Response to Venture Production plc announcement

Response to Venture Production plc announcement

Centrica PLC

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR FROM ANY RESTRICTED JURISDICTION OR ANY OTHER JURISDICTION WHERE TO DO THE SAME WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

FOR IMMEDIATE RELEASE

5 August 2009

Centrica plc (“Centrica”)

Response to Venture Announcement

Centrica notes the posting by Venture of a circular to its Shareholders dated 4 August 2009 (the “Circular”). Centrica also notes that the Circular includes a valuation report prepared by Resource Investment Strategy Consultants (the “RISC Report”), rather than DeGolyer & MacNaughton (“D&M”), the firm that prepared Venture’s 'Independent Reserves and Contingent Resources Assessment' dated 14 May 2009.

Centrica believes that the RISC Report and the conclusions drawn from it in the Circular lack credibility in a number of important respects:

• The Circular and the RISC Report rely on overly optimistic assumptions regarding the outlook for gas prices.
  • 70 per cent. 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 per cent. increase in nominal terms over the next five years, from a starting level that is almost double the current price of approximately 23 pence/therm.
  • Gas prices in the UK 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 (LNG) in the UK.
• The RISC Report values Venture’s reserves without appropriate regard to the risks associated with their possible development.
  • Proven reserves account for only 37 per cent. of Venture’s total 2P reserves, per the D&M 2P reserves estimate of 243mmboe. 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 will require significant and sustained investment over the coming years and as a standalone company will need to raise the necessary funding. The total capital expenditure in relation to the reserves covered in the RISC Report alone is £1.3 billion.
• 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.
  • Per barrel metrics can be impacted by gas/oil mix, cost structure and the phasing of development. Venture cites transaction multiples for “producing upstream acquisitions”, whereas almost half of Venture’s 2P reserves relate to assets that are not in production.
  • In addition, the 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 “peer group” selected by Venture for the purposes of analysing its share price performance (Tullow Oil plc, Dana Petroleum plc, Premier Oil plc and Valiant Petroleum plc) comprises companies with different characteristics, most of whom are more oil-weighted than Venture and have benefited from positive news flow.

In conclusion, Centrica continues to believe that the Offer is highly attractive to Venture’s shareholders, representing a 46 per cent. premium to Venture’s share price before the commencement of the Offer Period and 88 per cent. to the price prior to market speculation about a potential offer for Venture by Centrica. The Offer represents a compelling opportunity for Venture shareholders to realise the value of their shares in cash at a time of continued economic uncertainty and market volatility.

Centrica reminds Venture shareholders that 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 1.00 p.m. on 13 August 2009.

Enquiries	Â	Â		Â	Â
Centrica Investor Relations						01753 494 900
Centrica Media Relations						08450 728 001
						Â
Julian Metherell			Goldman Sachs International			020 7774 1000
Mark Sorrell
Phil Raper
						Â
Bob McGuire			J.P. Morgan Cazenove			020 7588 2828
Barry Weir
						Â
Mark Crossley			RBS			020 7678 8000
Andrew Foster

Capitalised terms used but not defined in this announcement shall have the meaning given to them in the offer document posted to Venture shareholders on 16 July 2009 (the “Offer Document”).

This announcement does not constitute or form part of any offer or invitation to sell or purchase any securities or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any securities, pursuant to the Offer or otherwise. The Offer will be made solely by the Offer Document which will contain the full terms and conditions of the Offer, including details of how the Offer may be accepted. Please carefully read the Offer Document in its entirety before making a decision with respect to the Offer.

APPENDIX

SOURCES OF INFORMATION AND BASES OF CALCULATION

In this announcement:

1 The information relating to Venture’s 2P reserves is extracted from, derived from or based on (as applicable) Venture’s announcement, titled “Independent Reserves and Contingent Resources Assessment”, dated 14 May 2009, in which Venture announced the results of an independent reserves and contingent resources evaluation of its asset base, as of 31 March 2009.

2 The current gas price of approximately 23 pence/therm is based on data sourced from IntercontinentalExchange as at 4 August 2009. Other information regarding the weakness and volatility of gas prices, and the improvement in oil prices, is also based on data sourced from IntercontinentalExchange as at 4 August 2009.

3 The 80 per cent. increase in gas prices in nominal terms over the next five years has been derived by applying the inflation rate of 2 per cent. per annum used in the RISC Report to the gas prices, in real terms, used in the RISC Report for that period.

