Ladies and gentlemen, we welcome you to the Centrica and E&P and Bayerngas joint venture. My name is Tat, and I will be the coordinator for your call today. To ask a question on today's Q&A session, you may do so by pressing star 441 on your telephone keypad at any time. To withdraw your question, please press star 2. I will now hand over to Iain Conn to begin today's conference. Iain, the line is now yours.
Thank you, Tat. Good morning, everyone. I am joined here by a group of people, including Jeff Bell, Chief Financial Officer, Martin Espley, and Rebecca Trippett from Investor Relations, and Chris Cox, who is the head of Exploration & Production. Grant Dawson, our General Counsel, is also here. As you have seen, we have announced this morning an exploration and production joint venture with Stadtwerke München, who control Bayerngas Norge. We are putting Centrica's European E&P business together with Bayerngas Norge, and this creates a more sustainable, stronger E&P business with greater future optionality, generates positive NPV, and the new entity will be self-financing with an attractive financial profile. We have said since 2015 that we wish to create a stronger, more focused E&P business, and with the sale of our Canadian E&P business, this achieves that goal.
Just a word on Stadtwerke München before I go to some slides, which you should have access to. Stadtwerke München is one of the top utilities in Germany. It is owned by the city of Munich. They are involved in energy and water supply, generation and district heating, public transport, telecoms. They have about 9,000 employees and EBITDA of last year of EUR 935 million. That just gives you a sense of the company, obviously, they have been involved in exploration and production through Bayerngas GmbH and Bayerngas Norge, and they are very aligned with us in terms of the future of E&P and what they are seeking from it. That resulted in this joint venture. I would now like to go through about 10 slides, and then we will take your questions. The first slide is obviously our disclaimer, which I would just like you to remind yourselves of.
If I go to slide three, the transaction overview. We are combining Centrica's E&P business with Bayerngas Norge group to create a newly incorporated independent JV. It will be an incorporated JV, and as you can see in the chart on the right, we will own 69% of the shares. The group controlled by Stadtwerke München will own 31% of the shares. The holding companies and assets of Centrica's E&P business in Northwest Europe and Bayerngas will be contributed to the JV. Centrica is contributing our business and making a series of deferred payments totaling GBP 340 million post-tax over the first five, six years for 69% of the JV. The reason for that, which I am sure we will come back to in questions, is very simple, which is that we have a number of assets that are in or entering decommissioning.
Clearly, a partner purchasing those would want us to pay for them simply given the fact that they are going to have no ability to generate cash flow, and that was part of the structure of putting the two businesses together. There is no cash consideration in this transaction at the time of the deal. There'll obviously be the usual true-ups to the balance sheet date, the effective date being the 1st of January 2017. Stadtwerke München and minority shareholders will contribute Bayerngas Norge group for 31% of the JV. We will have an independent JV board, which will comprise the CEO, and that CEO will be Chris Cox, who's sitting next to me here. Centrica will also have four other shareholder-nominated directors, and Stadtwerke München will have two. We expect the deal to complete in the fourth quarter of this year.
In terms of the strategic rationale on the next slide, we have two like-minded shareholders who want to own and be part of a stronger and more resilient E&P business. Also want that business to be strong enough to be able to participate in future consolidation in the industry and at the same time, to limit the amount of recourse that that business has on a day-to-day basis from a cash perspective back to the shareholders. We're very aligned, and obviously, given that we are two companies that are involved in supply of services and utilities to customers, we are very, very aligned around the role of E&P and come from similar backgrounds. Certainly, over the last discussions, it's quite clear that we are very like-minded, which bodes well for the JV's future.
What we're putting together is a complementary mix of producing assets and development assets with strong positions in Northwest Europe, and I'll come back to that. We have an entity which will be self-financing with an attractive financial profile, enabling healthy reinvestment and distributions and sustainable production levels, which I'll also come back to. The transaction generates a modest amount of NPV initially, obviously there is also the potential for future stages of consolidation. GBP 100 million-GBP 150 million of NPV expected through synergies from cost savings and optimization of the portfolio. Lastly, we see that this venture will have the opportunity to further participate in consolidation or other joint ventures. We don't rule out the possibility of an IPO in the medium term, although I should stress that we're not coming into this with the sole intention of getting out at all.
This is just pointing out that this creates the optionality for the shareholders should either of them wish, after an initial lock-up period, to pursue an IPO, that we see that as a viable pathway. That is the strategic rationale for the transaction. I move on to some of the impacts of it before describing the physical parameters of the business. Firstly, the joint venture financial framework. We have an objective to create a sustainable European E&P business, something that we have said since 2015. This business is capable of self-financing in a range of environments, including Centrica's low case of 35/35. We have always said that to sustain 35/35, clearly E&P businesses, including Centrica's heritage business, would have to make adjustments to capital in order to be self-financing, but we believe it's capable of doing so.
