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Booming LNG demand helps boost BG Group

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Booming LNG demand helps boost BG Group

By Ed Crooks and John O’Doherty

Published: July 25 2008 03:00 | Last updated: July 25 2008 03:00

The booming liquefied natural gas market helped BG Group, the oil and gas company, almost double its earnings in the first half of the year.

Frank Chapman, chief executive, also talked about “really excellent” progress in the oil fields that the company is exploring in Brazil.

However, in spite of the strong results, which were better than expected, the shares closed 72p lower at £10.68. Analysts blamed the recent fall in the oil price and concerns that BG might be forced to raise its bid for Origin Energy, the Australian gas and electricity company.

In the six months to June 30, earnings rose from £857m to £1.6bn on revenues that increased from £4.1bn to £6.3bn. Pre-tax profit rose to £2.67bn (£1.56bn) and earnings per share increased from 26.5p to 45.3p. The interim dividend was raised 30 per cent to 4.68p.

The strongest growth in the group came from LNG. BG is the world’s biggest supplier of flexible LNG cargoes that can be diverted to wherever prices are highest, and took full advantage of that freedom to divert shipments away from the US and towards more lucrative Asian and European markets.

In the first half of 2007, it shipped 99 cargoes to the US and 24 to other international markets. In the first half of this year, those figures were reversed, with just 23 delivered to the US and 98 going to other markets, including Taiwan, Japan, South Korea and Spain.

Operating profit from LNG more than quadrupled to £367m. It now makes up more than a quarter of BG’s operating profit, whereas last year it accounted for only 10 per cent.

BG is stepping up its investment in LNG business and has placed orders for two ships, each capable of carrying 170,000 cubic metres of LNG, that will be delivered in 2010.

Operating profit from oil and gas production leapt 73 per cent to £976m, thanks to stronger prices.

Total production of oil and gas rose only 2 per cent, which the company attributed to the industrial action at the Grangemouth refinery in Scotland, and an outage at the Panna field in India, where production stalled for a month due to an explosion in early June.

However, Mr Chapman expressed confidence in BG’s growth outlook, including in Brazil, where the company has a stake in the Tupi field, which BG hopes could deliver up to 1m barrels per day from 2013.

* FT Comment

In the past four years, BG’s shares have risen four-fold, while Royal Dutch Shell’s have gone up 30 per cent, and BP’s have been flat. After such dizzying growth, it is not surprising that BG’s valuation looks stretched: it is on a multiple of 11.4 times this year’s expected earnings, according to Evolution Securities, while Shell is on 6 times and BP just 5.6 times. BG’s long-term growth prospects still look excellent and bid hopes will limit the downside. But for all their problems, the unloved super-majors may offer better value and have admirable defensive qualities in these turbulent times.

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