, from raking it in. Today it posted adjusted operating profits of £656m, up 44% on the same time last year. Excluding business customers and consumer services, its profit from supplying energy to people's homes almost doubled, largely thanks to falling wholesale costs and a cold spring.
Given the controversy over the cost of energy, that's politically uncomfortable in its own right. But Centrica’s PR problem was further compounded by its decision to announce on the same day that it plans to cut 6,000 jobs from its 37,000 strong workforce. Cue outraged social media comments (British Gas was trending on Twitter this morning) and a dressing down for chief exec Iain Conn on the Today programme.
He didn’t great make a great job of justifying the job cuts, describing them as the result of, ‘a big shift in emphasis towards being more of a customer-facing company and taking advantage of our international scale in order to be efficient to compete and grow for the long run.’
But he rightly pointed out that there’s more to Centrica than British Gas. While its retail arms (including US utility provider Direct Energy) may be holding up well, its ‘upstream’ operations didn’t fare so well. Profits at Centrica Energy, its exploration and production (‘E and P’) division, were down 78%, dragging the whole group’s profits down by 3%.
All of this suggests it’s at the oilfields that energy firms are really struggling. That’s reinforced by Shell’s announcement today that it will also be ditching 6,500 jobs as a result of the price slump.
That strife goes a long way to explaining why Conn wants Centrica to be more about the retail aspects of its business. Though he insisted the company would always be involved in exploration and production, for the sake of diversification and risk, he said, ‘we have concluded that Centrica is fundamentally a customer-facing company.’
Centrica is planning to recruit 2,000 people for new (presumably customer-facing) roles, so the net loss will be 4,000 jobs, and half of the total will be through voluntary redundancies and not filling vacated roles. But announcing big job losses on the same day as bumper profits (even if it is just in one division) is never going to look good.