In a normal environment, or at least in the current environment, we see the business as being sustainable with medium-term annual production of 45 to 55 million barrels of oil equivalent per annum and investing £400 million to £600 million a year of CapEx in the near term, representing an 80% post-tax operating cash flow reinvestment ratio through the cycle. Finally, that the remaining post-tax operating cash would be distributed to the shareholders. Clearly, all other things being equal and provided the JV is debt-free, you can calculate from that that the venture through the cycle in the current environment should be capable of generating a dividend stream of £100 million to £150 million per annum. Obviously that depends on the environment, prevailing circumstances and the capital structure of the JV as it goes forward.
In terms of the impact on the Centrica group, from an operating perspective and an E&P perspective, it increases the reserves to production ratio from a level where we were just a bit below seven to around eight. It's not a massive increase in R2P, just given the relative scale of the businesses, but it's going in the right direction. It importantly reduces the net decommissioning liabilities of Centrica by combining our maturing E&P portfolio and Bayerngas's portfolio has a lot of early lifecycle assets with a significant number of developments which we think we can add material value to. It reduces Centrica's share of annual production into the range of 30 to 40 million barrels of oil equivalent, and our share of capital expenditure on a proportionate basis to £300 million to £400 million.
That 30 to 40 million barrels of oil equivalent is below our 40 to 50 million barrels of oil equivalent that we announced we were targeting back in 2015. I think it's worth just spending a moment on that. We've done some financial modeling and believe that 30 to 40 will achieve the same contribution to the group's portfolio in terms of diversity of cash flows and balance sheet strength or a similar contribution to 40 to 50. The other reason for pursuing 40 to 50 is we believed really you need to be about that size to create a sustainable E&P company. Obviously this company is going to have 45 to 55 sustainable production, so it meets that second objective and we're satisfied it meets the group's financial objectives around the portfolio mix.
Our share of synergies is obviously going to be 70 to 100 million of NPV. We will be pre-consolidating the JV post-completion. Initially, although the E&P assets and staff and companies will all transfer to the JV, the direct operational team, we will be providing functional services to the joint venture initially. IT systems support, HR services, finance, HSES, in order to enable the JV to get up and running. Over time, we would imagine that the JV will want to establish its own or have its own choices as to how it procures group services down the road. The transaction is expected to be earning accretive from 2018 in the current environment, it will have a positive impact on Centrica's credit rating agency financial metrics.
Turning then to what is this JV and what is it capable of, on the next chart, you see that of the independents in Northwest Europe, and we've excluded the super majors. Basically, this chart shows the reserves ranking of the companies, and you can see that we are creating one of the largest independent European E&P companies in this step. As we've disclosed, the joint venture will have reserves of 409 million barrels of oil equivalent and additional resources. I'll come on to that in a minute. On the next slide, we show production. Centrica is already one of the larger independent European E&P companies by production. Bayerngas Norge is much smaller because it's much earlier life, and many of their reserves are still to come on to production, which is obviously what attracts us.
The combined entity in 2017 will be the largest or one of the two largest independents in Northwest Europe. We think this positioning, relative to all the other players in the market, gives us the ability to lead and participate in further consolidation, creating an even stronger entity over time. In terms of the portfolio on slide nine, we have complementary positions in Northwest Europe with Bayerngas Norge. First of all, 50 to 55 million barrels of oil equivalent production this year from 27 fields. You can see on the map on the right that there is significant overlap of our acreage and assets. We are quite strong together in the southern North Sea, and this brings us together in Cygnus, which has just come on stream. If you remember, Bayerngas Norge is a shareholder in Cygnus, and it actually takes us to over 61% ownership in Cygnus.
We're also active in the Norwegian and Danish sector of the continental shelf, and there are a number of developments that we have and they have in Norway. There's quite a large development in Denmark, which is partially developed at present, Hejre, which we see the ability to add significant value to. In the northern Norwegian continental shelf, we also have acreage overlap. Then interestingly also in the Barents Sea, we have a number of exploration blocks in the mature Barents, which creates further optionality for the group. The combined JV will have 2P reserves and 2C resources of 625 million barrels of oil equivalent. The split of that is in the footnote. It's 409 million barrels of 2P reserves and 216 million barrels of oil equivalent of 2C resources. It's gas-biased, we are not driving the business to be gas only.
