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Financial Times: BG poised to raise production

By Ed Crooks
Published: February 9 2007 02:00 | Last updated: February 9 2007 02:00

Shares in BG Group, the gas producer, rose more than 4 per cent after it held out the prospect of raising production by up to 10 per cent a year over the next five years.

BG has said in the past that it expects upstream production volume growth of 6 to 10 per cent a year between now and 2012.

It said yesterday it was now “more confident” of getting towards the upper end of that range.

Royal Dutch Shell and BP, the two other – much bigger – oil and gas producers in the FTSE 100 index, have predicted growth of only about 2 per cent a year over the next few years.

BG’s production in 2006 averaged 601,000 barrels of oil equivalent – about 75 per cent of that as gas – up from 504,000 in 2005.

Frank Chapman, BG’s chief executive, said that because its gas fields were planned to have long lives, the rate at which theirproduction fell was much slower than was usual for the oil and gas industry.

The company is also growing fast in liquefied natural gas, where its profits rose 94 per cent to £352m for the year.

It expects its LNGvolumes to expand by 16 to 20 per cent a year from 2005-12.

Total profits for 2006 were up an underlying 21 per cent at £1.64bn, although fourth- quarter profits were down 18 per cent on the equivalent period of 2005, as gas prices fell.

The final dividend is lifted to 4.2p, raising the totalpay-out by 20 per cent to 7.2p.

The shares closed up 29p at 725p.

FT Comment

*Frank Chapman says the reason BG stands out is not its so much its physical assets as its people. Competitors wanting to replicate its success would need to copy its culture, its relationships, and its focus on the gas market. It would be easier simply to buy it. At 15 times last year’s earnings – compared with just 9 times for BP, for example – the shares already reflect that possibility. But such a strong production outlook provides reassurance that, although high, the shares are not yet toohigh.

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