BG Group Plc, the second UK oil and gas producer to issue a profit warning this month, said output will drop this year as political turmoil cuts exports from Egypt and other projects are delayed. The shares plunged.
Production in 2014 is expected drop as much as 10 percent from last year’s 590,000 to 630,000 barrels of oil equivalent a day. Earnings for 2013 are expected to decline 33 percent to $2.2 billion, or about 65 cents a share, BG said today in a statement ahead of a scheduled earnings announcement on Feb. 4.
The shares fell as much as 16 percent to 1,050.5 pence in London trading, the biggest decline since October 2012. They traded at 1,062.5 pence at 11:10 a.m. local time, erasing about $10.6 billion of the company’s value.
Today’s profit warning shows the difficulties faced by CEO Chris Finlayson, who took the helm a year ago, to restore value after earlier reductions in output targets in 2012 weighed on shares. Royal Dutch Shell Plc, Europe’s biggest oil and gas company, also said this month that fourth-quarter profit will be lower as production slumps.
“There is a lack of confidence in 2014 and 2015,” Jason Kenney, an analyst at Banco Santander SA in Edinburgh, said today by telephone. Egypt and lower production in the U.S. combined with rising costs will curb earnings about 15 percent in the next two years, he said.
The Reading, England-based company also lowered today its 2015 output forecast to between 710,000 barrels and 750,000 barrels of oil equivalent a day, down from 775,000 barrels to 825,000 barrels a day it announced in May. The company plans to write off $2.4 billion in assets in Egypt and the U.S., when it reports fourth-quarter earnings next week.
“Despite the good progress we have made in 2013, we face short term issues which are reflected in our revised 2014 guidance,” Finlayson said in the statement. “This is very disappointing.”
The company is facing delays getting projects in Brazil and the North Sea up to full production, while it cut extraction in the U.S. because of lower natural gas prices.
Political unrest has affected output in Egypt, which accounts for about 18 percent of BG’s production, as gas is diverted away from export terminals to the domestic market. BG said today it will declare force majeure, meaning it won’t deliver on contracts to provide LNG.
BG expects to generate $2.1 billion to $2.4 billion profit from liquefied natural gas operations this year, it said today. That’s below the $2.6 billion expected by RBC Capital Markets in London.
The company expects costs to rise as its expands projects off Brazil and prepares to start LNG production at its Queensland plant in Australia in the fourth quarter this year.
BG “is guiding for a sharp increase in unit operating expenditure” by as much as 34 percent to $16.25 a barrel this year, Bertrand Hodee, an analyst at Raymond James in Paris, said in an e-mailed report. That’s “probably the most negative point in today’s announcement.”
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