Although we value it having a high proportion of gas. This business will be seeking hydrocarbons of liquids and gas as it seeks to create value for the shareholders. As you see also, there's a material proportion of production that is operated by the partners. Giving a good balance between operated and non-operated activity. On the next slide, when you put the portfolio together, what you can see is that Centrica's portfolio, which is very heavily weighted to established assets with 15% of our portfolio Bayerngas Norge reserves and resources recently on stream and some very good development assets focused around Norway, and a number of exploration licenses.
When we put this together with Bayerngas portfolio, which is heavily weighted towards future development with some material on stream assets and very few established producing assets, it creates a much more balanced and sustainable portfolio of assets and hydrocarbon resources. As you see, we are also involved in 64 exploration blocks, giving further optionality around infill exploration, infrastructure-led exploration, and also some of the more frontier type exploration up in the Barents Sea. Then finally, in terms of capabilities, we have operated and non-operated assets and experience in that. We are experienced in being a non-operated partner with major companies such as Statoil in Norway. We have onshore and offshore operations. The onshore being in the U.K., owned by Centrica, and that being the Barrow Terminal and the East Irish Sea coming ashore.
We are also involved, as you know, in terms of very limited degree in onshore unconventionals. We have deep subsurface knowledge of these regions that we are in. The combined capability, particularly in the Norwegian Continental Shelf, we think is going to be very complementary, and also true in the Barents Sea. We have 650 employees involved in this business. The main offices today are in Aberdeen, Stavanger, Oslo, and Hoofddorp in the Netherlands. In summary, this joint venture brings together like-minded shareholders with a strong strategic alignment on the role of E&P. A complementary mix of producing and development assets with good positions, strong positions in Northwest Europe. A robust self-financing entity with attractive financial profile, enabling reinvestments and distributions to shareholders. The creation of NPV through bringing the portfolios together from cost savings and portfolio optimization.
Importantly, the opportunity to strengthen the entity further through additional consolidation of joint ventures as the industry looks to do so, including the potential for an IPO in the medium term. Ladies and gentlemen, I hope that's been a useful summary, and now I would be happy to turn over to your questions. Between us, we will aim to answer them. Thank you.
Thank you, Iain. Ladies and gentlemen, you now have the opportunity to ask your questions. To register your question, you may do so by pressing star followed by one on your telephone keypad. If you change your mind and wish to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally. Our first question today is from Jenny Pan from Citigroup. Jenny, please go ahead.
Hi, Jenny.
Hi. It's Jenny Pan from Citigroup. Firstly, a question on strategy. You obviously hinted through the presentation that you're not coming into this with a view to exit. Can I just ask, what is your long-term strategy on the E&P business? Is there an extent in which you still want to maintain a degree of hedging with the retail business, and how you sort of generally think about that? Secondly, on the financial metrics you talk about E&P accretive. I don't know whether you or Jeff would be able to give us some numbers there. Lastly, on Hejre. As far as I understand, this is one field that had very technical difficulties in the past and has been over budget and due to numerous delays. Can you sort of talk about that project specifically as well? Thanks.
What I'll do is I'll just cover the strategic point, and I'll ask Jeff to comment on accretion. I'll make a comment about Hejre before asking Chris Cox just to give his perspective on it. Strategically, first of all, we always said that the primary role of E&P in our portfolio is to contribute cash flow diversity, and through that, and being invested in asset-based businesses, balance sheet strength for the group as a whole. That has not changed. To your point about the secondary factors, because there are a number of secondary factors, by being in gas production, our ability to manage the cost of matching hedged positions with our own production reduces the cost of our overall cost of supply, and it makes us more efficient.
However, we did conclude in 2015 that the shorthand vertical integration arguments and security of supply arguments didn't really hold water. Neither did the point about being a natural hedge, because we tend to independently risk manage the E&P and customer-facing risk. We hedge them independently. Obviously, if gas prices collapsed, we couldn't turn around to our customers and say, "Sorry, we're going to keep prices up simply because we've got this hedge." The security of supply argument doesn't really hold water because the markets are now very fungible, and only in the most extreme circumstances would this really apply. Vertical integration, we don't really consume or sell much of our own production. Jenny, that's the strategic rationale. I'll just pass to Jeff to comment on accretion, and then I'll come back to Hejre.
Jenny, the accretion, as we indicated on the slide from an EPS perspective, is small. Not a material number, doesn't materially sort of change the overall forward view of the group. It is slightly better than neutral in a sense. From a cash flow perspective, obviously, consolidating the business on a consolidated basis, we'll see a larger impact from an operating cash flow perspective.
