BG profits hit by impairment charge

Shares in BG Group took a knock on Thursday after the natural gas giant reported a steep decline in profit for the second quarter, dragged down by a non-cash post-tax impairment on its US shale gas assets.

The $1.3bn charge, which came after the company lowered its long-term expectations for gas prices, reduced pre-tax profit for the three months to the end of June to $609m, compared to $2.25bn in the same quarter the previous year. Second quarter earnings per share were down to 31.6 cents from 33.1 cents the year before.

Revenue climbed 8.8% from $5.12bn to $5.57bn year-on-year.

Try 6 free issues of MoneyWeek today

Get unparalleled financial insight, analysis and expert opinion you can profit from.

Start your trial

Sign up for MoneyWeek’s free twice-daily newsletter.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.

Sign up

The 2012 production exit rate dropped from 0.75m to 0.72m boed (barrels of oil equivalent per day), while total oil and gas production was 673,000 barrels of oil equivalent (boe) per day, four per cent higher than the same period in 2011 and slightly higher than expectations of 664,000 boe.

The interim dividend was increased by 10% to 11.88 cents per share.

BG Group's Chief Executive, Sir Frank Chapman said: "Cash flow from operations grew by 21% to $3.1bn, in a quarter where higher exploration and production costs, including an exploration charge of $203m, resulted in an 8.0% fall in total operating profit to $2.0bn.

"For the half year, cash flow from operations was up 32%, operating profit was 6% higher, and earnings grew by 21%, on the back of a 4% production increase and a 25% growth in LNG [liquefied natural gas] profits.

"Although upstream production continued to grow this year, the long-term shut down at the Elgin/Franklin field, the deferral of the Jasmine field start-up to 2013, and the scaling back of drilling operations in the US, are expected in aggregate to reduce the year-end production rate by some 50,000 boed.

"Opportunities elsewhere in the portfolio are expected to offset some 40% of this impact. The net result is that we expect production at year-end to be some 720,000 boed. The full resumption of Elgin/Franklin production and the start-up of Jasmine are expected during 2013."

The share price fell 0.94% to 1,208.50p by 09:58.

NR