BG issues LNG force majeure notices

BG Group has issued force majeure notices under its liquefied natural gas agreements in Egypt, reflecting the ongoing diversions of gas to the domestic market in excess of existing arrangements.

The company will publish its preliminary Q4 2013 and full year results on 4^th February. Currently, BG Group expects to report:

• 2013 production volumes of around 633 000 barrels of oil equivalent per day (boed), in line with guidance
• LNG Shipping & Marketing total operating profit of approximately US$ 2.6 billion, in line with guidance
• Business performance earnings flat at approximately US$ 4.4 billion (approximately 130 cents per share)
• Non-cash, post-tax impairments of approximately US $2.4 billion associated with Egypt (approximately US$ 1.3 billion) and the US (approximately US$ 1.1 billion)
• Total results earnings (post impairments) of approximately US$ 2.2 billion (approximately 65 cents per share)

CEO Chris Finlayson commented: “Despite the good progress we have made in 2013 we face short term issues which are reflected in our revised 2014 guidance. This is very disappointing. We have elected to issue Force Majeure notices in Egypt reflecting the ongoing diversions of gas volumes to the domestic market. Year on year decline in Egypt and the US are the drivers of volume decline from 2013 to 2014, with the rest of the base portfolio broadly flat overall. The contribution from our key growth projects in Brazil and Australia, which remain on budget and schedule, is increasing, but the growing asset base and higher royalties, combined with the decline in production, are leading to higher unit operating costs in 2014. However, our long-term strategy remains unchanged, our capital expenditure level will decline and we continue to expect to be free cash flow positive in 2015.”

2013 results - expectations
For 2013, BG Group expects production and LNG Shipping & Marketing results to be consistent with market guidance. Full year 2013 business performance earnings are expected to be flat at approximately US$ 4.4 billion. The effective tax rate for 2013 is expected to be 41%. Full year 2013 production is expected to be approximately 633 000 boed, which includes around 570 000 boed from base assets. LNG Shipping & Marketing total operating profit is expected to be approximately US$ 2.6 billion.

Total results earnings are expected to be down approximately 33% at US$ 2.2 billion, including approximately US$ 2.4 billion of non-cash, post-tax impairments that reflect the difficult operating environment in Egypt and lower forward gas prices in the US, coupled with lower production profiles in both countries.

In Egypt, diversions to the domestic market during Q4 2013 were higher than expected. The revised pooling arrangements put in place for 2013 have not been honoured and domestic diversions are currently at around capacity, close to 1 billion ft³ of gas per day. As a result, BG Group has been unable to meet in full its obligations to deliver gas to Egyptian LNG and given the current levels of domestic diversions and the continued uncertainty around the level of future diversions, BG Group has served force majeure notices under its LNG agreements to buyers and lenders. BG Group remains committed to the Egyptian LNG Project and will continue to negotiate with the Egyptian authorities and other stakeholders to seek a long-term solution.

Update on 2014 outlook
In 2014, BG Group’s production volumes are expected to be in the range of 590 000 – 630 000 boed with base assets contributing in the range of 480 000 – 520 000 boed, excluding portfolio changes. Brazil and Australia will deliver strong year on year growth. In Brazil, FPSOs 2 and 3 will continue to ramp up, following the delays to the installation of buoyancy supported risers. The operator expects to install FPSOs 4 and 5 in the second half of the year. In Australia, the QCLNG project is on track for first LNG in Q4, with the second train expected to come on-stream approximately six months later.

The contributions from the company’s growth assets are expected to be offset by reductions in Egypt. Additionally, the continued low rig count in the US will result in a volume decline similar to 2013. Overall, volumes from other base assets are expected to be broadly flat. Production will grow in the UK despite a slower ramp up at Jasmine along with a longer planned shutdown at Buzzard, and also in Norway and Bolivia. However, this is expected to be offset by declines to the rest of the base, notably in Trinidad and Tobago where expected PSC production entitlement has reduced due to higher realised prices in 2013.

In 2014, unit operating expenditure is expected to be in the range of US$ 15.50 –US$ 16.25 per boe at reference conditions, up from the $12.17 per boe expected to be reported for 2013 full year upstream results. This reflects the impact of increasing production from royalty-paying fields in Brazil and Bolivia; declining volumes in Egypt; flotel campaigns in the North Sea to complete the enhanced asset integrity programme; and the impact of the ramp up and expensing of additional facilities in Australia and Brazil, ahead of achieving plateau production. The unit depreciation charge is also expected to increase, from the expected US$11.29 per boe in 2013 to between US$ 12.25 and US$ 13.00 per boe reflecting the new developments coming on-stream.

LNG Shipping & Marketing total operating profit for 2014 is expected to be in the range of US$ 2.1 - 2.4 billion, reflecting lower supply volumes from Egypt and reference conditions lower than realised prices in 2013. There is considerable uncertainty over the number of LNG cargoes that Egyptian LNG will produce in 2014.

Update on 2015 outlook
BG Group currently expects production for 2015 to be in the range of 710 000 – 750 000 boed, excluding portfolio changes. This outlook includes expected PSC production entitlement reductions in Kazakhstan. Expected production growth will be driven primarily by Brazil and Australia.

In 2015, BG Group expects similar dynamics in its LNG Shipping & Marketing business as outlined for 2014, combined with the impact of gas development programmes in Equatorial Guinea which require planned shutdowns at EGLNG.

Adapted from press release by Katie Woodward

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