LONDON (Alliance News) - BG Group PLC on Friday reported a decline in earnings during the third quarter of 2015 that was in line with expectations, and the company raised its full-year production guidance after reporting a large rise in production during the period.
The oil and gas producer operating in over 20 countries, and the subject of a takeover offer by Royal Dutch Shell PLC, reported earnings before interest, tax, depreciation and amortisation of USD1.24 billion in the third quarter of 2015, down 37% from USD1.98 billion a year earlier but ahead of the analyst consensus which estimated Ebitda of USD1.15 billion.
"Our liquefied natural gas operations had a robust operating performance, despite challenging market conditions, and we have maintained our Ebitda guidance for 2015," said Chief Executive Helge Lund.
Both of BG's main divisions reported large year-on-year falls in Ebitda. Its upstream division, which has been hit by falling oil prices, reported Ebitda of USD1.08 billion in the quarter, down 22% from USD1.38 billion whilst its downstream business, involving its marketing and LNG shipping business, reported a 65% year-on-year fall to USD213.0 million from USD608.0 million.
Earnings before interest and tax came in at USD384.0 million in the quarter, down 70% from USD1.28 billion a year ago but in line with the USD389.0 million estimated by analysts.
BG's upstream division reported a 65% year-on-year fall in Ebit to USD253.0 million from USD720.0 million, whilst its other business reported a 68% fall to USD187.0 million from USD576.0 million.
Revenue for the quarter fell as expected to USD4.14 billion from USD4.58 billion leading to a pretax profit of USD466.0 million compared to a USD1.98 billion pretax profit a year earlier, with a large rise in production partly mitigating lower pricing.
To put the lower oil prices into perspective, BG Group's earnings were hit by around USD60.0 million to USD70.0 million for every USD1 a barrel drop in world oil prices. In the third quarter, BG achieved an average price of USD54.23 per barrel of oil, down 48% from a year ago, and an average price of USD41.94 per barrel of liquids, down 47% year-on-year. Gas prices also dropped 34% to 34.33 cents per therm.
Overall, those prices equate to average revenue per barrel of oil equivalent falling to only USD18.64 per barrel from USD34.27 a year ago. However, the company also slashed its operating costs to USD14.11 per barrel from USD17.21, suggesting it made a gross margin of around USD4.53 per barrel in the quarter.
To gather the results for BG Group over the first nine months of 2015, the company has generated 20% less revenue totalling USD12.11 billion from USD15.14 billion a year ago, leading Ebitda to decline 43% to USD4.20 billion from USD7.35 billion and Ebit to drop 62% to USD1.95 billion from USD5.21 billion. BG's pretax profit since the start of 2015 has dropped to USD4.14 billion from USD6.00 billion.
Importantly, the company upgraded its full-year production guidance to between 680,000 and 700,000 barrels of oil equivalent per day after third quarter production rose 26% year-on-year to 716,000 barrels per day.
Production in the third quarter was 4.5% ahead of analyst expectations.
Friday's upgrade is from BG's original guidance of 650,000 to 690,000 barrels a day, and its announcement in the second quarter that production for the full year would be at the upper end of that guidance. Production in the third quarter also was substantially up from the 706,000 barrels per day being produced in the second quarter of 2015.
VSA Capital analyst Marc Anis-Hanna said: "BG's results are better than expected and although 2015 is a challenging year for the company due to low hydrocarbon prices, we think that this should be partially offset by higher volumes as confirmed by BG's full year guidance."
The main cause for the rise in production was an increase in production from BG's Brazilian, Australian and Norwegian operations. Brazilian production almost doubled and averaged 158,000 barrels a day in the quarter and 175,000 barrels per day in October, whilst Australian production averaged 98,000 barrels a day in the quarter. Production in Norway continues to increase and averaged 13,000 barrels a day in the quarter.
For the first nine months of 2015, production was up 15% from the previous year.
"The group's performance in the third quarter was ahead of the guidance provided at the second quarter as a result of FPSO 6 coming onstream ahead of schedule and better than expected uptime across the Santos Basin; certain shutdowns rescheduled into the fourth quarter; and better operating efficiency across a number of assets," BG said.
Liberum analyst Andrew Whittock said: " The long-term growth case appears intact with the critical developments in both Australia and Brazil on track. We currently expect E&P production to grow by 16% this year (that may be too pessimistic) and then grow at a compound annual growth rate of more than 10% until 2019."
At the downstream business, BG's LNG shipping business delivered 75 cargoes in the quarter containing 4.6 million tonnes, up from 44 cargoes containing only 2.5 million tonnes a year ago.
Of the total cargoes sent, 54 of them were sent to Asian markets, 18 to South America, two to Europe and one to North America. Within that, BG delivered its first shipments to Egypt and Pakistan in the quarter.
BG reiterated its downstream division is on track to produce an Ebitda of USD1.30 billion to USD1.50 billion in the full year.
Net debt at the end of September fell to USD9.58 billion from USD11.09 billion but gearing still remains broadly flat at 24.5%.
Like its peers, BG is attempting to slash expenditure to make itself more competitive. BG Group said it plans to spend a total of USD6.50 billion in capital expenditure in the full year, which will represent a 30% year-on-year fall. In the first nine months of 2015, it spent USD4.70 billion of that budget.
That USD6.50 billion budget is in the middle of its previous guidance of USD6.00 billion to USD7.00 billion.
The company also remains on track to deliver a minimum of USD300.0 million of cost savings before the end of 2015.
"We are on track to deliver our promised operating and capital cost savings for 2015 and are adding new low cash cost volumes through Australia and Brazil. These actions will help mitigate the impact of lower commodity prices on our financial results," said Lund, who joined BG as CEO in March from Norway's Statoil.
As expected, BG Group reaffirmed its commitment to completing its GBP47.0 billion mega-merger with Royal Dutch Shell in early 2016. So far, the pair have secured approval from Brazil and Europe, two of the five required countries needed before the deal can go through.
Shell released its third quarter results on Thursday, which showed the oil major had made a major USD6.10 billion current cost of supply loss from a USD5.30 billion profit a year earlier due to major write down and impairments after pulling out of numerous projects.
Overall, Shell's earnings missed analyst expectations by around a third, and in the first nine months of 2015 Shell has seen its earnings fall by 87%, or GBP13.00 billion.
On Friday, Nomura analyst Alwyn Thomas reiterated his Buy recommendation for BG Group and said it was predicated on his belief that the Shell deal will be completed and therefore BG shares represent a cheaper way to access Shell.
By Joshua Warner; joshuawarner@alliancenews.com; @JoshAlliance
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