BG drops target as profits fall

 

BG Group said weak global demand for gas, due to the recession, had forced it to cut its 2009 production target, and pushed second-quarter profits down 31 percent to 513 million pounds.

As many analysts predicted, gas producer BG has reduced its 2009 production target to about 660,000 barrels of oil equivalent per day (boepd), from 680,000 boepd.

Demand for gas is more elastic than demand for oil, which accounts for a minority of BG's output.

The miss casts doubt on BG's long-term growth plans of 6-8 percent a year, ING oil analyst Jason Kenney said.

"The cracks are beginning to appear and maybe investors should factor in 6 percent rather than 8 percent (in the) medium term at least" he said.

BG shares were down 0.8 percent at 1073 pence by 10:35 a.m., underperforming a 0.7 percent rise in the DJ Stoxx European oil and gas sector index .SXEP.

However, analysts at Citigroup said BG's "underlying growth story remains firm" and Morgan Stanley told clients to use any weakness in the shares as a buying opportunity.

Supporting this view, BG said production rose 7 percent in the quarter, compared with the same period in 2008, to 643,000 boepd, thanks to new projects coming on line. 

BG enjoys one of the strongest production growth records in the industry, with most of its bigger rivals suffering flat or falling output in recent years.

PROFITS SLIDE

Excluding one-off items and certain non-cash charges BG 's second quarter fell 37 percent to 507 million pounds, in line with an average forecast of 510 million pounds from a Reuters poll of nine analysts.

Chief Financial Officer Ashley Almanza said in a conference call with reporters that, in dollar terms, BG's second-quarter results fell 48 percent, against a 53 percent fall in net profits at rival BP , which reported on Tuesday.

BG said it was making progress on reducing costs a key theme for an industry which has seen costs double since 2004. Operating expenditure per barrel of oil equivalent produced fell 16 percent in the quarter compared with the same period in 2008.

Nonetheless, Chief Executive Frank Chapman said the company was not factoring in big cost reductions going forward, unlike rivals such as BP, which have promised investors they would force suppliers to cut prices significantly.

Despite the global drop in gas prices, BG said the average price it received for its UK gas rose 3.4 pence to 36.2 pence per therm.