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Financial Times: Asia helps BG offset pipeline closure

By Dino Mahtani and Maggie Urry
Published: November 2 2007 02:00 | Last updated: November 2 2007 02:00

Growing demand from Asia for liquefied natural gas helped BG Group offset the closure of a key North Sea pipeline during the three months to September.

The UK-based energy exploration and production group, which makes most of its turnover from natural gas, said underlying net income for the third quarter rose 8 per cent to £368m, ahead of analysts’ forecasts.

The shares, however, fell 8½p to 881p along with the market. BG’s share price hit a record of 914p last month after the announcement of exploration success in Brazil and speculation that Royal Dutch Shell and Brazil’s Petrobras were in talks to buy the company.

Frank Chapman, chief executive, played down the takeover rumours. “There is not a single ounce of energy wasted any day thinking about this, we are out there delivering our plan,” he said.

He also disagreed with some analysts who suggested the results were buoyed by abnormal Japanese demand.

Mr Chapman insisted BG had structured supply contracts in such a way as to take advantage of higher margins at any time and anywhere in the world.

For the first nine months of the year net income was flat at £1.23bn.

Earnings per share for the third quarter rose 9 per cent to 10.9p. Including disposals and such items as non-cash adjustments on derivatives contracts, net income in the same quarter fell 9 per cent to £357m.

Ashley Almanza, finance director, said the cost of the pipeline shutdown was about £100m before tax.

Operating profit in BG’s important liquefied natural gas division more than doubled to £149m because of higher volumes and margins for cargoes diverted to Asia.

Out of 60 cargoes delivered in the third quarter, 13 were diverted to India and Asia. Demand in Japan was higher after disruption to domestic nuclear power supply.

FT Comment

*With energy experts forecasting tight global markets for liquefied natural gas over the next few years, BG should be in a sweet spot for earnings, with the capability to divert cargoes where margins are highest, such as Asia. This could add to never-ending speculation that BG is ripe for a take over, with exploration success in Brazil also holding up the share price. But, as always seems to be the case with BG, an acquisition could be dilutive to any buyer because of its pricey stock, in which case there could be some profit-taking.

Copyright The Financial Times Limited 2007

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