BG Profit Rises to a Record on LNG Prices, Output

By Eduard Gismatullin

July 24 (Bloomberg) -- BG Group Plc, the U.K.'s third- largest oil and gas producer, said earnings surged 59 percent to a record in the second quarter because of higher prices for liquefied natural gas and increased production.

Net income climbed to 747 million pounds ($1.49 billion), or 22.1 pence a share, from 471 million pounds, or 13.8 pence, in the year-earlier period, the Reading, England-based company said today in a statement. Excluding disposals and other one- time items, profit beat analysts' estimates.

``BG has a good track record of beating the market'' consensus and ``surprising positively with exploration success,'' said Jason Kenney, an analyst at ING Wholesale Banking in Edinburgh. ``Profit-taking is possible despite the record numbers'' as oil prices slip from recent highs, he said.

BG is the largest supplier of LNG from the Atlantic Basin to Asia. It switched some cargoes from the U.S. market after Asian demand for the fuel rose following the closure of the world's biggest nuclear power plant in Japan last year. Oil prices, which were on average 90 percent higher in the second quarter compared with a year earlier, have dropped 14 percent from a record $147.27 a barrel on July 11.

Profit excluding disposals and other one-time items was 807 million pounds. That beat the 800 million-pound median estimate of seven analysts surveyed by Bloomberg.

BG fell 54 pence, or 4.7 percent, to 1,086 pence as of 9:24 a.m. in London. The stock is down 6 percent this year.

Output Disruptions

Production growth was ``held back by one-off events in the U.K. and India,'' Chief Executive Office Frank Chapman said today on a conference call.

BG lost about 2 million barrels of oil equivalent following a strike at Ineos Group Holdings Plc's Grangemouth refinery, maintenance at the U.K.'s Armada field and an explosion at the Panna, Mukta fields in India, he said.

Total oil and gas production increased 2 percent to 54.7 million barrels of oil equivalent, or 601,100 barrels a day, in the second quarter from the same period last year.

Together with its partners, BG discovered gas at the Hassi Ba Hamou field in Algeria in the quarter. It's also evaluating results from the Ververis well in the Barents Sea.

BG also had its ``seventh consecutive success'' at the Bongkot North field in Thailand. It also confirmed the ``presence of hydrocarbons in a separate structure'' to an initial discovery at the Jasmine field in the U.K. sector of the North Sea.

LNG Cargoes

BG delivered 63 LNG cargoes worldwide in the second quarter, down from 71 in the same period last year. It reduced supplies to the U.S. to 17 cargoes from 64 last year.

LNG is natural gas that has been chilled to liquid form for transportation by ship to destinations not connected by pipeline.

``Gas is in very high demand at the moment because what we're seeing in many countries in Europe is that they're using gas to fire their power stations for electricity generation,'' Mark Spelman, global head of strategy at Accenture Ltd., said.

BG is bidding to buy Origin Energy Ltd., Australia's biggest producer of gas from coal seams, for A$13.8 billion ($13.2 billion) in a hostile takeover. Origin told shareholders July 4 to reject BG's bid because it undervalues the company.

Citic Offer?

Citic Resources Holdings Ltd., a unit of China's fourth- largest oil producer, may offer as much as $10 billion for the coal-seam gas assets of Origin, Hong Kong's South China Morning Post reported, citing unidentified people.

``This is highly speculative,'' Chapman said. ``We have a very good, compelling proposal on the table, we do not believe that Origin will deliver such a compelling case to its shareholders.''

The U.K. company is offering A$15.50 in cash for each Origin share. That's 48 percent more than the closing price on April 30, the last trading day before BG made the first proposal to buy Origin, according to Bloomberg data.

``Perhaps they (BG) might be in a position when they'll have to raise their price 10-20 percent,'' Richard Griffith, an analyst at Evolution Securities Ltd. in London, said this week. ``I'll be surprised if they walked away unless they'll be asked to pay'' a ``ridiculously high price.''

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net