UPDATE 3-BG ditches 2015 output target

Tue Feb 5, 2013 8:46am EST

* To miss goal of producing 1 million boed by 2015

* Q4 earnings down 29 percent

* Shares down 0.6 percent

By Sarah Young

LONDON, Feb 5 (Reuters) - BG Group has abandoned ambitions to become a 1 million barrels per day oil and gas producer by 2015 after taking stock of setbacks that have hammered its share price in the past three months.

BG, struggling to bring huge new developments in Australia and Brazil onstream, shocked the market on Oct. 31 when it forecast flat output in 2013 because of project delays and a scaling back in U.S. shale gas activities as prices there fell.

Chief executive Chris Finlayson, announcing the first set of results under his stewardship, said on Tuesday the latest downgrade to guidance was not a sign of systemic issues at BG.

"I am here to get the best possible value for the shareholders and that, at this time comes, from ... getting our short-term production right and developing our long-term projects," he said.

BG posted a 29 percent drop in fourth-quarter earnings to $1.03 billion, meeting expectations.

Its reputation as a growth stock in a world where big oil companies have been struggling to raise production has looked less solid since the October downgrade.

It said it would miss its 2015 target because its share of production from the Queensland Curtis LNG (QCLNG) project in Australia will be less than previously estimated after a deal to sell a stake to Chinese group CNOOC in October.

Lower production in 2013 because of issues at fields in the North Sea and Egypt also contributed to the 2015 target being pushed out, BG said.

It forecast 2013 production of 630,000-660,000 boed, raising the possibility it could be lower than last year's 658,000 boed. The company forecast in October output would be flat this year.

NO SACRED COWS

BG shares, down almost a fifth since October, were 0.6 percent lower on the day at 1,097.5 pence at 1320 GMT.

Finlayson said he was reviewing long-term strategy and would present the findings in May, a chance for the man who joined from Shell in 2010 and replaced long-standing CEO Frank Chapman at the beginning of this year to make his mark at BG.

"I think there is an element of 'kitchen-sinking' with the new chief executive in play. A more conservative management style tempering all of the estimates as he starts out," Santander analyst Jason Kenney said.

The downgraded forecast highlights the scale of the task facing the new CEO. The sale of the QCLNG stake in October raised funds to help pay for BG's development projects - QCLNG itself, for example, will cost $20.4 billion in total - and BG said planned capital expenditure in 2013 was $12 billion.

Analysts have said divestments in Brazil, seen as BG's crown jewels, and Australia were possible to help fund developments, something which Finlayson did not rule out.

"There will no sacred cows. Every asset will have to earn its position in the portfolio," he said.

EARNINGS LOWER

BG posted a 29 percent drop in fourth-quarter earnings, which it said were hit by the loss of a one-off $277 million tax credit from which it benefited in the 2011 period.

Earnings of $1.03 billion in the last three months of the year, compared with a company-supplied consensus forecast of $994 million. Bernstein analyst Oswald Clint said reduced taxes in the fourth quarter was the reason for the beat.

Excluding the impact of the 2011 tax credit, earnings were 13 percent lower, BG said, adding the earnings fall was because of lower volumes which offset higher realised prices and a weaker performance in its LNG business.

Earnings in the LNG business, which sells the transportable form of gas primarily to countries in Asia, were 16 percent lower because of fewer LNG cargoes being delivered combined with lower prices in the spot market.

Investec analyst Stuart Joyner said he expected to cut his forecasts on the back of the production downgrade, adding he saw risks to a pick-up in LNG earnings for this year.

BG's partner in Brazil, state-run Petrobras, posted a 53 percent rise in fourth-quarter net profit on Monday, helped by unexpected financial gains and, like BG, guided that production will be flat in 2013.

BP also published fourth-quarter results on Tuesday, beating expectations thanks to a record performance from refining.

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

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