BG a top oil-recovery buy

Admittedly, BG was trading near its five-year low point even before the supply surplus in world crude markets became fully apparent due to a succession of one-off factors that have weighed on the share price since midway through 2012. Nevertheless, BG re-established operational momentum in the latter part of last year, but progress on the ground has been overshadowed by reduced oil price assumptions. The group subsequently revealed negative earnings for 2014 on the back of an $8.9bn (£5.9bn) pre-tax impairment, while positive developments at the group's Queensland Curtis LNG complex failed to ignite investor interest.

There has been no shortage of activity down under. At the tail-end of 2014, BG loaded the first seaborne cargo from its giant Queensland Curtis LNG (QCLNG) complex in Australia. The project will expand with the start-up of the second train in the third quarter of this year, ahead of plateau production in 2016, estimated at around 8m tonnes of LNG a year. As exports from QCLNG were kicking off, the group agreed to sell its interest in a 540 kilometre gas pipeline to Australia's APA Group for $5bn (£3.3bn), netting a post-tax profit of $2.7bn. The group had previously announced that it has entered into a $460m sale and leaseback agreement with GasLog Ltd for two tri-fuel diesel electric LNG carriers. The deals were part of an ongoing rationalisation programme primarily designed to reduce capital commitments and net debt.

Last year, BG's production profile was improving on the back of the ramp-up under way at its interests in Brazil's Santos Basin. The group has invested over $8bn over the past 20 years in five major pre-salt discoveries in the Santos Basin and 10 blocks in the Barreirinhas Basin. Now, however, it is possible that four offshore oilfield projects in the region will be delayed because of a widening corruption probe into Brazil's state-run oil company Petrobras. The issue looks like it will affect delivery of floating production/storage platforms (FPSOs), thereby delaying a planned increase in output capacity by 600,000 barrels a day (bopd) in the BM-S-11 block south of Rio de Janeiro that was purchased by Petrobras, Portugal's Galp and BG in 2000.

It is still far from cut and dried, but broker Jefferies has just cut its 2016 production estimate for BG by 3 per cent and reduced 2016 and 2017 EPS forecasts by 6 to 7 per cent. The broker's discounted cash-flow valuation has also been cut from 1,215p to 1,150p. In the scheme of things, though, the damage does not look too great and the potential plus point, according to Jefferies, is that "a pragmatic solution likely involves greater use of international contractors which could occur at more competitive costs".

There was better news from BG's operations in Egypt, which have proved to be something of a millstone in recent years. It has been revealed that the energy group has signed a $4bn provisional agreement with two Egyptian state-owned gas companies to supply gas from its West Delta Deep Marine concession. The deal comes on the back of an earlier agreement signed by BG with BP Egypt and RWE Dea to process and transport gas from the two companies' offshore fields in the Nile Delta. At the beginning of last year, BG issued Force Majeure notices under its LNG agreements in Egypt after local authorities had diverted gas to the domestic market, as the country found itself energy-starved in the midst of civil turmoil. As part of the new deal, the Egyptian government is to pay back around $900m it owes BG and enter talks to agree a better price for gas on the domestic market.