4 The statements that almost half of Venture’s 2P reserves relate to assets that are not in production are based on information contained in pages 12 and 13 of Venture’s Annual Report and Accounts 2008.

5 The information relating to total capital expenditure in relation to the reserves covered in the RISC Report is based on capital expenditure figures disclosed on pages 12, 16, 19, 24 and 32 of the RISC Report.

6 The Offer Price premium calculations have been calculated by reference to prices of:

• 580.0 pence per Share, being the closing price on 17 March 2009, the last trading day prior to commencement of the Offer Period; and
• 450.5 pence per Share, being the closing price on 13 January 2009, the last trading day prior to market and press speculation about a potential offer for Venture by Centrica.

Goldman Sachs International, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Centrica and Centrica Resources as financial adviser in relation to the Offer and is not acting for or advising any other person and accordingly will not be responsible to any person other than Centrica and Centrica Resources for providing the protections afforded to the customers of Goldman Sachs International or for providing advice in relation to the contents of this announcement or any offer or arrangements referred to herein or in the Offer Document.

J.P. Morgan Cazenove, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting for Centrica and Centrica Resources as financial adviser in relation to the Offer and is not acting for or advising any other person and accordingly will not be responsible to any person other than Centrica and Centrica Resources for providing the protections afforded to the customers of J.P. Morgan Cazenove or for providing advice in relation to the contents of this announcement or any offer or arrangements referred to herein or in the Offer Document.

RBS Corporate Finance Limited and RBS Hoare Govett Limited, which are authorised and regulated in the United Kingdom by the Financial Services Authority, are acting for Centrica and Centrica Resources as financial advisers in relation to the Offer and are not acting for or advising any other person and accordingly will not be responsible to any person other than Centrica and Centrica Resources for providing the protections afforded to the customers of RBS Corporate Finance Limited and RBS Hoare Govett Limited or for providing advice in relation to the contents of this announcement or any offer or arrangements referred to herein or in the Offer Document.

The Offer is made solely by Centrica Resources and neither Goldman Sachs International nor J.P. Morgan Cazenove nor RBS Corporate Finance Limited nor RBS Hoare Govett Limited nor any of their respective affiliates are making the Offer.

The Offer is for the securities of a corporation organised under the laws of Scotland and is subject to the procedure and disclosure requirements of the United Kingdom, which are different from those of the United States. The Offer is being made in the United States pursuant to Section 14(e) of, and Regulation 14E under, the US Securities Exchange Act of 1934, as amended (the “Exchange Act”), subject to the exemptions provided by Rule 14d-1(d) under the Exchange Act and otherwise in accordance with the requirements of The City Code on Takeovers and Mergers (the “Code”). Accordingly, the Offer is subject to disclosure and other procedural requirements, including with respect to withdrawal rights, the offer timetable, settlement procedures and timing of payments that are different from those applicable under US domestic tender offer procedures and laws.

It may be difficult for US holders of Shares and other securities to enforce their rights and any claim arising out of the US federal securities laws, since Centrica Resources and Centrica and Venture are located outside of the United States, and some or all of their officers and directors may be resident outside of the United States. US holders of Venture securities may not be able to sue a foreign company or its officers or directors in a foreign court for violations of the US securities laws. Further, it may be difficult to compel a foreign company and its affiliates to subject themselves to a US court's judgment.

To the extent permitted by applicable law, in accordance with, and to the extent permitted by, the Code and normal UK market practice and Rule 14e-5 under the Exchange Act, Centrica Resources or its nominees or brokers (acting as agents) or their respective affiliates may from time to time make certain purchases of, or arrangements to purchase, Shares, other than pursuant to the Offer, before or during the period in which the Offer remains open for acceptance. These purchases may occur either in the open market at prevailing prices or in private transactions at negotiated prices. Such purchases, or arrangements to purchase, will comply with all applicable UK rules, including the Code and the rules of the London Stock Exchange, and Rule 14e-5 under the Exchange Act to the extent applicable. In addition, in accordance with, and to the extent permitted by, the Code, normal UK market practice and Rule 14e-5 under the Exchange Act, Goldman Sachs International, J.P. Morgan Cazenove, RBS Corporate Finance Limited, RBS Hoare Govett Limited and their respective affiliates will continue to act as exempt principal traders in Shares on the London Stock Exchange and engage in certain other purchasing activities consistent with their respective normal and usual practice and applicable law, including Rule 14e-5 under the Exchange Act. Any information about such purchases will be disclosed on a next day basis to the Panel on Takeovers and Mergers and will be available from any Regulatory Information Service including the Regulatory News Service on the London Stock Exchange website, www.londonstockexchange.com. To the extent that such information is made public in the United Kingdom, this information will also be publicly disclosed in the United States.

