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The Times: BG’s range of assets make it a long-distance runner

January 29, 2008
Nick Hasell: Tempus

It may be Shell that kicks off the full-year reporting season of the oil majors this week, but it is likely to be BG Group’s numbers – due the following Thursday – that are more eagerly awaited.

Whereas shares in BP and Shell have remained virtually flat over the past 12 months – respectively falling and rising 3 per cent – those of the exploration arm of the old British Gas have surged 54 per cent, leaving them more vulnerable to disappointment.

That BG has so far outpaced its bigger integrated peers owes much to November’s discovery of the Tupi field off the coast of Brazil. On the initial estimates of Petrobras of recoverable reserves of between five billion and eight billion barrels of oil and gas, Tupi – which is operated by the Brazilan group but is 25 per cent owned by BG – is the world’s biggest new find since Kazakhstan’s Kashagan strike at the start of this decade.

The problem for BG investors is that, although the company is set to provide an update on Tupi next week, it will be many years before it provides a return – at least five years on present forecasts, with some observers not expecting peak production until 2020. The Santos Basin off Rio de Janeiro in which Tupi lies had been previously unexplored for good reason: the oil sits beneath 2km of water and a further 2km of rock.

However, whereas Cairn Energy is synonymous with India and Tullow Oil with Africa, BG’s strength lies in the diversity of its portfolio, which means that the inevitable setbacks to the development of Tupi should not derail it.

The North Sea remains a significant producer of revenue, as does India and Egypt. In Tunisia, BG is likely to be supplying more than half the country’s gas in three years’ time, while in Kazakhstan it is the joint operator of the Karachaganak pipeline, a conduit to the Black Sea and world markets. It also has assets of growing importance in Norway, Oman and Nigeria.

However, it is BG’s position in liquified natural gas that should provide the greatest support to the shares until Tupi reaches its potential. Here, BG, through its assets in the Atlantic and Asia, appears better placed than any of its European peers.

That spread of businesses – promising to come to maturity at different times – suggests that, even at £10.22, or a full-looking 16 times current-year earnings, BG is a solid long-term hold.

http://business.timesonline.co.uk/tol/business/markets/article3267447.ece

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