Today I am looking at why more upstream issues will dent Centrica’s (LSE: CNA) already-patchy earnings outlook.
Nuclear blowout hampers the bottom line
Centrica’s embattled upstream operations received a further blow last week when fellow energy giant EDF Energyannounced that it would be shuttering nuclear reactors at its Heysham 1 and Hartlepool power stations. Centrica owns a 20% stake in the French firm’s nuclear operations, so production problems here could have a sizeable impact on its own bottom line.
EDF Energy commented that a boiler spine defect had been discovered during standard inspections at Heysham 1in June, a scenario which 
threatens a prolonged production blackout.
Indeed, the business advised that “until the results of the further inspections are known it is not possible to advise exact return to service dates for these four reactors,” and went on to comment that”an initial estimate is that these investigations will take around eight weeks”.
Centrica warned that this impact on its nuclear output is likely to harm earnings this year to the tune of 0.3p per share. But the question of when these investigations are likely to conclude — not to mention the extent of potential repair work as well as timing on when the plants will be back up to full capacity — could prompt a detrimental revision to these current earnings estimates.
The suspension also highlighted the creaking state of Britain’s nuclear fleet, and Centrica should not be surprised if similar problems spring up in the near future — its holding in EDF’s atomic energy business is spread across all eight of the French company’s UK nuclear stations.
Centrica’s nuclear exposure has been one of the few bright spots for its flailing upstream operations in recent times, and the impact of weak commodity prices drove operating profit at Centrica Energy more than a third lower to £526m during the 12 months ending June 2014. In this context a 2% uptick in operating profit from its nuclear sub-division, to £125m, can be viewed as a success, making last week’s news an even more bitter pill to swallow.
With Centrica also facing huge problems at its downstream operations through rising regulatory pressure and increased competition, this fresh problem adds another problem to the energy firm’s already-substantial list.
