Stock in Focus: BG Group

Strong results and a stable competitive advantage over its peers makes this oil company an attractive bet, but political instability does threaten the top line

Allen Good 31 July, 2014 | 4:49PM

BG Group (BG.) reported a strong quarter thanks to improved liquid natural gas (LNG) results which offset a slight decline in Upstream operating profit. Total operating project rose 11% to $1,992 million as a result of a 44% increase in LNG operating profit to $749 million.

The LNG segment benefited from a mix of more cargoes and higher prices. Upstream operating profit slipped 2% to $1,231 million as improved production mix and higher oil prices failed to offset the 10% decline in production due to issues in Egypt, curtailments in the U.S., and shutdowns in Trinidad and Tobago. Thanks to Brazil, BG saw oil volumes grow to 135 million barrels per day from 96 a year before. While accompanied with higher costs, the greater realizations from oil compared with natural gas resulted in improved margins.

E&P operating margins increased to $24.10/boe from $21.65/boe last year. We expect the margin improvement to continue. Brazilian production should continue to grow and become a larger portion of the portfolio. Meanwhile, QCLNG – the world's first project to turn gas from coal seams into liquefied natural gas – remains on schedule for start-up later this year, which should also contribute higher margin production growth. QCLNG, however, also presents the biggest near-term risk for BG given the potential for a union strike that could delay start-up.

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About Author

Allen Good  Allen Good is a senior stock analyst covering the oil and gas industries.

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