By Andrew Callus
LONDON, July 26 International gas and oil
producer BG Group Plc said civil unrest and leadership
change in Egypt had led it to review further investments in the
country, as it reported a 3 percent fall in second quarter net
The UK-based international gas producer depends on Egypt for
about a fifth of its production - a source of revenue for its
expensive new projects in Brazil and Australia.
But its offshore Egyptian reservoirs are suffering decline,
and the country is gearing up to consume more gas at home,
increasing the possibility that BG might have to shut part of
its two Liquefied Natural Gas (LNG) export operations there.
Meanwhile the ousting of President Mohamed Mursi by the
military earlier this month and the fact BG is owed $1.3 billion
by Egypt for domestic gas sales - up from $1.2 billion in the
first quarter - have heightened the company's anxiety about
investing in the country.
"Events in Egypt remain a primary concern and will continue
to be so as the political, social and business environment
evolves," said BG chief executive Chris Finlayson in a results
statement on Friday.
"While our offshore operations continue unaffected, higher
than agreed gas volumes were diverted into the Egyptian domestic
market during the quarter, impacting volumes available for LNG
export," he said.
The wider civil unrest has made BG reduce its expatriate
personnel, including contractors and family members, in Egypt
from around 150 to 55, the CEO told analysts. But its projects
continue to operate normally, the company said. Future
investments in the country remain less certain.
"Given the current situation in Egypt, the Group's
investment programme is under continuous review," the company
said in its statement.
BG's second quarter net profit dropped to $986 million,
beating expectations of $963 million and driven by higher than
expected production and good profit margins in the new barrels
coming onstream in Brazil.
BG shares were up 0.34 percent at 1226 GMT having fallen 4.6
percent over the last 12 months. Santander analyst Jason Kenney
said the results showed good underlying delivery and operational
BG is working to raise flagging production in its Egyptian
fields, but in the second quarter, more gas was diverted to
Egypt's domestic market, reaching a maximum pipeline capacity of
900 million cubic feet a day (mmscfd) up from 700 million mmscfd
in the first quarter, and resulting in reduced supplies for its
LNG export operation.
This means the Egyptian LNG plant is running at lower than
planned levels, reducing efficiency and eating into profits.
BG had a deal with the ousted government under which the
amount of gas being siphoned off for domestic consumption would
not increase before September 2013. In the fourth quarter the
government had agreed to contribute to the shortfall in supply
via reduced domestic diversions and replacement cargoes.
Five such cargoes of which two are allocated to BG are being
provided by Qatar for the period July through September.
Analysts said it was in the new leadership's interests to
maintain stable production.
"Look at Iraq, Libya and Venezuela," said Oswald Clint of
Bernstein. "A government needs the hydrocarbons to flow or it
won't be in power for very long."