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UPDATE 3-BG Group shares plunge after Egypt turmoil hits earnings outlook

* Production this year to be as much as 11 pct below f'casts

Also cuts 2015 production forecast as much as 14 pct

* Costs per unit to rise due to project investments

* Project off UK coast to ramp up more slowly than expected

* Shares drop as much as 15 pct to lowest in nine months

(Rewrites first paragraph, adds CEO and investor comments, background)

By Sarah Young and Chris Vellacott

LONDON, Jan 27 (Reuters) - Oil and gas firm BG Group warned that turmoil in Egypt would hit its output this year and next, weighing on future earnings and sending its shares plunging 15 percent.

BG said in a surprise statement on Monday production this year would be as much as 11 percent lower than analysts were expecting, and potentially 7 percent behind 2013 output. It also cut its 2015 production forecast by as much as 14 percent.

"It's a blood bath," said Santander analyst Jason Kenney. "I think we're looking at a 15 percent cut in earnings (forecasts) for 2015."

The group is not the only energy company struggling to grow. Larger rival Shell earlier this month issued a profit warning, while Chevron Corp, the second-largest U.S. oil company, has also warned it will likely miss forecasts.

BG also warned costs per unit will rise due to investment in new projects in Australia and Brazil, while a project off the British coast would ramp up more slowly than expected and its entitlement to output in Trinidad and Tobago would decline.

The developments add up to the latest in a series of disappointments from BG and heap pressure on a mostly new management team. Chief Executive Chris Finlayson took over a year ago and Financial Director Simon Lowth joined in December.

"If it was just Egypt, I wouldn't worry. They haven't really delivered anywhere else. That's the problem," a top 40 investor in BG told Reuters.

"These guys seem permanently over-optimistic," the investor said. "We thought the new chief executive would be prudent in what he said and he has been found wanting a bit. That can be only described as disappointing."

FORECASTS CUT

Over the past 18 months, BG has cut its output forecasts three times, including abandoning a goal to produce 1 million boed (barrels of oil equivalent per day) by 2015, and will have posted two straight years of falling production before output growth is restored in 2015.

BG's woes in Egypt will have effects across its business, impacting the profitability of its LNG unit and increasing its costs per unit of production by around a third this year.

BG, which counts on Egypt for about a fifth of its production, said the government there had not honoured agreements covering BG's share of gas from fields, with high levels of gas being diverted to the domestic market.

This had prevented BG from meeting export obligations for an Egyptian liquefied natural gas (LNG) project and as a result it had served so-called "force majeure" notices to affected buyers and lenders, effectively freeing all sides from contract terms due to circumstances beyond their control.

For 2013, BG said earnings would fall 33 percent to around $2.2 billion due to a $2.4 billion post-tax impairment charge to reflect the difficult operating environment in Egypt, as well as lower future gas prices in the United States.

Excluding impairment charges, BG said 2013 earnings would come in at around $4.4 billion, ahead of a company-supplied analyst forecast of $4.2 billion. It is due to report fourth-quarter and full-year results on Feb. 4.

"Despite the good progress we have made in 2013 we face short-term issues which are reflected in our revised 2014 guidance. This is very disappointing," Finlayson said.

BG shares were down 14.8 percent at 1,069.8 pence by 1202 GMT, having fallen to a nine-month low of 1,050.05p.

PORTFOLIO CHANGES

The company reassured on the progress of its projects in Australia and Brazil, which should will help lift output from 2015, and Finlayson denied the downgrades to its medium-term outlook would force BG to speed up potential divestments.

Analysts have long said BG could look to sell stakes in its Brazilian and Australian assets to raise funds, and last May in a strategy update, the company's first under Finlayson, he confirmed BG would look to actively manage its portfolio.

"We have a number of potential portfolio changes currently under investigation ... but I'm not going to talk about them individually and we are definitely not pushed by today's announcement into having to consider anything either faster or broader than what we were considering anyway," Finlayson said.

BG said U.S. production would fall by around 25 percent in 2014, the same drop as last year, as prices for gas there made it uneconomic to produce as much from its shale resources.

Egypt, BG's largest single-country asset by production which accounted for 18 percent of output in 2013, has undergone a prolonged period of political and civil unrest since the toppling of long-running president Hosni Mubarak in 2011.

Last year Egypt struck a deal with BG to cap and gradually reduce diversions of gas to the domestic market, but an unexpectedly cold winter in Egypt and demand from the country's industrial sector raised domestic demand for gas and forced the government to divert more gas away from the LNG plant.

Another LNG plant in Egypt, Damietta, jointly owned by Spain's Gas Natural and Italy's Eni, has been idle since last year after also being affected by diversions of gas to Egypt's domestic market.

Like most big oil companies, BG is also facing pressure to hold down spending as costs rise and prospects for oil prices wane. But it said lower than expected production this year, combined with increasing production from fields in Brazil and Bolivia where royalty payments are due, mean its unit costs would jump in 2014.

Unit operating expenditure this year is expected to be in the range of $15.50 to $16.25 per barrel of oil equivalent, between 27 and 34 percent higher than in 2013.

(Additional reporting by Oleg Vukmanovic and Maggie Fick; Editing by Mark Potter and David Holmes)

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