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BG Raises Brazil Oil Estimate as Profit Beats Forecast

BG Group Plc, the U.K.’s third-largest natural-gas producer, increased estimates for energy resources offshore Brazil and posted third-quarter profit that beat analysts’ forecasts. The shares rose to a two-year high.

Gross resources at the Tupi, Iracema, and Guara fields in the Santos Basin may be 10.8 billion barrels of oil equivalent, 34 percent more than the previous estimate, BG said today in a statement. Excluding disposals and one-time items, profit was $978 million. That compares with the average estimate of $862 million in a survey of 10 analysts by Bloomberg.

BG together with partners last week started pumping oil from the Tupi field, the biggest discovery in the Americas since Mexico’s Cantarell in 1976. Third-quarter profit gained from higher commodity prices, with liquefied natural gas operating profit rising 43 percent to $725 million from last year.

“One of the problems our company doesn’t have is finding resources,” Chief Executive Officer Frank Chapman told analysts on a conference call today. “We do not have a resources and reserves replacement issue.”

BG advanced 3.4 percent to close at 1,252 pence in London, the highest since July 2, 2008. It was the second-biggest mover on the Stoxx Europe 600 index after BP Plc, which also reported third-quarter profit today. Galp Energia SGPS SA, BG’s partner in Brazil, rose 2.6 percent to 14.26 euros in Lisbon, the highest since July 7, 2008.

Diverting Supplies

BG expects full-year LNG operating profit to exceed $2 billion, the top guidance given in February, Chief Financial Officer Ashley Almanza said on the same call. “Trading conditions in the market have returned to normal. We don’t see the unusually strong conditions that we saw in the third quarter persisting in the fourth quarter.”

In the U.S., BG was able to replace LNG supplies with pipeline gas and divert cargoes to Asian and South America, where prices were higher in the third quarter, Chapman said.

The Brazilian reserves estimate “is positive and should drive” shares in BG and Galp, Jason Kenney, head of oil and gas research at ING Commercial Banking, wrote in a report. “Investors may be concerned about upstream underperformance,” while LNG operations were “surprisingly strong.”

BG estimated its economically recoverable net resources in Tupi, Iracema and Guara now stand at 2.8 billion barrels of oil equivalent. Miller and Lents Ltd. verified the three fields’ resources, the U.K. company said.

More Investment

“We believe that there will be more additions from these fields as a better understanding of the reservoirs emerge and on the back of the recent exploration success,” Peter Hitchens, an analyst at Panmure Gordon & Co. in London, wrote in an e-mailed report.

Reading, England-based BG increased planned total investment for 2011-2012 to $18.5 billion from $16.5 billion after last week making a final decision to build a $15 billion Queensland Curtis LNG plant.

This year, the company expects to invest $9.1 billion in projects, including acquisitions, and report an $850 million exploration charge, Almanza said.

BG has invested about $2 billion so far in the Curtis gas project in Queensland, he said.

The venture faces 1,500 conditions imposed by state and federal governments to protect the environment and underground water supplies, BG said Oct. 31.

The additional project cost, which Chapman estimated at several hundred million U.S. dollars, is “significant” but in the context of the overall project “not very material.”

Kazakh, India Shutdowns

Net income rose 12 percent to $876 million in the third quarter from $782 million a year earlier, BG said. Production was little changed at 56.4 million barrels of oil equivalent (613,000 barrels a day).

“Higher production from the U.S. and the Hasdrubal field in Tunisia was offset by the biennial shutdown for extended maintenance at the Karachaganak field in Kazakhstan and the unplanned shutdown of the Panna-Mukta field in India,” BG said. The company forecast “slight production growth” this year.

Third-quarter output declined by 2.1 million barrels of oil equivalent in Kazakhstan and by 1.3 million barrels in India because of shutdowns, Almanza said. Lower production reduced earnings by about $120 million in the quarter, he said.

BG and partners completed maintenance at Karachaganak and resumed production in India, Almanza said. “We expect our exploration and production to grow very strongly and profitably over the coming years,” he said.

BG expects to sell approximately two-thirds of its North Sea gas production at an average price of around 42 pence a therm over 12 months from Oct. 1, it said.

That’s equal to $6.74 a million British thermal units. A therm is 100,000 Btus.

The rest of the fuel will be sold on the spot market, Almanza said. “The U.K. spot market has been reasonably firm,” he said.

BG currently pumps about 400 million cubic feet a day of gas in the U.S., Chapman said.

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