BG Reports Loss for First Time Since 2000 on Egypt Charge

Feb 04, 2014 12:41 pm ET

(Updates with CFO comments in eighth paragraph.)

Feb. 4 (Bloomberg) -- BG Group Plc, the U.K.’s third- largest natural-gas producer, reported a quarterly loss for the first time since 2000 as Egyptian exports were disrupted and costs rose.

The net loss was $1.08 billion in the fourth quarter, compared with net income of $1.74 billion a year earlier, the Reading, England-based company said today in a statement. BG will write off $2.4 billion in assets in Egypt and the U.S.

Chief Executive Officer Chris Finlayson has faced hurdles to restoring value at BG, whose shares are trading 33 percent below their 2011 high. In Egypt, which accounts for about 18 percent of production, gas has been diverted away from export terminals to the domestic market amid political unrest. In Brazil and Australia, costs are rising as the company expands.

BG has to “address the near-term challenges we face in Egypt, and deliver our plans consistently and effectively,” the CEO said in the statement. “Our capital expenditure will begin to decline in 2014 and we continue to expect to be free cash- flow positive in 2015.”

The loss was the first since BG reported a 60 million-pound ($98 million) loss in the second quarter of 2000, according to its website. Profit excluding disposals and one-time items rose to $1.14 billion from $1.03 billion a year earlier, BG said.

Output Drop

On Jan. 27 BG issued a profit warning saying that “total results” for 2013 probably fell by a third to $2.2 billion. It also said output may drop to as little as 590,000 barrels of oil equivalent a day in 2014 from 633,000 barrels a day last year.

Finlayson, 57, took the helm a year ago from Frank Chapman and was charged with balancing record capital spending with lower-than-expected oil and gas production. The shares rose 28 percent last year, before plummeting in the past two weeks. They advanced 2.6 percent today to close at 1,051.5 pence in London.

BG expects annual capital expenditure of $8 billion to $10 billion in 2015 and 2016, compared with about $12.2 billion last year, and said it has “passed its peak year.” Spending will be “coming down a bit in 2014,” Chief Financial Officer Simon Lowth said today on a conference call.

The company has suffered project delays from Brazil to the North Sea and last week declared force majeure on Egyptian liquefied natural gas exports, meaning it won’t deliver on contracts.

Revised Forecast

BG has also revised its 2015 output forecast for the second time in a year, cutting its projection to 710,000 barrels to 750,000 barrels of oil equivalent a day. Exploration and production costs will rise by as much as 34 percent to $16.25 a barrel this year from last year, it said.

Profit from LNG shipping and marketing rose 3 percent last year to $2.6 billion. The company expects to generate $2.1 billion to $2.4 billion in profit from LNG operations this year and sees “similar dynamics” next year partly curbed by planned works in Equatorial Guinea and disruptions in Egypt, it said.

In Egypt, BG’s receivables for supplied gas to the domestic market dropped to $1.2 billion at the end of 2013 from $1.4 billion in the third quarter. The company’s exploration unit “encountered gas pay at a number of target horizons in the Notus well” off the North African country, BG said today. “Evaluation of these results is ongoing.”

In Latin America, the company has expanded into Colombia by agreeing to buy a 30 percent interest in the Guajira Offshore 3 Block last month, it said today.

BG, which was formed in 1997 when former state gas monopoly British Gas Plc split its exploration and production arm from its retail business, is the biggest U.K.-listed gas producer after Royal Dutch Shell Plc and BP Plc.

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--Editors: Amanda Jordan, John Viljoen