Thanks, Jeff. Then on Hejre, look, I mean, this field actually, far from being a big negative, was of interest to us because it's already been materially developed. Now it has had problems. So clearly, we were spending quite a bit of time making sure we understood the nature of those problems. We're very satisfied with the level at which Hejre has been represented in the JV and the optionality for upside value that it creates. Chris, would you like to comment on that?
Sure. Jenny, obviously, it's something that stands out in the Bayerngas portfolio, therefore we spend a lot of time in due diligence looking at Hejre. Whether you like Hejre or not kind of depends on whether you've been spending money on it up till now. DONG would probably look at this from a very different perspective from us. Frankly, we hadn't put a huge amount of money on Hejre in the transaction, we see quite a lot of upside in it. It's a field that has a jacket in place already. It's got three producing wells already drilled. It has an export pipeline in place. It probably needs a couple more wells, and it needs a top side to some description on it.
The problems with the project to date have been pretty much all around the top side, where the contractors could not deliver, frankly. That contract has now been canceled, and we'll have nothing to do with that contract going forward. Any obligations in relation to that sit with DONG. We're quite excited about Hejre as a development coming into it already partially developed. Of course, the intent is for Ineos to take over as operator there. I think combined with our abilities, we ought to be able to find an interesting way to develop that. We'll be looking at different development options in the coming months.
Thanks, Chris. I think, Jenny, last comment would be that this joint venture brings two companies together and the optionality with a number of other big companies, like Ineos, for example, who are going to be involved post their transaction on the other side or with us in Hejre, just as it brings Bayerngas and Centrica together in Cygnus. We're going to end up having material capability to influence some quite important projects going forward. Jenny, thanks for your questions. Next question please, Chad.
Our next question is from the line of AJ Patel from Goldman Sachs. AJ, please go ahead.
Hi, AJ.
Good morning. Hi. Three questions if I can, please. Firstly, you alluded to a lockup period. Could you give us an indication of how long that lockup period is? Secondly, on the credit metrics and the comment on decommissioning liabilities and how this would be an effective structure for that, how much does that actually reduce your net exposure on your decommissioning liabilities? Is that the sole reason the credit metrics are better as a result of this deal rather than not? Finally, I understand that you're marketing at 50 million-55 million barrels oil equivalent from this effective deal, but you're eyeing 30-40. Why is 30-40 the right number? Why not 20-30? I understand balance of cash flow, but we were of a situation where 40-50 was fine.
I'm just wondering why is 30, 40 the right number?
AJ, let me cover the lockup and then also the 30-40 comment. Then I'll ask Jeff to just come back on the point about the decommissioning impact. The lockup period is medium-term, and it depends on the shareholders, but I can confirm two to five years, depending on the circumstances. As far as the 30-40 is concerned, when we announced the 40-50 in 2015, we were trying to judge from a range of different inputs, as we said at the time. From a portfolio modeling perspective, from a capital affordability and cash flow balancing perspective, what's the right sweet spot for us to get benefit from the diversity of the portfolio, while at the same time reducing Centrica's exposure and reinvestment ratio going into E&P? We settled on the 40-50.
The other reason for the 40-50, as I said earlier, was the notion that really below that sort of scale, it's quite difficult to be a material player able to shape consolidation and to participate in a range of developments and support a decent exploration budget. We believe for a sustainable business, it also needed to be about 40-50. In analyzing this a bit further over the last year and a half, we've concluded that actually 35 or so would fulfill the same effect or a similar effect for us as a group from the first reason around the balance sheet strength and diversity of cash flows. We also still conclude that the second reason holds, i.e., you need to have an E&P company of sufficient materiality to have enough optionality and choice so that you can create a high-quality E&P portfolio.
This transaction achieves both of those things. It achieves the 35 million barrels or 30-40 for us net, it also achieves the appropriate scale to be able to shape a sustainable future. Just to repeat, that's the simple rationale. Jeff, the decommissioning liability and impact?
Sure. Maybe I think there's effectively, of course, two things here. From an NPV or economic value perspective, obviously, outside of the GBP 340 million payment, the joint venture partner is taking up 31% of our decommissioning liability. From an actual credit metric perspective, of course, we consolidate all of the joint venture, which means we do consolidate all of the decommissioning liability. However, because Bayerngas comes with very little decommissioning liability, in effect that really doesn't change the liability much at all. Whereas from a retained cash flow perspective, we, of course, are consolidating their operating cash flows and, of course, we're consolidating the synergies that we get within the joint venture as well.
It's really the combination of those two having a more positive effect than the small decommissioning liability, the additional decommissioning liability from Bayerngas within the metrics themselves, that leads it to give us a small positive on the credit metrics.
