BG Group Sees No Output Growth in 2013

on Oct 31, 2012
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The British oil and gas company BG Group released its financial results for the third quarter on October 31. And while the energy group reported better-than-expected quarterly results, its announcement that output was likely to remain unchanged in 2013 sent the company shares to their lowest level in over a year.

**BG Expects No Production Growth in 2013**
In its third quarter statement, BG Group noted that it expected production in 2013 to be “in line with 2012”, surprising analysts, who anticipated production growth of 10 percent and above, as reported by Reuters. The company said that production in 2012, which grew by three percent, was held back by the shutdown of the non-operated Elgin/Franklin field in the North Sea as well as by the company’s decision to scale back drilling in the US on account of low natural gas prices, with those factors expected to affect production growth in 2013 as well. The company also expects lower production in Egypt, where it was unable to slow a reservoir decline.

“In aggregate, these factors are expected to result in 2013 volumes being broadly in line with 2012,” BG Group’s CEO Sir Frank Chapman pointed out in the company statement. While the Group said that its production plans beyond 2013 remained unchanged, Reuters reports that analysts are now questioning BG’s ability to deliver on post-2013 growth objectives. BG Group is planning to bring projects in Brazil and Australia onstream over the next three years, with Sir Frank noting in the company statement that the delivery of the Australia and Brazil ventures is “critical to our investment proposition”.

**Company Shares Down**
!m[Announcement Sends The Company Shares To A Year-Low](/uploads/story/689/thumbs/pic1_inline.png)BG’s flat growth forecast for 2013 sent the company shares almost 20 down making the Group the biggest faller on the FTSE 100 index. Reuters quotes Bernstein analyst Oswald Clint as saying that although those looking for production growth in 2013 were disappointed, that did not warrant a 15 percent drop in the share price. “As a long term investment this remains a solid company with attractive assets,” pointed out Mr Clint.

BG Group has also agreed to sell a 40 percent stake in part of its Queensland Curtis LNG project to China’s oil and gas company CNOOC (HKG:0883, NYSE:CEO), with Reuters quoting Santander analyst Jason Kenney as saying that expectations about a higher price also weighed on BG’s shares. The deal, however, includes a 20-year supply contract, which BG noted would make it the largest supplier of liquefied natural gas to China.

**Q3 Earnings Slightly Better Than Expected**
Although the 2013 production warning is seen as the highlight of BG’s quarterly statement, the company also reported a 16 percent rise in third-quarter earnings to $1.189 billion (£738.2 million). Reuters notes that the results were slightly above analysts’ expectations of $1.1 billion. BG Group said that the increase in earnings was driven by a 13 percent rise in operating profit in the exploration and production segment and a continuingly robust performance of the LNG business, where operating profit rose by 24 percent.

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