* Focus on value not volume after missing output targets
* Shares up over 3 pct, lead European oil and gas stocks
(Writes through with details, CEO comments)
By Andrew Callus
LONDON, May 14 Oil and gas group BG will
focus on exploration, liquefied natural gas (LNG) and selling or
partnering more of its discoveries as part of a new emphasis on
profitability after being forced to cut ambitious output
The gas-focused British company, whose main growth assets
are in Australia and Brazil, said the proportion of its
production with a profit margin of more than $50 per barrel of
oil equivalent (boe) would triple over the next five years, and
that its heavy capital spending budget would peak in 2015,
allowing it to return surplus cash to shareholders from then.
In a keenly-awaited strategy statement under new management
and after a crisis of investor confidence in the final quarter
of 2012, the company said it would "manage its portfolio more
actively" in future, partly through asset sales, and partly by
bringing in partners to ramp up output more quickly.
The aim is for 50 percent of its discovered resources to be
either sold or produced in the next 10 years.
BG shares were the top gainers among European oil and gas
stocks on Tuesday, climbing 3.2 percent to 1,223 pence.
Last year, the energy investors' one-time darling shocked
shareholders by saying it would miss output targets. Then, in
February, it had to abandon its goal of producing 1 million
barrels of oil equivalent a day by 2015, blaming failed well
rejuvenation efforts in Egypt and a fall in U.S. gas prices to
The news came at a tricky time at the top of the company as
long-serving former chief executive Frank Chapman retired
several months early due to illness.
On Tuesday, new chief executive Chris Finlayson, who took
over at the start of 2013, set himself a more modest 2015 output
target of between 775,000 and 825,000 boe per day by 2015, up
from 667,000 now. He said there would be no output targets more
than two years ahead in future as the company focuses on value
Oil and gas companies have a history of switching their
performance measures after failing to meet existing ones,
creating a degree of cynicism among investors. Earlier this
year, BP also made a virtue of circumstances that have forced it
to rein in its growth prospects. Other oil companies are also
moving away from volume measures as meeting them gets difficult.
"We're acutely aware of that, and I know that's a view that
can be taken," Finlayson told Reuters ahead of his presentation
to shareholders and investors on Tuesday. "That's why we have
been careful to show in this presentation exactly how we will
deliver that value."
Despite its recent problems and a slump in its share price
in the final quarter of last year, BG's shares still trade at a
premium to their peers as a multiple of current year earnings.
Analysts put this down to its strong track record on finding
new supplies, its exposure to tight LNG markets, and its
position in Brazil's potentially prolific Santos basin, where it
and a handful of other companies were able to secure acreage
before the government decided to limit future development to the
state oil firm Petrobras.
Petrobras on Tuesday launched Brazil's biggest ever bond
sale raising $11 billion of new debt to help fund its huge $237
billion investment programme for the period up to 2017
BG has been a widely diversified company in the past but now
has a very heavy exposure to Brazil, which it hopes will account
for over 600,000 boe a day at its peak - not far short of its
entire current output.
However, it has no plans to include its exposure there in
any asset sales over the next few years, Finlayson said.
"All our assets will be under permanent review, (but) for at
least the next few years, we see ourselves creating far more
value in Brazil through ongoing exploration and production
activities than we see from any form of monetization. If you're
going to have risk concentration, I'd rather have it in the best
discovery in decades, where we have the biggest IOC
(International Oil Company) position."
By 2015, as BG's costly QCLNG gas-for-export development in
Australia reaches completion, capital spending will fall from
$12 billion a year currently to $8-$10 billion, allowing free
cash flow to turn positive, increasing return on capital
employed, and allowing improved shareholder returns.
"We'll be big enough to pursue the best opportunities but
small enough to stay commercially agile," Finlayson said.
(Editing by Sarah Young and Mark Potter)