Fantastic. Thank you.
Thanks, Jeff. Thanks, AJ. Next question, Jess?
We have a question from the line of Mark Freshney from Credit Suisse. Mark, please go ahead.
Hi, Mark.
Hi. Morning. Three questions, if I may. Firstly, you've spoken about the rationale for 30-40, My question is how we got there. Going through this transaction, you entered with a 40-50 target, and you're coming out with 30-40. My point is, what is the justification for that dilution? Secondly, on the trading businesses. You've got a large commodity trading business. You've got contracts with Cheniere and various swaps with Asia. The value of that trading business partly revolves around having the hard assets. How are you going to capture all of the value through those? And thirdly, a question for Jeff, just on the technical accounting. This transaction provides a lot of mark-to-market data, if you like, on the value of your oil and gas production business.
Is there going to be any potential impairment or loss on disposal reported either at the half year or the full year?
Thanks, Mark. I'll ask Jeff to comment on that. Obviously, the JV operates at varying prices, and the strategic point is that we can do this JV without having to net crystallize value. Jeff can comment on value and impairments. On the rationale for the 30-40, I really think I've covered that in some detail. It's not a dilution per se. It is a lower participation in a larger business, but with a net effect that we believe fulfills our strategic objectives. Having reviewed that really carefully, we're very satisfied that although it's not 40-50 anymore net, as I said, it fulfills Centrica's objectives while also making sure that we participate and lead as a lead shareholder in a business capable of reshaping and consolidating the industry.
In terms of the trading business, as the RNS says, we will be buying and marketing all the production from the JV, and so our energy marketing and trading business will retain some optionality around this. Although the reality is that, as has always been the case, our energy marketing and trading business, and the clue is in the word marketing, is significantly involved in serving and servicing the other businesses of the group and will do so for this joint venture as well. Needless to say, staff recognition has been very focused on making sure that the transfer pricing and the ability for EM&T to serve the JV is in the interest of both shareholders.
By having access to these flows, clearly, at a fair market price, EM&T will still potentially be able to capture some additional value from it that our other shareholder is not capable of doing. Jeff, on impairments and valuations.
Obviously, Mark, we'll have a chance in a couple of weeks to talk about where we are at the half year. I think I'd probably make the observation that at the end of December 2016, when, of course, we did our impairment testing, and as you rightly point out, we effectively are mark to marking the E&P assets at near term lifted curves and our longer-term view of prices. I think my observation would be that prices haven't materially changed in the last six months versus where we were at the end of the summer. Clearly, we'll have a chance to talk more about that at the interims, but you might hold it that way.
Thank you very much.
Thank you.
Our next question is from the line of Deepa Venkateswaran from Bernstein. Deepa, please go ahead.
Thank you. I've got three questions. Firstly, just wanted a clarification that the post-tax contribution of GBP 340 million that you refer to, that is indeed the net outflow from the group, because presumably the tax deduction will happen at the JV level. Just wanted to get that. That's the net amount that goes out from the group. Secondly, can you clarify how does this transaction really impact your group sources and uses of cash, both immediately as well as in the next two to three years, given that your dividend policy is quite linked to that? Just wanted to understand what's the net impact on group sources and uses of cash. Last question. Clearly, you've acquired less mature assets, or the JV has some less mature assets from Bayerngas. Is the combined CapEx level of GBP 400 million-GBP 600 million still sufficient to harvest those assets?
Thank you.
Thanks, Deepa. Let me answer the third question. Ask Jeff to cover the first two. On the third one, yes, we believe that GBP 400 million-GBP 600 million at the appropriate level of finding and development costs, we should be able to stabilize and sustain a business of 45 million-55 million barrels of oil equivalent. You can get from that, but it infers in a very rough way, F&D costs of sort of GBP 10-GBP 12 per BOE, which is absolutely within our grasp going forward. Clearly, depending on what happens to inflation in the industry, if you get prices going up, you'll see F&D costs going up. We've modeled that this joint venture has a number of different price environments. It's relatively price inelastic in terms of our ability to sustain the business under a range of environments.
Certainly, the base case assumption in this current environment is within our grasp, having driven quite a lot of capital efficiency and operating efficiency into both businesses. Jeff, the first two?
Deepa, the GBP 340 million is the cash outflow from the group. You are interpreting that correctly. I think on the second question, in terms of the sources and uses of cash, a bit linked to my response to AJ on the credit metrics. Clearly, we will end up consolidating Bayerngas'-- consolidating 100% of the joint venture and therefore effectively their production and cash flow profile as well. While at the same time, the capital expenditure, at least in the short to medium term, is still within the GBP 400 million-GBP 600 million that we've been signaling for the Centrica group. Kind of the net of the operating cash flow improvement, backed by the existing Bayerngas cash flows and synergies will be a slight net positive to the group as we also have suddenly less share of capital expenditure.