The receipt of cash pursuant to the Offer by a US Shareholder will be a taxable transaction for US federal income tax purposes. Please see Part I of the Offer Document for a discussion of certain UK and US federal income tax consequences of the Offer. Each holder of Venture securities is urged to consult his independent professional adviser immediately regarding the tax consequences of acceptance of the Offer.

The distribution of the Offer Document in jurisdictions other than the United Kingdom or the United States may be restricted by the laws of those jurisdictions and therefore persons into whose possession the Offer Document comes should inform themselves about and observe any such restrictions. Failure to comply with any such restrictions may constitute a violation of the securities laws of any such jurisdiction.

The Offer is not directed to Shareholders located in the US state of Oregon. Centrica Resources will not accept securities tendered by, or make cash payments to, Shareholders located in Oregon unless such Shareholder is represented by and acting through a broker-dealer registered in Oregon who accepts responsibility for effecting the transaction.

Unless otherwise determined by Centrica Resources, the Offer is not being, and will not be, made, directly or indirectly, in or into or by the use of the mails of, or by any other means (including, without limitation, electronic mail, facsimile transmission, telex, telephone, internet or other forms of electronic communication) of interstate or foreign commerce of, or any facility of a national securities exchange of any Restricted Jurisdiction and will not be capable of acceptance by any such use, means or facility or from within any such Restricted Jurisdiction. Accordingly, unless otherwise determined by Centrica Resources, copies of documentation relating to the Offer are not being, and must not be, directly or indirectly, mailed or otherwise forwarded, distributed or sent in or into or from any Restricted Jurisdiction and persons receiving such documents (including custodians, nominees and trustees) must not mail or otherwise forward, distribute or send any such documents in or into or from any such Restricted Jurisdiction, as doing so may invalidate any purported acceptance of the Offer. Any person (including, without limitation, custodians, nominees and trustees) who would, or otherwise intends to, or who may have a contractual or legal obligation to, forward the Offer Document and/or any other related document to any jurisdiction outside the United Kingdom or the United States should inform themselves of, and observe, any applicable legal or regulatory requirements of any relevant jurisdiction. Neither the US Securities and Exchange Commission (the 'SEC') nor any US state securities commission has approved or disapproved the Offer or passed upon the adequacy or completeness of the Offer Document. Any representation to the contrary is a criminal offence.

The Offer Document has been prepared for the purposes of complying with English and Scottish law and the Code and the information disclosed may not be the same as that which would have been disclosed if the Offer Document had been prepared in accordance with the laws and regulations of any jurisdiction outside of England or Scotland.

Reduction of the Acceptance Condition

The Offer is conditional, amongst other things, on valid acceptances being received (and not, where permitted, withdrawn) by 13 August 2009 so as to result in Centrica Resources having received pursuant to the Offer or otherwise such number of Shares so as to give it an interest of over 50 per cent. of the fully diluted ordinary share capital of Venture or such lower percentage as Centrica Resources may decide provided that such condition will not be satisfied unless Centrica Resources and/or any other members of the Centrica Group shall have acquired or agreed to acquire, whether pursuant to the Offer or otherwise, Shares carrying in aggregate more than 50 per cent. of the voting rights then normally exercisable at general meetings of Venture (the 'Acceptance Condition'). Centrica Resources reserves the right to reduce the percentage of Shares required to satisfy the Acceptance Condition at any time prior to all the Conditions being satisfied, fulfilled or, where permitted, waived.

Venture American Depositary Shares

The Offer shall not extend to American Depositary Shares (“Venture ADSs”) with respect to Shares. In order for holders of Venture ADSs to participate in the Offer, such holders would need first to withdraw their underlying Shares from the relevant depositary facility, by exchanging their Venture ADSs with the relevant depositary for the underlying Shares in time to be able to participate in the Offer, or make such other arrangements as the depositary may agree to in order for it to accept the offer on their behalf.

Publication on Centrica website

A copy of this announcement and the Offer Document is and will be available free of charge, subject to certain restrictions relating to persons resident in Restricted Jurisdictions, for inspection on Centrica's website at www.centrica.com during the course of the Offer.