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Financial Times: Asian LNG demand helps BG exceed forecasts

By Dino Mahtani
Published: February 8 2008 02:00 | Last updated: February 8 2008 02:00

Higher demand for liquefied natural gas in Asia helped BG Group beat analysts’ forecasts with a 36 per cent increase in fourth-quarter profits.

Excluding disposals and other one-off items, the group earned £558m in the fourth quarter, 8 per cent higher than expected. Pre-tax profits of £850m were 7.5 per cent higher than the same period a year ago.

Full-year pre-tax profits dipped 7.5 per cent to £3.03bn, in part because of disruption to a North Sea pipeline. However, profits excluding disposals and one-off items were up 9 per cent to £1.78bn, driven by higher margins for gas. The full-year dividend is lifted 30 per cent to 9.36p.

Year-end production was almost flat at 604,000 barrels of oil equivalent per day. The company said it was narrowing its production growth profile to between 6 and 8 per cent between 2005 and 2012, from a previous estimate of up to 10 per cent, but was confident enough to extend this growth projection to 2020.

“No other oil company has committed to such a long-term rate of production growth,” said Fred Lucas, an analyst at Cazenove.

The new 2020 projection is based on the company’s expanding global portfolio, but will also be driven by its 25 per cent share of the giant Tupi discovery in Brazil. Royal Dutch Shell and BP, Europe’s two biggest oil and gas companies, only have production growth rates of up to 2 per cent over the next few years.

BG upgraded its estimate of the total reserves in place at Tupi to between 12bn and 30bn barrels of oil equivalent, up from between 1.7bn and 10bn.

Analysts said the market would overlook BG’s relatively low reserve replacement ratio of 54 per cent in 2007. “BG Group is now all about Tupi in our view,” said Jason Kenney at ING.

FT Comment

*BG shares, up 41p to £11.18 yesterday, are valued at about 17 times 2008 forecast earnings – a 70 per cent premium to other European integrated oil and gas companies. This is mainly because of takeover speculation and its ability to beat expectations. Much depends on whether key assets come good as its main prospect, Tupi, is a complicated field.

Copyright The Financial Times Limited 2008

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