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Buyback speculation as BG disposals raise over pounds 1bn

BG, the former British Gas, is set to raise well over pounds 1bn from its sale of businesses by the middle of the year, far more than previously predicted. As Chris Godsmark, Business Correspondent, reports, the cash raised is likely to fuel speculation of another share buyback later in 1998.

The disposal programme, begun early last year, is understood to have raised considerably more than analysts had originally expected, largely due to BG's moves to sell off its smaller international ventures and overseas exploration and production divisions.

The company now expects to have raised between pounds 1.2bn and pounds 1.3bn from the sales by the middle of this year, compared with a figure of "several hundreds of millions" previously mentioned.

BG's top management, led by David Varney, chief executive, will give more details of the disposals when the group reports its annual results at the end of February.

The news is likely to fuel confidence in BG's prospects since its defeat at the hands of the Monopolies and Mergers Commission (MMC) last summer in its long-running battle over pipeline charges.

In recent months BG shares have risen sharply as industry analysts reappraised its prospects overseas, and as the company concentrated on ploughing investment into larger projects.

Several more deals are understood to be due in the next few months, with contracts in the final stages of negotiation. Last year saw a string of sale agreements, including part of the group's interests in Tunisia.

In November BG unveiled a deal to sell its German businesses to Verbundnetz Gas, a transmission company. The deal, thought to be worth up to pounds 100m, included stakes in a regional gas distribution company and a property and energy services group.

Although BG has privately played down suggestions that it is looking to make a further share buyback, the cash raised is likely to boost the prospects of another payout to investors the end of this year. Last year's capital restructuring handed back pounds 1.3bn to shareholders, around the same figure as the cash raised by the on-going sale of businesses.

However the group is waiting for the outcome of the government's review of utility regulation before committing itself to any investor payout. BG has been vigorously lobbying for changes to the system, to force regulators to implement the MMC's conclusions in full.

Alongside news about asset sales, BG will tell investors next month that it expects to invest about pounds 1.5bn a year in overseas projects. BG's prospects were given a huge boost late last year when the group, along with other oil and gas giants, signed agreements opening up exploration opportunities in Kazakhstan, which has huge unexploited reserves.

BG has a 32.5 per cent stake in a consortium, which includes Agip and Texaco, developing one of the world's largest oil and gas fields in West Kazakhstan. Another consortium, in which BG has a 16.67 per cent share, is developing fields north of the Caspian Sea.