LONDON: Oil and gas group BG will focus on exploration, liquefied natural gas (LNG) and selling or partnering more of its discoveries as part of a new emphasis on profitability after being forced to cut ambitious output targets.
The gas-focused British company, whose main growth assets are in Australia and Brazil, said the proportion of its production with a profit margin of more than $50 per barrel of oil equivalent (boe) would triple over the next five years, and that its heavy capital spending budget would peak in 2015, allowing it to return surplus cash to shareholders from then.
In a keenly-awaited strategy statement under new management and after a crisis of investor confidence in the final quarter of 2012, the company said it would “manage its portfolio more actively” in future, partly through asset sales, and partly by bringing in partners to ramp up output more quickly.
The aim is for 50 percent of its discovered resources to be either sold or produced in the next 10 years.
BG shares were the top gainers among European oil and gas stocks yesterday, climbing 3.2 percent to 1,223 pence.
Last year, the energy investors’ one-time darling shocked shareholders by saying it would miss output targets. Then, in February, it had to abandon its goal of producing 1 million barrels of oil equivalent a day by 2015, blaming failed well rejuvenation efforts in Egypt and a fall in US gas prices to uneconomic levels.
The news came at a tricky time at the top of the company as long-serving former chief executive Frank Chapman retired several months early due to illness.
New chief executive Chris Finlayson, who took over at the start of 2013, set himself a more modest 2015 output target of between 775,000 and 825,000 boe per day by 2015, up from 667,000 now. He said there would be no output targets more than two years ahead in future as the company focuses on value over volume.
Oil and gas companies have a history of switching their performance measures after failing to meet existing ones, creating a degree of cynicism among investors. Earlier this year, BP also made a virtue of circumstances that have forced it to rein in its growth prospects. Other oil companies are also moving away from volume measures as meeting them gets difficult.
“We’re acutely aware of that, and I know that’s a view that can be taken,” Finlayson said ahead of his presentation to shareholders and investors yesterday. “That’s why we have been careful to show in this presentation exactly how we will deliver that value.”
Despite its recent problems and a slump in its share price in the final quarter of last year, BG’s shares still trade at a premium to their peers as a multiple of current year earnings.
Analysts put this down to its strong track record on finding new supplies, its exposure to tight LNG markets, and its position in Brazil’s potentially prolific Santos basin, where it and a handful of other companies were able to secure acreage before the government decided to limit future development to the state oil firm Petrobras. Reuters
