We think BG Group will deliver attractive returns

MORNINGSTAR VIEW: BG's latest earnings show reslience in the face of falling prices; we think attractive returns are on the cards

Allen Good 6 November, 2009 | 11:12AM

BG Group reported a 39% drop in third-quarter earnings from the same period a year ago despite a greater drop in oil and gas prices during the same period. Production gains during the quarter of 5% over a year ago helped to offset the decline in earnings for the exploration and production segment. However, production fell 2 million barrels of oil equivalent short of the company's targets because of delays in the startup of the Hasdrubal facility in Tunisia. LNG segment earnings fell only 17% year-on-year, thanks to the company's medium-term sales programme.

Despite the miss in the production targets, the quarterly results demonstrated the resilience of BG's earnings in an environment of falling commodity prices. However, management's update on the company's key projects held more interest for us.

Foremost is the development progress of BG's position in the Brazilian pre-salt offshore discoveries. During the quarter, the company announced the Guara discovery holds estimated recoverable volumes of 1.1 billion-2.0 billion barrels oil equivalent. As a result, the partners will prioritise development of the discovery with first production targeted for 2012.

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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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