Deepa, thanks. Just everybody, everyone so far has had three questions. We may struggle to get through everyone's questions if everyone has three, we'll keep going, and see how we do. Next question, Chad.
Our next question is from Lakis Athanasiou from Agency Partners. Lakis, please go ahead.
Good morning, Lakis.
Good morning. I'm going to have three questions. Everyone else has. I don't see why I shouldn't.
You're quite right. You deserve three. Go ahead.
Okay. These are simple, I think. The first is, what's the timeframe of the delivery of the NPV benefit? I presume they're operating expenditure and what kind of level will they reach in steady state per annum pre-tax? Secondly, on the reserve split. Presumably all the reserves are at beginning of this year, so 1st January 2017. We can get out of that what the split is on the 2P reserves. The 2Cs, the 216 of 2Cs, can you split that between yourselves and Bayerngas, please? The third question, I still don't understand what the GBP 340 million post-tax actually means. Could you explain it in the context of the physical amounts of money that are going from Centrica to the joint venture, irrespective of how the consolidation is done? What is actually going to be paid to the joint venture?
Okay. First of all, the timeframe of the NPV. We're not disclosing that precisely, but some elements of the NPV will clearly depend on the ability to optimize capital flows, and those will be slightly longer dated. Most of the value we think will be pretty front-end loaded. It's about optimization of the portfolio immediately. It's about cost efficiency and optimization. It's about tax optimization of the portfolios. It should be pretty front-end loaded. On the reserve split. Look, we're not giving the split today the 2P or the 2C between the two companies. We will do it at the end of the next reporting period. You can clearly go and find the split set of the 2P. With 2C, the problem is people do tend to use slightly different bases.
What we have disclosed, so just to confirm your question, is the Woodmac consistent basis, and it is as of the end of last year. In terms of the GBP 340 million liabilities. From memory, this is a nominal amount. I believe it's nominal, and it directly corresponds to and is derived from the estimated cash obligations for fields that are actually in decommissioning or literally about to start decommissioning in 2017 or 2018, pretty much. The problem we've got there is, quite rightly, any partner is going to say, "Well, what's the point of me buying 31% of that? Because it's near in. I can't participate in the learning curve of decommissioning. It's got no cash generation capability.
It's just a straight liability." We've agreed that for those fields in the very front end, we will pay for sole risk, effectively, the cash payments for those, and it's an identified group of fields over the next five years. For all the rest of the decommissioning, you know our nominal decommissioning liability is sort of GBP 3 billion. Is that right, Nick, Jeff, is it?
That's lower. That includes Canada.
Oh, that includes Canada, I'm sorry. A bit lower than that. It's a sizable number, and obviously, with the exception of the GBP 340 million, our partner is participating 31% in the full decommissioning liability of the rest, including its upsides and risks.
Can I think of the GBP 340 then as the amount of money Centrica will be paying into the joint venture, less tax credits associated with those payments?
It's a post-tax number. It includes our estimate of the tax treatment. Obviously, it's before we receive cash from the joint venture from the dividend. It's probable that if you do the math on the inferred dividend level, if you take the 80% reinvestment ratio and a dividend of GBP 100 million-GBP 150 million or thereabout gross, our share of that should easily pay for these payments, although they'll be a bit lumpy, so that Centrica will be able to receive free cash flow from the JV net of these payments.
Okay.
Thanks very much, Marcus.
Our next question on the line is from Iain Turner from Exane. Iain, please go ahead.
Hi, Iain.
Hi, morning everybody. Can I just ask, in the RNS you say that the Bayerngas side was loss-making last year, and that you expect the deal to be accretive in 2018. Can you just walk us through what changes between last year and next year in terms of the performance? Then just secondly, can you just clarify how many staff from each side are transferring into the JV?
Okay. I'm going to ask Jeff to talk to accretion. On the staff, it's about 10% from the Bayerngas side, so about 65 people on the balance are from Centrica. I'm just checking with Chris. That is about right, isn't it?
Yeah.
Jeff, on the accretion point.
On the accretion, Iain, it's primarily driven by synergies, including tax optimization starting in 2018 that allows us to have a slight positive from an accretion perspective. As you rightly say, it wasn't a big loss in the context of the size of the joint venture. The synergies themselves create some positive accretion.
Thanks, Jeff. Thanks, Iain.
