BG surprises investors with warning over no output growth for next year

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Oil and gas firm BG Group told investors to expect no output growth in 2013 due to project delays and other factors, prompting a dive in its highly rated share price that wiped out as much as a fifth of its value.

As BG sweats to bring huge new projects in Australia and Brazil onstream, analysts now question its ability to deliver on growth objectives beyond 2013, tarnishing the company’s standing

BG insisted its expectations for production beyond 2013 were unchanged.

“It is disappointing today but I do want to point out that our company has managed to add a huge amount of resources over the years, about a billion barrels of resource a year and that resource now resides inside the company,” chief executive Frank Chapman said.

Chapman, one of the industry’s longest serving CEOs who is due to retire next year, also pointed to a reserve replacement ratio of 200 per cent over the period since 2008 in an industry where the average is below 100 per cent.

But shares in BG, Europe’s sixth-largest oil firm, fell almost 20 per cent at one point to their lowest level for over a year.

Surprising investors with quarterly results published a day earlier than scheduled, BG said output in 2013 would be unchanged from this year, versus analyst predictions of production growth of 10 per cent and above.

The company said in February it planned to increase production to more than 1 million barrels of oil equivalent (boepd) per day by 2015 from a forecast for a 2012 year-end rate of 720,000 boepd. Yesterday’s announcement means 2013 output will be only about 660,000 barrels, but Mr Chapman said production plans beyond 2013 were unchanged.

“As a long-term investment this remains a solid company with attractive assets,” Bernstein analyst Oswald Clint said.

“People looking for production growth in 2013 are deeply disappointed, but it doesn’t warrant a 15 per cent drop in the share price.”

BG blamed the disappointing new production guidance on delays to projects in the North Sea and Brazil and a scaling back of activities in US shale gas.