BG Group’s profits gush ahead of forecasts

BG Group’s profits gush ahead of forecasts

FT/May 8, 2015

UK energy company BG Group has reported forecast-busting quarterly earnings, as it prepares for a £55bn takeover by larger rival Royal Dutch Shell.

The company’s sales and earnings are sharply lower than this time last year, thanks to an oil price plunge that began last September, with pre tax profits dropping 62 per cent to $715m.

But that result was also far ahead of the estimates of analysts surveyed by Bloomberg. BG also reported quarterly revenues of $4bn, ahead of forecasts for $3.7bn worth of sales although a 21 per cent decline on the year before.

The company was loss-making and cashflow-negative in 2014 due lower oil prices and an $8.9bn asset writedown. Still, analysts expect it to comfortably return to profit this year.

Its strong quarterly results come during intense debate over the merits of its sale to Shell.

Outspoken hedge fund manager Jim Chanos told investors at a hedge fund conference in the US on Thursday that Shell’s bet on BG is based on overly optimistic assumptions about the liquid natural gas market.

But some fund managers take an opposing view. One leading institutional investors toldfastFT privately that he was not enthusiastic about the fast-growing BG being subsumed into Shell’s more mature and less rapidly expanding business.

Broker Liberum Capital forecasts BG’s output will increase by around ten per cent a year in the next four to five years, following heavy investment in its projects in Brazil and Australia, while Shell during the same period may see 2 per cent growth.

BG made 16 vast discoveries in the 15 years to 2012, in a stellar exploration record that is unmatched by the oil majors. Meanwhile, as the FT has reported, Shell faces potential problems in integrating BG, in case staff who prefer its autonomous, buccaneering culture take fright at working in the larger company’s more academic and hierarchical environment.

The Shell merger has also triggered investor rebellion at BG, which was ostensibly over chief executive Helge Lund’s potential £28m pay award from the Shell deal.