Thank you.
We have a follow-up question from the line of Mark Freshney from Credit Suisse. Mark, please go ahead.
I have two extra questions, if I may. Firstly, on Rough. My understanding is Rough is separate to this deal. It's on a hold separate basis anyway. Is there any scope? What's your plan with the scope with the Rough property going forward? Secondly, within the Centrica portfolio of upstream assets or your side of the assets, my understanding is Morecambe Bay was historically, even last year, one of the most profitable assets you had. I think it was the best part of 10 MMBOE per year and only taxed at 40%. I understand that there's an outage on that asset this year. Could you update on the current operating performance of that, please? Thank you.
Thanks, Mark. I'll ask Chris to comment on Morecambe, but it has been in an extended shutdown for us to optimize it in the current circumstances because the flows in and out of that plant have been changing. On Rough, the Rough field is absolutely separate. We are currently under obligations still to offer Rough as a storage asset. We have now indicated that we no longer can do that from a safety perspective, and believe therefore, that the field can no longer be used for injection and withdrawal purposes. We are going to be applying to the government for permission to turn it into a producing field, and we're applying to the CMA to be relieved of the obligations under the undertakings.
Once we've done that, clearly the Rough field, while separate from this joint venture and not envisaged to be part of it, becomes an E&P producing asset, assuming we get all the relevant permissions. We'll look at all possibilities for the future of the Rough field. If this joint venture, including our partner, were interested in it, then we would have a conversation, it's well too early to draw any conclusions there. We've got to go through the appropriate permissions first. Clearly, us having a single field producing asset outside of this joint venture with everything else in it, would mean that the joint venture would, at the very least, have to provide technical services to Rough, and we have already built that into the joint venture agreement. Chris?
On Morecambe. Yes. You're absolutely right. Morecambe has been very profitable for us in the past, we are in an extended outage right now. The purpose for that was to make some changes to make the plant more efficient. As Iain indicated, the flows into Barrow have changed a huge amount over the years, from one dry gas field to several with high liquid content and CO2 and other impurities in it. As a result, the plant has not been running very efficiently, we're in the process of making some changes to make it more efficient going forward. We're in the middle of that work right now. We anticipate being back up sometime in August and back on stream, our plan is that it runs more efficiently going forward.
Yeah, I think it's important also, Mark, to realize that we brought the plant down for the reasons Chris has just outlined, it also had a scheduled shutdown for a couple of months from June to August. What we've effectively done is just run one into the other to give us more time to get the plant positioned correctly for a restart. We would expect that it should restart very well on the back of all of this. Yes, it has been out.
Okay. Normalized production would be what? Eight or nine MMBOE per year from all of those Morecambe Bay assets, this year will be some way below that.
It'll clearly be impacted by the outage. What we'll do is update you on this at the time of the interims in a couple of weeks' time.
Okay. Thank you very much.
We have a question from Andrew Mulgrew from CreditSights. Andrew, please go ahead.
Hello, Andrew.
Yeah. Hi. Thank you. It's just a couple of clarifications really. On the GBP 340 million payments that you've talked about, I just wanted to be clear here. Even if you hadn't done the joint venture, I guess these are payments that Centrica would still have had to have made for the decommissioning of those fields. That's my first clarification. Second one, on the credit metrics you talked about. Is it right that the only reason they're improving is because of incremental cash flow, or is there any other effect? I guess, when you talk to the rating agencies about this, what do they feel that this transaction has done for the risk of your business? I mean, I'm guessing it's probably decreased the risk of the business slightly, but I wonder if you could just comment on that.
Finally, Iain, I think you just made a comment right at the beginning about assuming the joint venture was debt-free. I just wanted to confirm, is the joint venture actually debt-free at this stage, or will there be any debt going in from either Centrica or from Bayerngas? Thank you.
On the debt point, it will be debt-free. Jeff, thanks for asking me to clarify that. Yeah, there's no plan to put debt into it. On the GBP 340 million, you're absolutely right. These would have been obligations that Centrica was already going to have to expend. In fact, we were already embarked upon expending them and had the rigs booked for these decommissioning of the wells and so on. As a result, not surprisingly, Bayerngas just said, "Well, not really sure why we'd want to participate in that." That's why it's the way it is. On the credit metrics, Jeff?
Yeah. I think, the big piece probably on the credit metrics that makes a difference, and as I said, to refer to one of the answers to one of the earlier questions. It's a small positive. It is primarily not only the Bayerngas cash flows which we're consolidating, but it's actually the synergy. The actual positive impact of GBP 100 million-GBP 150 million of NPV synergies that come in on a year-by-year basis. As Iain said, we think we'll realize those in the near term or the short term. I think from how the credit rating agencies would look at this is that, the broad answer is we have an E&P business that we think is now more sustainable, stronger joint venture with a more balanced set of near-term cash flows and long-term development options.
