BG Group plc Ordinary 10p (BG.)

Company overview

BG Group (the former British Gas company minus the retail distribution arm Centrica) conducts its business via three key divisions: 1) Exploration and Production of both gas and oil. 2) Liquefied Natural Gas - the management of export and import plants 3) Transmission and Distribution - the division is the operator of major pipelines and distribution networks to industry. A previous fourth division - Power Generation – has recently (September 2010) seen the majority of its operations sold, with remaining units allocated to other group divisions. Gas accounts for approximately 70pc of overall group volumes, while oil and liquids represent the remaining 10 pc and 20 pc respectively.

HL Comment (9 February 2012)

Gas producer, BG Group unveiled a 40% rise in underlying fourth-quarter profits earlier today, aided by higher oil prices and a lower than expected tax rate. BG said the profits, which exclude one-offs and non-cash charges, were $1.48 billion, exceeding the expectations of the market. For the full year, operating profits rose by 19% to $8.2 billion in 2011, with the group seeing strong cash flow from operations, up 17% to $9.8 billion. Operating profit from the liquefied natural gas (LNG) arm during the full year rose 5% to $2.57 billion, while the company made an extra $314 million from liquefaction activities. BG said it was raising its LNG profit guidance for 2012 by over 30% to between $2.6 and $2.8 billion.

Negative Points:

• BG's profits are sensitive to changes in oil and natural gas prices, which can fluctuate significantly as a result of economic and geopolitical forces.
• BG cut its projection for U.S. shale gas output in 2015 by 58% because of lower gas prices.
• The company's operational activities can be severely disrupted by the effects of natural disasters or industrial accidents.
• The group saw a reduction in production volumes, coming largely from a fall in production from BG's UK North Sea interests, coming in at 24% below the company’s expectations.
• The group may face changing political implications as it increases its global reach. BG maintains key positions in Australia, Brazil and Kazakhstan.

Positive Points:

• The company confirmed a further $1.5 billion would be invested in its exploration programme, targeting prospects in seven countries.
• BG's base assets would continue to boost production in 2012, with additions from company interests in Bolivia, Egypt, Norway, Thailand and the UK, added management.
• In a move that expands and diversifies the group's portfolio in the US, a landmark agreement with Sabine Pass Liquefaction, secured 5.5 million tonnes pa of LNG export volumes for 20 years, and will enable BG to exceed its 2015 LNG supply target of 20 million tonnes per annum, said the company.
• BG also reaffirmed its target of growing oil and gas production at 7% per year to 2020, despite weakening U.S. gas prices that forced it to scale back shale gas drilling activity by almost 80%.
• The board has recommended a full year dividend of 23.76 cents, a rise of 10%.

Consensus:

On balance, market consensus indicates a strong buy.

All yield figures are variable and not guaranteed.

Fundamental Data

Values are quoted in the stock's local currency: US dollar.