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BG Group Profit Drops as Production, LNG Shipments Decline

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October 31, 2013

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Oct. 31 (Bloomberg) — BG Group Plc’s profit dropped 4 percent in the third quarter as the U.K.’s third-largest gas producer cut output to the lowest in six years.

Earnings excluding disposals and one-time items slipped to $1.07 billion from $1.11 billion a year earlier, the Reading, England-based company said today in a statement. That beat the $943 million average estimate in a Bloomberg survey of nine analysts. Production fell 10 percent, with about half the drop due to lower output in the U.S. after gas prices fell.

Chief Executive Officer Chris Finlayson is working to restore value after the shares slumped by a record a year ago on reduced output targets. Political unrest has affected output in Egypt, which will account for about 18 percent of production this year. Finlayson said BG needs additional assurances from the Egyptian government about domestic offtake and outstanding debts before investing more money in the country.

“BG is doing OK, but the focus will be on the future of LNG availability,” said Peter Hutton, an analyst at RBC Capital Markets in London. “Egypt will continue to be an issue.”

BG added 1.1 percent to 1,259.5 pence as of 9:25 a.m. in London. While the shares are still down more than 5 percent from a year ago, they’ve gained 24 percent this year. Production should return to growth in the fourth quarter, Finlayson said.

Conditions in Egypt “remain difficult,” and the government will continue to keep as much as 750 million standard cubic feet of gas for domestic use through the fourth quarter, the company said. The country will account for about 14 percent of earnings this year.

Egypt Assurances

BG needs guarantees about future offtake before proceeding with the next phase of the West Delta Deep Marine development, Finlayson said.

Production dropped to 53.4 million barrels of oil equivalent (about 580,000 barrels a day) in the July-September period from 59.4 million barrels a year earlier. That’s the lowest daily output since the third quarter of 2007. Unadjusted net income fell 5 percent to $1.22 billion in the quarter.

BG delivered 44 liquefied natural gas cargoes in the quarter from 50 a year earlier because of disruptions in Nigeria and Egypt. Nigeria LNG Ltd. declared force majeure on shipments, and supplies from Egypt were reduced by expanding domestic demand and political turmoil in the country.

BG, which plans to become the world’s largest seller of LNG in 2017, is looking at purchasing fields in Canada to produce the fuel for customers in Asia. This month, it sold its stake in TGGT, a U.S. pipeline joint-venture company, to Azure Midstream Energy LP for cash and shares.

Finalyson took over from Frank Chapman in January, and in July appointed Simon Lowth of AstraZeneca Plc as chief financial officer, replacing Fabio Barbosa. Lowth will start Dec. 2.

BG, the biggest U.K.-listed gas producer after Royal Dutch Shell Plc and BP Plc, will host a webcast presentation at 12 p.m. London time.

– Eduard Gismatullin and Brian Swint, Copyright 2013 Bloomberg.

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