Third Quarter Financial Highlights
BG Group's Chief Executive, Frank Chapman said, "These results demonstrate once again the strength of BG Group's integrated gas business and this, together with current production levels around 700 000 barrels per day, up 12% on Q4 2008, provides us with confidence in the outlook for the Group's performance. BG Group has assembled an array of material, long-life projects, and we are now entering a period where we can look forward to these projects driving exceptional growth to the end of the next decade."
Third Quarter Results
Revenue and other operating income fell by 32% to £2 249 million and total operating profit fell by 38% to £856 million, as oil prices dropped by 41% and Henry Hub prices by 62% compared to the previous year. The impact of these sharply lower commodity prices was partially offset by a 5% increase in E&P production volumes, our medium term LNG sales program and a stronger US Dollar. Cash generated by operations was £1 186 million (2008 £1 198 million). Net finance costs for the quarter were £20 million after benefiting from foreign exchange gains of £20 million. As at 30 September 2009, net debt was £2 950 million and the gearing ratio of the Group was 17%.
The Group’s effective tax rate (including BG Group’s share of joint ventures and associates tax) for the full year is expected to be 42%. The current quarter’s tax charge includes an adjustment to reflect this tax rate for the first nine months. Capital investment in the quarter of £1 619 million included £605 million acquisition costs associated with the alliance with EXCO Resources Inc. (EXCO) and £90 million on the acquisition of additional equity in Block 5c in Trinidad and Tobago, and continuing investment in E&P (£724 million), LNG (£146 million), T&D (£37 million) and Power (£17 million).
Exploration and Production (E&P)
E&P total operating profit was £435 million as higher production volumes and the favorable effect of a stronger US Dollar partially offset sharply lower oil prices (down 41%) and Henry Hub gas prices (down 62%). Production for the quarter, at 56.6 mmboe, was up 5% on Q3 2008. This was around 2 mmboe below the Group's expectations for the quarter, predominantly due to a delay in the start-up of the Hasdrubal facility in Tunisia. Hasdrubal is expected to commence operations by 30 November and the impact of this delay on planned fourth quarter production is expected to be 1.2 mmboe. There are no other changes to the Group's previous production guidance. The average realized gas price per produced therm in the UK fell by 4.8 pence to 30.8 pence and International gas realizations fell by 7.8 pence to 16.0 pence per produced therm both principally due to the impact of lower commodity market prices.
For the UK gas year commencing October 2009, BG Group has sold around 60% of North Sea gas production at an average price of approximately 40 pence per therm. Unit operating expenditure was 26 cents lower at $6.65 per barrel of oil equivalent. The exploration charge of £121 million was £6 million higher than 2008. Capital investment of £1 419 million comprised investment in Americas (£906 million), Europe and Central Asia (£251 million), Africa, Middle East and Asia (£207 million) and Australia (£55 million).
In August, BG Group completed the previously announced alliance with EXCO Resources Inc. (EXCO). This alliance brings material new resources and supply to the Group’s existing US gas marketing business at a competitive price and in a prime market location. The alliance is performing well; with industry-leading initial production rates across the Haynesville Shale and progressive reductions in drilling days per well. Drilling activities are being ramped up. The partners currently have seven rigs operating and expect to add another three rigs in the fourth quarter and a further four in first quarter 2010. Gas transportation capacity of 200 mmcfd has been secured and the partners are actively pursuing additional long-term capacity to support growth in gas production.
In August, BG Group announced the delivery of first gas from the Sequoia subsea development located 90 kilometers offshore Egypt in the Mediterranean Sea. Straddling both the West Delta Deep Marine and Rosetta concessions, the Sequoia unitised development brings into production six new subsea wells, three located in each of the concessions, which will help maintain overall plateau production.
In August, BG Group concluded the drilling of appraisal wells on the Bream oil discovery in the Norwegian North Sea. The appraisal wells confirmed the extent of the reservoir and extensive data acquisition and sampling were carried out. Work is now underway to evaluate development options.
In September, the partners in the Bongkot Joint Venture announced that a Gas Sales Agreement (GSA) was signed with the Petroleum Authority of Thailand (PTT) covering all gas production from the Greater Bongkot South (GBS) field in the Gulf of Thailand. GBS first production is expected in 2012 and at plateau, it is anticipated that GBS will contribute 13 000 boed, net to BG Group.
On August 31, BG Group completed the exchange of equity interests in North Sea production assets with subsidiaries of BP plc (BP). BG Group acquired BP's entire equity in the Everest, Lomond and Armada fields and part of BP's equity in the Erskine field. In return, BG Group transferred all of its equity interests in all fields in the southern North Sea to BP. BG Group also became operator of the Everest and Lomond fields.
In October, following India's New Exploration Licensing Policy (NELP) VIII licensing round, a consortium led by BG Group (30% and operator), was the successful bidder for an exploration block (KG-DWN-2009/1) in the deep water Krishna Godavari (KG) Basin. The deep water block which covers an area of approximately 1 800 square kilometers, is located off the east coast of India. A formal communication of the award is awaited from the Government of India and subject to approvals. BG Group will own interests in three licenses in the KG Basin.
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