BG Cites Strong Revenue Growth, E&P Volumes in Third Quarter
BG Group has provided its third quarter results, which were driven by higher E&P volumes, strong LNG performance and higher prices.
Revenue and other operating income increased by 78% to £3 291 million, reflecting higher commodity prices and E&P volumes and the translation effect of a stronger US$.
Total operating profit increased by 106% to £1 383 million primarily due to higher E&P volumes, continued strong performance in LNG and higher commodity prices. At constant US$/UK£ exchange rates and upstream prices, underlying total operating profit would have increased by 36%. Net finance income was £19 million higher due to increased cash balances and the translation effect of the US$/UK£ exchange rate on US$ cash balances.
The Group's effective tax rate (including BG Group’s share of joint ventures and associates tax) was
43% for the quarter. Cash generated by operations increased by £425 million to £1 198 million. Capital investment in the quarter of £730 million comprised investment in Africa, Middle East and Asia (£329 million), Europe and Central Asia (£211 million) and Americas and Global LNG (£190 million).
Third Quarter Business Highlights
In October, BG Group and QGC announced that they had agreed the terms of a recommended transaction under which BG Group will acquire all the issued shares in QGC at AUD$5.75 per share by means of an unconditional on-market offer. BG Group's consideration to increase its ownership of QGC to 100% will total some AUD$5.2 billion (£2.0 billion).
The acquisition of QGC enhances BG Group's global gas strategy, builds on existing Australian domestic and export interests and provides both material Asia Pacific gas resources and Pacific Basin LNG supply. Based on success in proving up reserves, and anticipated on-going progress with reserves, BG Group now expects to sanction a 7.5 mtpa, two-train, first phase to the LNG project in 2010. Since the start of the year, QGC's 3P reserves(i) have more than doubled to 8 200 PJ (ca. 7.5 tcf), including Sunshine Gas and Roma Petroleum.
As at the end of trading on ASX on 4 November 2008, BG Group had obtained majority control of QGC, with a relevant interest(ii) in more than 490 million shares representing at least 51.7% per cent of the issued share capital of the company.
Separately, BG Group and AGL Energy Limited (AGL) have entered into an option agreement under which AGL has the right to acquire certain QGC assets subject to BG Group acquiring at least 50.1% of QGC's issued share capital:
- 100% of the Lacerta gas field and a 15% interest in the Polaris gas exploration license for consideration payable to BG Group of AUD$856 million plus capex and working capital adjustments;
- The 140 MW Condamine combined cycle power station project currently under construction, together with an associated gas supply contract. The exercise price will be the higher of the total costs paid up to completion or the fair market value to be determined by an independent expert. In September, BG Group's offer to acquire all of the issued shares in Origin Energy Limited lapsed.
E&P total operating profit increased by 112% to £917 million reflecting higher commodity prices, increased production volumes and the translation effect of a stronger US$. Production volumes increased by 11% against 2007 when production was reduced by the temporary closure of the CATS pipeline.
Unit operating expenditure increased by 86 pence to £3.59 ($6.91) per boe principally due to the impact of commodity prices on royalty costs and transportation tariffs.
The exploration charge of £115 million is £13 million higher than 2007.
For the UK gas year ending 30 September 2008, BG Group realised an average contract price on North Sea gas production of 34 pence per therm, in line with expectations. Following the cessation of a number of legacy contracts, for the current UK gas year, BG Group expects to sell around 60% of North Sea gas production under contracts at an average price of approximately 55 pence per therm.
Capital investment of £615 million included expenditure in Tunisia (£138 million), Egypt (£128 million), UK (£105 million), Kazakhstan (£77 million), Trinidad and Tobago (£40 million), Brazil (£27 million), India (£22 million), Canada (£19 million), Norway (£17 million) and Oman (£15 million).
In August, BG Group announced a material new oil discovery in the pre-salt Santos Basin, offshore Brazil. The exploration well, known as Iara, discovered oil within the BM-S-11 concession area (BG Group 25%). Gross recoverable volumes are currently estimated to be between 3 and 4 billion boe. This well is BG Group's sixth consecutive drilling success in the deep water, pre-salt Santos Basin since BG Group and its partners began their drilling program in 2005. BG Group and its partners have submitted an Evaluation Plan to the National Petroleum Agency with future appraisal and investment plans for Iara.
In September, following the drilling of an appraisal well, a significant increase in the potential of the West Franklin field (BG Group 14.11%) in the UK was discovered. Gross reserves are now estimated at close to 200 mmboe with additional drilling.
In Norway, the Jordbaer (BG Group 45% and operator) exploration well was a discovery. Technical analysis of well results continues. This discovery is regarded as a strategic play opener, given a number of analogous prospects in the vicinity.
In September, BG Group signed an agreement, with the Egyptian Government to increase the domestic gas pricing for production from the Rosetta and West Delta Deep Marine offshore concessions.
LNG total operating profit increased by £218 million to £367 million. Shipping and marketing performed strongly with total operating profit increasing by £221 million to £351 million. The market for LNG remained strong and BG Group utilized its flexible portfolio to access high value markets.
BG Group's share of operating profit from liquefaction activities increased by £3 million to £36 million
principally due to the impact of increased market prices. Capital investment in the quarter included £32 million in Chile and £16 million relating to LNG vessels.
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