How BG Group Has Fared During 2012

Published in Company Comment on 19 December 2012

After a promising start BG Group (LSE: BG.) has had a difficult 2012.

BG Group (LSE: BG) has dropped 25% to 1,031p in 2012, making the share one of the year's more disappointing performers in the FTSE 100 (UKX). During the same time, the blue-chip index has gained 4%.

Natural gas explorer and FTSE 100 stalwart BG Group is a major player in the global energy market, with interests in 25 countries on five continents. But will it be a victim of its own success? As it looks to expand its exploration blocks even further, it is selling assets in order to raise capital -- to the tune of £5 billion.

But this year has left BG Group investors with little to sing about.

In May, BG Group closed its first quarter, and reported that its total operating profit was up 21% to USD $2.4 billion and a 54% increase in earnings per share (to 37.3c from 24.2c). The company also reported new projects onstream in Norway, Thailand, Bolivia and Egypt -- and confirmed a fourth gas discovery in Tanzania.

BG Group's chief executive Sir Frank Chapman commented:

"This year we have brought key new developments into production, continued to make material progress across our major projects, and we announced further exploration success. Four of our 2012 projects were successfully brought onstream and began production build-up."

The production build-up is key to BG's long-term success, as Sir Frank explained:

"These new sources of production will [help to] keep us on track to deliver our 6% to 8% annual average growth rate through to 2020."

In July, at the halfway mark of its fiscal year, BG Group was showing some success in selling down assets to fund exploration and keeping the business more or less on track. The company posted a 21% increase in cash flow from operations, but operating profits dipped 8% to USD $2 billion largely due to increased exploration and production costs. However, BG Group hiked its interim dividend 11% to 11.88c per share.

Sir Frank commented that, despite slow going in the important Brazil developments:

"I am pleased that during the quarter we have continued to generate strong cash flow; bring new resources onstream; and make material progress with our major growth projects in Brazil and Australia; alongside delivering further exploration success."

Closing its third quarter in October, BG Group continued on its plan to sell down assets and reported it had inked a deal to sell certain assets in its Queensland Curtis project to CNOOC for $1.93 billion. The deal is set to finalise in the first half of 2013. However, the market was very disappointed by the revelation that BG Group isn't expecting to see any growth in production in the next year, which sent shares down more than 12% on the day.

This sets a difficult stage for new chief executive Chris Finlayson, who joined BG Group from Royal Dutch Shell two years ago and will step in after Sir Frank's planned retirement on 1 January.

No doubt, investors are anxiously waiting to see how Finlayson handles the further sale of assets for this big blue chip -- and how he addresses the concerns about slow project development in Brazil as well as production growth in 2014 and beyond.

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> Jill does not own shares in any company mentioned.

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