UK: BG Group 2Q Profit Soars on High Gas Prices

BG Group announced that its revenue and other operating income in 2Q increased by 26% to $5 115 million, reflecting the benefit of higher commodity prices and a 3% increase in E&P production, with solid operational performance across the Group’s assets.

As a result of the above and a lower exploration charge in the quarter, total operating profit increased by 43% to $2 152 million. Cash generated by operations increased by 11% to $2 581 million as a result of higher profits and, as anticipated, the partial reversal of prior period margin calls on the Group’s hedged LNG contracts. As of 30 June 2011, the Group’s net debt was $9 468 million with an average maturity of around 8 years, and the gearing ratio was 24%. During the quarter, BG Group signed a cooperation agreement with Bank of China that allows for up to $1.5 billion of new funding alternatives to support the Group’s major growth programme. The Group’s undrawn committed facilities have been increased to $5.5 billion with maturities from 2012 to 2016. Net finance costs amounted to $59 million for the quarter, against $25 million income in 2010, including foreign exchange gains of $7 million (2010 $71 million gain).

Capital investment (including acquisitions of $113 million) in the quarter was $2 537 million and comprised investment in E&P ($1 918 million), LNG ($537 million) and T&D ($82 million). This investment focused primarily on the Group’s major growth projects in Australia, Brazil and the USA and represents a 58% increase in underlying organic capital investment compared with second quarter 2010. More details on project developments are provided in the relevant segmental business highlights.

Exploration and Production

Revenue and other operating income increased by 35% to $2 787 million, reflecting the benefit of higher realised prices and a 3% increase in production volumes. Total operating profit of $1 420 million was 90% higher as a result of the increase in revenue and other operating income and a lower exploration charge.

Higher production volumes in the quarter reflected continuing production build-up in the USA, Brazil and at Hasdrubal in Tunisia. In the UK North Sea, the Everest, Lomond and Erskine fields progressively returned to production following the shutdown in the first quarter. BG Group expects Buzzard to return to full capacity in the third quarter following a period of restricted production. Whilst there continued to be sporadic disruption from social unrest in Egypt and Tunisia, this had a relatively small impact on production in the second quarter.

BG Group continues to expect modest production growth in 2011, ahead of the strong ramp-up in production volumes which begins in 2012 and continues through the decade. International gas price realisations were 17% higher at 39.02 cents per produced therm, reflecting changes in the production mix and the effects of higher oil prices. The average realised gas price in the UK increased by 48% to 44.43 pence per produced therm, as a result of higher contract and market prices.

The exploration charge of $120 million is $246 million lower than 2010 as a result of lower well write-off costs. Unit operating expenditure increased to $8.93 per barrel of oil equivalent, reflecting the impact of higher commodity prices, adverse foreign exchange movements and changes in the production mix, including higher than portfolio average costs associated with the production start-up activities in Brazil. BG Group continues to expect unit operating costs to be between $8.50 and $9.00 per barrel of oil equivalent at an oil price of around $100 per barrel for the full year. Capital investment of $1 918 million in the quarter comprised investment in the Americas ($673 million, including $113 million on acquisitions), Australia ($496 million), Europe and Central Asia ($443 million) and Africa, Middle East and Asia ($306 million).

BG Group’s Chief Executive, Sir Frank Chapman said:

“We made good progress in both our E&P and LNG businesses. In Brazil, we saw major increases in our reserves and resources; with the new resources delivering a higher unit value as their production is expected to require no additional  surface facilities. We have invested $4.4bn in organic growth in the first half and made good progress across our major growth projects in Australia, Brazil and the USA; progress that continues to de-risk the delivery of our growth programme.”

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Source:BG Group , July 26, 2011;