BG Group's Profits Slide in 2Q, E&P Volumes Up Year-on-Year
Commenting on the energy group's second quarter results, BG's Chief Executive Frank Chapman said, "These results demonstrate a resilient performance and rapid progress with the development of our business. In Brazil, we continue to make excellent progress across our pre-salt developments. Our agreement with CNOOC adds further impetus to our plans to establish two LNG trains in the first phase of development of QCLNG in Queensland. Our alliance with EXCO Resources in the US gives us substantial competitively priced resources in the heart of the world's largest gas market."
Revenue and other operating income fell by 28% to £2 317 million and total operating profit fell by 32% to £972 million as oil prices dropped by 52% and Henry Hub prices by 66%. The benefit of increased E&P production volumes and a stronger US Dollar partially offset the impact of these sharply lower commodity market prices.
Cash generated by operations was £988 million. Net finance costs for the quarter were £41 million and as at 30 June 2009, net debt was £2.1 billion, resulting in a gearing ratio of 14%. Capital investment (including acquisitions) was £1 182 million and comprised investment in E&P (£908 million), LNG (£231 million), T&D (£36 million) and Power (£7 million).
Total operating profit of £2 247 million was 21% lower due to the halving of commodity prices and a higher exploration charge, partially offset by a strong performance from the LNG segment, the recovery of past gas costs at Comgás, in Brazil, and the effect of a stronger US Dollar.
Net finance costs were £88 million (2008 £7 million) reflecting the effects of increased capital investment and lower interest received on cash balances.
The Group's effective tax rate (including BG Group’s share of joint ventures and associates tax) was 42.5% for the half year. Cash generated by operations was £2 380 million.
Capital investment (including acquisitions) in the half year was £2 493 million and comprised investment in E&P (£2 083 million), LNG (£335 million), T&D (£65 million) and Power (£10 million). Capital expenditure for the year, including acquisitions, is expected to be around £5.4 billion. The Board has declared an interim dividend of 5.62 pence per share, payable on September 11 to shareholders on the register at August 7.
Exploration and Production (E&P)
E&P total operating profit was £490 million as an increase in production volumes and the positive effect of a stronger US Dollar partially offset the sharp fall in oil prices (down 52%) and Henry Hub prices (down 66%). These falling prices reflect the global economic downturn, which has this quarter been evident in weaker gas demand in a number of BG Group's markets.
However, in the second quarter, BG Group's new production combined with actions to mitigate demand weakness contributed to production rising by 7% year-on-year. Production is expected to continue to rise through the year and BG Group anticipates a fourth quarter average production rate in excess of 700 000 boed. Attainment of BG Group's 2009 production target of 680 000 boed is therefore expected
to be achieved over the 12 months to March 31, 2010, one quarter later than originally planned.
Annualized growth in production in 2009 is expected to be between 6-7%; BG Group's long-term production growth target remains 6-8% per annum as set out in BG Group’s 2009 Strategy Presentation. The average realized gas price per produced therm in the UK rose by 3.4 pence to 36.2 pence. International gas realisations were 19% lower at 16.5 pence per produced therm mainly due to the effect of sharply lower Henry Hub and oil prices.
Unit operating expenditure fell by 16% to $5.42 per barrel of oil equivalent.
The exploration charge of £130 million included a £52 million non-recurring charge relating to the write-off of certain exploration properties.
Capital investment in the quarter of £908 million comprised investment in Africa, Middle East and Asia (£546 million), Americas (£153 million), Europe and Central Asia (£152 million) and Australia (£57 million).
E&P total operating profit of £1 073 million was 44% lower due to reduced commodity market prices and a higher exploration charge, partially offset by higher production volumes and favorable US$/UK£ exchange rates.
Unit operating expenditure fell by 9% to $5.44 per barrel of oil equivalent.
Average UK gas price realizations rose by 39% to 50.3 pence per produced therm. International gas price realizations were in line with 2008.
The exploration charge of £307 million was £116 million higher than 2008, principally due to increased exploration activity and the impact of the US$/UK£ exchange rate.
Capital investment in the half year of £2 083 million comprised investment in Africa, Middle East and Asia (£905 million), Australia (£568 million), Americas (£318 million) and Europe and Central Asia (£292 million).
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