Brazil is the gas for BG

Though BG's operations are spread across the globe, most exploration interest focuses on its offshore activities in Brazil's Santos Basin. BG's deepwater drilling programme in Santos began six-years ago, and the group has confirmed two large commercially-viable projects in its Lula and Cernambi fields, while drilling work and appraisals are under way at a number of highly promising prospects.

Their potential is underlined by BG's repeated success in proving up its assets in the Santos Basin. BG has doubled its estimate of mean reserve for Santos to 6bn barrels of oil equivalent (boe), and it's conceivable that further upgrades could materialise this year. It also helps that the Santos basis should be easy to exploit, with capital costs of just $5 per barrel and operating costs of $9 per barrel.

True, continuing success within the Santos Basin has not gone unnoticed. There has been long-held speculation that the quality of the group's assets renders it a prime target for an industry heavyweight such as ExxonMobil. But, short of a takeover, it is possible - perhaps even probable - that BG may fund its capital spendings by selling a stake in its Brazilian interests, which are currently worth around £27bn, according to industry analysts. Certainly, as the group's major projects move towards fruition, capital spending is rising fast, as evidenced by a 32 per cent jump in the spend during the third quarter of 2011.

China's state-owned oil & gas giant Sinopec would be a possible buyer as it has already splashed out $12.3bn (£7.7bn) for a stake in the Santos Basin controlled by Spain's Repsol and Portugal's Galp Energia. A sale would take some risk out of BG's exploration portfolio and bolster its cash reserves; it would also help to crystallise the value of the underlying assets. BG shares currently trade at 22 per cent below the City's estimate of its underlying reserves. But if the sale of a stake highlighted this anomaly, then that discount might well close. So a move by Sinopec, or any rival, should help BG's share price.

Now may be a good time to sell a stake, despite global economic uncertainty. That's because prices of liquified natural gas (LNG), in which BG is a major trader, have been underpinned by continuing disruption to Japan's power-generating capacity brought about by the Fukushima nuclear disaster. If anything, this situation has deteriorated in recent weeks, while other large Asian economies are still struggling to bridge their own energy deficits.

Elsewhere, positive sentiment has been generated by news that BG had smoothed the way for the development of the giant Karachaganak gas-condensate field in north-west Kazakhstan by hiving-off a 10 per cent stake in the project to KazMunaiGas for $2bn. The terms of the deal with the Kazakh state-controlled entity will allow BG and its partners to finalise long-standing tax issues with state authorities, and take most of the risk out of the next stage of development.

While much of BG's near-term growth will come from Brazil, by the end of 2014 significant impetus will be provided by expansion of its LNG operations in Australia. BG is already meeting a fifth of Queensland's gas requirements, but infrastructure is being put in place that will turn the state into a major energy export hub to the Asia/Pacific region. To this end, BG has agreed a 20-year supply contract with China National Offshore Oil Corp.