BG earnings reveal greater stability vs oil majors

BG Group's business mix promotes greater earnings stability in this downturn compared to integrated oil majors

Allen Good 3 August, 2009 | 1:14PM
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BG Group reported earnings this week that illustrated its greater earnings stability in this downturn compared to the integrated oil majors, due largely to its different business mix. Earnings for the second quarter were down 37% from the same period a year earlier. Through the first half of the year earnings were down 25% from the first half of 2008. While the exploration and production segment earnings took a hit because of lower commodity prices, losses were partially offset by a 7% year-over-year production gain. Production will likely continue to expand, as the company expects to meet its targeted 6%-7% production growth for the year. The LNG (liquefied natural gas) segment produced profits that were largely independent of oil and gas prices. Earnings for the LNG segment declined 15% for the quarter compared with a year ago but ended up 17% for the first half of 2009 compared to 2008. Term sales, hedging programmes, and strong performance in Egypt helped to buoy earnings. In the second half of the year earnings for the segment will likely dip as the mix of contracts and supply arrangements change, but the company still expects to achieve its earlier guidance for the segment of £1.4 billion.

BG Group's large resource base should provide room for additional production growth over the longer term. Progress continues in Brazil and the company expects production from Tupi by the end of 2010. The LNG business also continues to grow. Recently, it struck an agreement with Chinese oil company CNOOC for a 20-year supply contract.

Allen Good is a Morningstar stock analyst based in the United States.

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

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