The share price of BG Group (BG.) plummeted on news that it had declared "force majeure" in respect of its Egyptian liquefied natural gas (LNG) assets.
The continued political instability in the country has meant that Cairo has been unable to honour agreements covering BG's share of gas from fields. Basically, the government has been diverting a high proportion of output to its heavily subsidised local market. As a result, BG has been unable to fulfil export obligations and the subsequent declaration has freed all sides from contractual agreements due to circumstances beyond their control.
Egypt accounts for around 18 per cent of BG's total production, but that proportion will drop for the 2014 year-end with initial guidance given at 590-630 thousand barrels of oil equivalent per day (kboepd), an 8 per cent fall on the mid-point consensus estimate. The group also cut its 2015 forecast to 710-750 kboepd from a target of 775-825 kboed given in May. Guidance for 2013 has been maintained at 633 kboepd, but $2.4bn in impairments linked to the ongoing Egyptian problems and weak LNG prices in the US, this will reduce annual net profits to around $2.2bn (from $4.4bn in 2012).
Not so long ago, it seemed as if BG Group couldn't put a foot wrong, but there are so many factors at play in the group's diverse energy portfolio that, eventually, something had to give. Apart from the ongoing ructions in Egypt, which we flagged up in July, the group also cited a production decline in Trinidad and Tobago, soft rig counts in the US, and possible delays to its timetable in Australia.
