BG disappoints with meagre dividend

BG, the UK oil and gas explorer which makes more than half its money from the North Sea, disappointed investors yesterday by failing to match the dividend payouts of its bigger rivals.

BG, the UK oil and gas explorer which makes more than half its money from the North Sea, disappointed investors yesterday by failing to match the dividend payouts of its bigger rivals.

Despite raising its production targets, earnings guidance and capital investment programme to reflect what BG claimed were the company's "outstanding" long-term growth prospects, the dividend was raised by only 12 per cent for the final quarter, compared with BP's increase of 26 per cent and Shell's pledge to lift dividends this year by more than one-third.

Frank Chapman, BG's chief executive, denied that its dividend increase was "pedestrian" but argued anyway that the company was not a yield stock like the oil majors but a "high growth stock".

Net profits for the year rose by 18 per cent to £904m - again significantly below the 38 per cent and 26 per cent increases announced by Shell and BP. The company said that its earnings had been depressed by the fact that it accounts in sterling when oil and gas are traded in dollars. This meant that the weakness of the US currency had lowered reported profits. In addition, the price of gas has risen less steeply than that of oil in the past 12 months.

But BG comfortably outperformed both its bigger rivals in terms of its success in replacing the oil and gas that it pumps. Its reserves replacement ratio last year, even on the stricter definition demanded by the US Securities and Exchange Commission, reached 126 per cent compared with BP's 89 per cent and Shell's 30 to 40 per cent.

BG is raising its production target for next year by 9 per cent to 580,000 barrels of oil equivalent on the strength of increased North Sea output and new projects in India, Canada and Egypt. UK production will grow by 20,000 barrels a day, helped by the Buzzard field coming on stream at the end of next year.

Investment meanwhile is forecast to reach £3.6bn over the next three years - £600m more than BG's previous estimate. The company has also lowered the bar for judging whether projects are commercial or not by testing them against an oil price of $20 to $28 compared with its previous range of $16 to $22.

The company said it was aiming for "considerably higher" earnings growth in the periods to 2006 and 2009 but declined to give figures.

Mr Chapman said BG had the scope to grow more quickly in developing parts of the world such as Nigeria and Trinidad because, unlike the world's oil majors, its size made it "unintimidating" for local partners.

BG is also in the early stages of assessing whether it would be worthwhile going ahead with a liquified natural gas project in Iran. But company sources later played down the chances of this happening.