BG cuts production growth forecasts

Shares in BG Group fell by a fifth after the FTSE 100 oil and gas group cut its production forecast for this year and next.

Analysts had been expecting production across BG's portfolio to hit up to 700,000 barrels of oil equivalent a day for 2012.

But the company said on Wednesday that it expected production rates to average just 3 per cent more than last year's figure of 641,000 boe/d with the outlook for production growth flat in 2013.

The company attributed the slide in the production outlook to a series of deferrals or delays on projects in the North Sea, USA, Egypt and Brazil. It added that production expectations in 2014 and beyond, by which time BG expects to benefit from the start of production in Queensland, were unaffected.

Broker Cazenove said the revised forecast of 3 per cent production growth in 2012 was a modest fall below previous expectations of a 5 per cent drop. "More importantly, and clearly a major negative surprise, management has given its first 2013 production guidance, indicating 'in line with 2012'. This is well below consensus and our forecast of 11 per cent [rise]," it said.

The downbeat assessment of likely production comes as BG is entering the final stages of a $20.4bn capital spending project at its Curtis Island liquefied natural gas project in Queensland, Australia which has put pressure on the company's balance sheet.

The guidance, which came in a third-quarter results statement issued a day ahead of schedule, coincided with confirmation by BG that it had provisionally agreed the $1.93bn sale of interests in the project centred on Curtis Island.

The sale, which gives the Cnooc a 40 per cent equity stake on one of BG's liquefaction plants and also gives it a 25 per cent share in some of the project's production licences, also secures the Chinese group an additional 5m tonnes a year of LNG for 20 years in a deal that runs from 2015.

Terms of the supply deal, which extends BG's total committed LNG sales to China from 3.6m to 8.6m tonnes a year remain undisclosed. The deal will make the company the largest supplier of LNG to the world's fastest growing energy market.

The sale is one of several disposals that will reduce BG's balance sheet liabilities by $7.6bn as it seeks to navigate its large capital expenditure costs required by Curtis Island and its investment in developing deep offshore oilfields in Brazil with its co-venture partner Petrobras.

That compares with an original target of $5bn set to be completed over 2012 and 2013.

BG's chief executive Sir Frank Chapman said: "Our agreement today to sell an interest in part of the [Curtis Island] project to Cnooc means that we have now completed or reached asset sales agreements that should release a total of $7.6bn of capital by mid-2013, with a material benefit to the group's balance sheet."