UPDATE 2-BG to sell Comgas to Cosan for $1.8 bln

Thu May 3, 2012 3:57am EDT

* Underlying Q1 profits rise 55 pct, broadly in line with f'cast

* Capex plans rise, hits shares

* LNG profits jump on record Japanese imports

* Shares down 2.5 percent

By Tom Bergin

LONDON May 3 (Reuters) - British gas and oil producer BG Group Plc said it had agreed to sell its Brazilian gas distribution business Comgas to Cosan for $1.8 billion as it unveiled soaring first quarter profits on the back of higher oil prices and production.

BG is selling its 60 percent stake in Comgas as part of a $5 billion disposal programme to channel resources from downstream distribution and power generation assets into more lucrative upstream oil and gas production projects.

The cash raised will ease fears about BG's ability to meet the cost of bringing big fields in Brazil and Australia onstream.

The announcement of deal talks last month hit Cosan shares as investors questioned what synergies Brazil's largest sugar and ethanol producer could achieve from a deal, and its impact on Cosan's efforts to improve its debt rating.

The sale price implies a premium of around 11 percent to Comgas's closing share price on Wednesday. Royal Dutch Shell Plc owns another 18.1 percent, with around 21 percent traded on the São Paulo stock exchange.

Shell was not immediately available to comment on the deal but sources at the group previously said it had no current plans to sell its stake.

Comgas is the largest distributor of piped natural gas in Brazil with 4,000 kilometres of pipelines that deliver gas to customers in 57 cities, according to its website.

BG reported a 55 percent rise in underlying net profits to $1.27 billion, compared to an average analyst forecast of $1.26 billion, according to Reuters I/B/E/S.

Analysts said it was a good set of results, but an increase in the expected cost of an Australian LNG plant, which means BG will have to up its capital investment budget by 7 percent for 2012-2013 hit the group's shares.

BG shares traded down 2.5 percent at 1,414 pence at 0739 GMT, lagging a 0.3 percent rise in the STOXX Europe 600 Oil and Gas index.

BG said production rose 5 percent in the quarter compared to the same period in 2011, to 670,000 barrels of oil equivalent per day.

BG's result compares to falling output at rivals BP Plc, Chevron Corp and ExxonMobil Corp. Royal Dutch Shell Plc was the only one of the top tier of oil and gas groups to report higher output but its rise was only 1.4 percent.

Analysts say it is easier for a group like BG, which has output of a quarter that of its bigger rivals to boost output. However, it has also managed to spot key new oil basins such as offshore Brazil ahead of the industry leaders.

BG also benefited in the quarter from its focus on liquefied natural gas (LNG), with Japan's reduction in nuclear power production leading to record imports of the supercooled gas and price of $17 to $18 per million British thermal units.

This level is around 9 times the recent lows in U.S. gas prices, and explains BG's plans to export gas from the United States as LNG.