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BG hit by deferrals

Shares in BG Group hit the skids after an unexpected change to guidance - but we think the institutions have overreacted.
October 31, 2012

The share price of BG Group (BG.) plummeted following a third-quarter update, which revealed that output through 2013 would only be broadly in line with this year's. Production will be held in check due to deferrals linked to the Elgin/Franklyn shutdown, schedule changes at the Sapinhoa and Lula NE wells, delay in the Jasmine start-up, and scaling back of the US rig count.

IC TIP: Buy at 1112p

The change in guidance dismayed analysts at BG's media presentation, but BG's chief executive, Sir Frank Chapman, maintained that the extent of the Sapinhoa/Lula schedule tie-ins, and problems at the Phase 7 compression project in Egypt, have only recently come to light. BG expects that production growth in the current year will be restricted to 3 per cent, partly due to the extended shutdown at the Elgin/Franklyn North Sea field, although Sir Frank stressed that BG's expansion plans beyond 2013 remain on track.

The production revelation took the gloss off a respectable third-quarter performance, with earnings and operating profits up by 22 per cent on the comparable period in 2011. It also may have diverted attention from news that BG had sold a $1.93bn (£1.2bn) stake in its Queensland Curtis LNG project to its joint-venture partner - China National Offshore Oil Corporation (CNOOC). The deal also includes a 20-year agreement to supply CNOOC with LNG, making BG the largest supplier to the Chinese market. CNOOC will obviously cover pro-rata legacy and forward development costs.