BG Group reported third-quarter profits up by 106 per cent to £1.38bn yesterday, joining the growing list of energy companies bucking the economic gloom with vast profit growth.
A string of drilling successes, strong demand for liquefied natural gas (LNG) and high energy prices all played a role in pushing revenue up by 78 per cent to £3.29bn and earnings per share up by 113 per cent to 23.2p. Frank Chapman, the BG chief executive, said: "We have confidence in the potential of the portfolio to sustain between 6 and 8 per cent compound annual growth in the period from 2005 right out to 2020."
BG Group is the second major energy company to hold off on planned investment in the expectation that project costs will come down as commodity prices slide and global recession threatens. Last week, Shell announced delays to a Canadian oil sands venture.
BG said yesterday that the third phase of investment in the Karachaganak field in Kazakhstan will be spread, to avoid spending at the top of the cycle. "Karachaganak was to make a commitment for quite a large, capital-intensive project right now," Mr Chapman said. "But we think there is going to be significant fall in cost structure of projects and what we are doing is driven by sensible capital discipline – why commit to do something today when it can be done more cost-effectively tomorrow?"
Mr Chapman defended his company against the charges of profiteering that have dogged energy companies. "We are a price taker not a price fixer and our realised gas prices have been about half of the average market price over the last year," he said. "We supply the majority of our gas under long-term contracts with realisations in the last quarter of 35p per therm, and over the year at 34p per therm, relative to spot gas prices of up to 100p per therm."
BG's exploration and production division is a stellar performer. Operating profits shot up by 112 per cent to £917m as production volumes grew by 11 per cent year on year. Brazil's deep-water Santos Basin is a key contributor, with another two discoveries of potentially large fields this year – taking the total to eight – pushing BG's net share of reserves to more than 3 billion barrels of oil equivalent (boe). The gross reserves estimate for West Franklin in the North Sea has also been upgraded, and the discovery of the Jordbaer reserve in Norway is seen as a strategic opener for other analogous prospects in the area.
Gas resources are also sharply growing. Coal seam gas 3P (proved plus probable plus possible) reserves in Queensland, Australia, have also more than doubled since January and total 2P (proved plus probable) reserves are now expected to rise by more than 2 billion boe, or 60 per cent, this year.
BG's LNG division is also doing well, with operating profits up by 146 per cent to £367m in the third quarter, pushing the company's full-year and 2009 guidance up to £1.4bn and £1.3bn respectively. BG plans to buy Queensland Gas Company for A$5.2bn (£2.3bn), to establish an Australasian base to serve the growing Asian LNG markets.
The group's share price rose 8 per cent to 979.5p.Reuse content