BG Profit Drops on Lower Oil Price, U.S. Shale Gas Writedown

BG Group Plc, the U.K.’s third-largest natural-gas producer, said profit declined by 77 percent in the second quarter on falling oil prices and a charge on U.S. assets because of lower market rates for gas.

Net income dropped to $283 million from $1.24 billion a year earlier as the company took a $1.3 billion impairment on its U.S. shale gas assets, Reading, England-based BG Group said in a statement. Excluding disposals and one-time items, earnings were $1.07 billion, near the $1.09 billion average estimate of eight analysts surveyed by Bloomberg.

Gains from a 4 percent increase in production in the second quarter, even as the Elgin and Franklin fields in the North Sea were shut, were eroded by a 7 percent drop in oil prices from a year ago. A lower gas-price estimate led to the charge in the U.S. and BG cut its rig count in the region to six from eight.

“Our efforts in the U.S. business are now focused on progressing our significant opportunities for the export of liquefied natural gas from North America to BG Group’s global customers,” Chief Executive Officer Frank Chapman said.

BG Group reduced its estimate for production at the end of 2012 to 720,000 barrels of oil equivalent a day from 750,000 barrels after output was halted at Elgin and the startup at the Jasmine field was delayed until next year.

Lost Output

“This really should have been a strong production quarter for BG” if not for the lost output from some fields, Lucas Herrmann, a London-based analyst at Deutsche Bank AG, said before the report was released. “Profit numbers will no doubt have been undermined by the fall in the oil price.”

The company is reporting on the same day as Exxon Mobil Corp., Royal Dutch Shell Plc, Repsol SA and Statoil ASA. Of the 32 analysts that cover BG Group, 26 recommend buying the shares, five have hold ratings and one advises selling the stock.

The company rose 2.1 percent to 1,246 pence in London. Shares are down 9 percent this year.

The Elgin and Franklin fields, held 14.1 percent by BG, are expected to resume output before the end of 2012, partner Total SA said in May after a gas leak shut in as much as 280,000 barrels of oil equivalent a day. This year, BG started pumping oil and gas in Norway, Egypt, Thailand and Bolivia.

The company said today it plans to give up its interest in two blocks in Nigeria and withdraw from the Olokola LNG project. BG plans to sell $5 billion in assets over two years and develop discoveries off Brazil, Tanzania and LNG exports in Australia.

Nigeria Exit

In May, BG agreed to sell its 40 percent in two gas-fired power plants in the Philippines for $360 million. BG also said it would sell its stake in a Brazilian natural-gas unit for $1.8 billion to the country’s Cosan SA Industria & Comercio.

The company booked an exploration charge of $203 million, including a $164 million write-off from Brazil’s Corcovada-1 well. It spent $224 million on exploration in the quarter.

BG may start building Tanzania’s first LNG plant as soon as it proves enough resources to make it economically viable.

The project’s partners have been drilling the Papa-1 well off the country’s coast on the prospect of adding to reserves.

“The next key well result is expected to be Papa-1,” Theepan Jothilingam, an oil analyst at Nomura Holdings Inc., said July 12. “Four onshore locations are being considered for an LNG site and more rigs are being looked to be sourced.”

Shell and BP Plc are the biggest U.K.-listed gas producers.

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