Therefore, net-net is a positive to the shape and positive to the E&P business as a sustainable ongoing business.
Thank you.
Thanks, Andrew.
As a reminder, ladies and gentlemen, to register any questions, please press star 431 on your telephone keypad.
We'll just hold to make sure that no one's got any other questions.
We have a follow-up question from the line of Lakis Athanasiou from Agency Partners. Lakis, please go ahead.
Hi. Since there seems to be a lull. On Morecambe, you seem to be accepting one of the previous questioner's statements that you're close to 10 million barrels of oil equivalent production there. I thought that was, certainly in 2016, my numbers there are significantly less than that, in fact, less than half that. It's very difficult to see you get anywhere near 10 in the future. Am I completely wrong?
Lakis, I think you're correct that this 10, it's not 10. It is below that level. I think what we would be looking at is somewhere between 5 and 8. You're right, that it's below that level. As Chris said when he took himself out, obviously we're hoping that the Morecambe field, when it comes back, will be able to operate more efficiently and with much better reliability. That is the hope. We might actually see some net benefit in the near term, obviously, as the fields have also been rested for a while. We would expect a lower level than that 10, i.e., in the 5 to 8 range.
Right. Okay.
Are there any other questions from anyone else, Katya?
We have another question from Deepa Venkateswaran from Bernstein. Deepa, please go ahead.
Hi, Deepa.
Hi. Thank you for taking an additional call. I just wonder whether you would be able to comment on what are the other options you looked at for your E&P business and why you finally landed on this JV option. Thank you.
Thanks, Deepa. Firstly, although a number of people were convinced that we were looking at selling, as I've said many times, in this environment, it would not be the right thing to do. Furthermore, we see the strategic benefit that E&P provides to the portfolio as a whole, as I described earlier. What we were focused on was how to strengthen the E&P business. We have decided to sell Canada, and the rationale for that is very straightforward. That we were not seeing the ability to extend E&P into the lower 48 or to expand it in Canada. We believe that we do not have the strategic intent or capability to add yet another set of basins to the portfolio.
Secondly, as a result of the amount of shale gas being produced in the U.S., Canadian gas has effectively displaced up the pipe, if you like, and is therefore unlikely to see significant upside, even if natural gas prices were to increase. It will be significantly dampened relative to the lower 48 and even the rest of the world. That was the reason why we decided, with our partner, Qatargas, to exit Canada. That aside, we've then been very focused on only one thing, which is to strengthen what remains, to make sure that it is sustainable and to create strategic optionality for us. That meant a combination, which clearly means we don't have to crystallize, net crystallize price. It means that you can evaluate a combination at a range of prices.
This one, the shareholdings between us and Bayerngas are relatively price inelastic, which allowed us to combine with confidence on behalf of our shareholders without running the risk of crystallizing price in a negative way at this point. Very much in line with what we've been saying, and we hope that this venture will be the beginning of further optionality for our shareholders from the E&P business.
Thank you.
Katya, I think we've come to the end of the time. I'd just like to wrap up by, first of all, thanking everybody for joining us today to listen to this. I hope it's been helpful in explaining what we've announced today. I want to leave you with just one thought, which is this joint venture on its own creates value, is accretive, and creates a more sustainable business which is capable of standing on its own two feet. Therefore, it's in the interests of our shareholders, and we're very pleased with the nature of the strategic alignment with Statkraft and Lundin. I want to emphasize one important point, which is we see this as only the beginning of the ability to participate in the further consolidation of the E&P business.
There's no guarantee of that, of course. We think that this entity is now large enough and sustainable enough to enable further consolidation steps. We would obviously hope to create further shareholder value and NPV through those. It also creates optionality for both shareholders in terms of their long-term ownership and participation in E&P. We see this as a strategic move in line with our strategy from 2015 and a very large component of phase one of repositioning Centrica. We've obviously made a number of announcements recently, including the sale of the two large CCGTs, the sale of Canada, the cessation of storage operations at Rough.
With this and the acquisitions we've been making in the customer-facing businesses, we're doing what we said we would do in 2015, which is to reposition the group while benefiting from the asset businesses that remain, and in particular, the E&P business. Thank you all very much for joining us today, and obviously, we can follow up with any further questions through investor relations. Thank you.
Ladies and gentlemen, this does conclude today's call. Thank you for joining, and enjoy the rest of your day.