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Delays are no gas for BG

Jonathan Guthrie
Wednesday, 31 Oct 2012 | 12:01 AM ET

Report in haste, repent at leisure. In pulling forward third-quarter results by a day, BG Group added to the panic inspired by the profit warning implicit in them. Announcing bad news appears to be the only task the energy group can do ahead of time. Projects from the North Sea to Brazil have been delayed. Throw in weak US gas prices and operational difficulties in Egypt and the outlook is for production to flatline in 2013.

In 2006 BG promised to raise output 6-8 per cent annually until 2020. The increase this year is expected to be no better than 3 per cent. The difficulty the group faces in delivering on its promises is that third-party operators run many of the oil and gas fields in which it has stakes - for example Petrobras at Sapinhoa off Brazil. Here, output will ramp up more slowly while the operator works on "a semi-rigid riser", which sounds like the sort of problem Pfizer might also know how to remedy.*

Such upsets may not be BG's fault. However, they show that the group's business model is less robust than hoped. So investors are switching out of BG and into resurgent rival BP. BG's market value fell £7bn this morning compared with a £5bn increase in BP's since good results on Tuesday morning

BG published its results early to coincide with the announcement of the $1.93bn sale of 40 per cent of a Queensland gas project to China National Offshore Oil Corporation. This was evidently deemed good news that would offset the bad. But analysts questioned the wisdom of selling down assets that had driven a 16 per cent jump in third-quarter earnings, even if it allowed BG to reduce hefty net debt of some $11bn.

To restore confidence, BG must show it can shape events, rather than be shaped by them.

*This article has been updated since original publication to clarify the fact that output at Sapinhoa will not cease

jonathan.guthrie@ft.com

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