LONDON—BG Group PLC said Friday that production rose to a record
level for the company in the second quarter, providing a window
into the logic behind Royal Dutch Shell PLC's decision to buy the
U.K. energy giant.
BG, the U.K.'s third-largest oil-and-gas company, said
production increased 19% to 703,000 barrels of oil equivalent a
day, helping its earnings beat expectations. Its profit was up 63%
at $2.23 billion over last year's second quarter, primarily because
of a post-tax gain from the sale of an Australian natural-gas
pipeline.
The increased production was fueled by output more than doubling
in Brazil and at the massive Queensland Curtis liquefied natural
gas project in Australia, known as QCLNG—two of the main drivers
for Shell's $73 billion takeover of the company.
The new production figures come as Shell is making a renewed
effort to sell investors on its decision to buy BG—a move that has
sent the bigger company's share price down 17% since April. On
Thursday, Shell pointed to BG's Brazil and Australia production
growth, calling it a "natural fit." The Anglo-Dutch giant also
emphasized that the deal would make sense even during the current
sustained slump in oil prices.
Shell is buying BG and its surging production levels just as its
own oil-and-gas output is on the decline. In its own second-quarter
earnings on Thursday, Shell said its production had fallen 11%
compared with last year's second quarter, to about 2.7 million
barrels of oil equivalent a day. In 2014, it replaced only about a
quarter of its reserves with new production, among the lowest
ratios of the big oil companies.
Shell's purchase of BG is expected to be completed in early
2016, with regulatory approval still needed in the U.S., China and
the European Union.
BG's gusher represents a big turnaround after years of under
delivery on its own output targets. It also underscores Shell's bet
that output from BG's stakes in highly prized oil fields in
offshore Brazil would start ramping up this year and that
facilities at QCLNG would come onstream as planned, bringing with
it a big wall of cash that the Anglo-Dutch company hopes to tap
into.
The developments in Brazil and QCLNG are big complex projects
that were hampered by delays in the early stages, but the company
said last year they would be ramping up in 2015.
Once an investor darling for its exploration successes and rapid
production growth, BG fell out of favor as the company was rocked
by a series of profit warnings and production downgrades.
The company grew rapidly in the early 2000s but its output
stalled in the middle of the decade. Frank Chapman, BG's chief
executive until 2012, had predicted the company would produce 1
million boe/day by 2015.
BG is now above the 700,000 barrels a day mark for the first
time—an achievement that comes at an inopportune moment with oil
prices hovering around $50 a barrel, down more than 50% from their
peak last year.
The company's underlying earnings, or profit after tax and
excluding exceptional items such as disposals and impairments,
declined 65% in the second quarter to $429 million from $1.21
billion a year earlier. Analysts had expected net income of $315
million.
Related softness in prices for liquefied natural gas also hit
BG's income, even as the company delivered eight more cargoes of
the fuel versus a year ago. Revenue was down 28% at $3.95 billion
compared with $5.51 billion in the same period a year ago due to
the fall in oil prices.
"Our upstream business clearly felt the effect of lower oil
prices," BG CEO Helge Lund said on a conference call.
BG moved its full-year production guidance to the upper half of
its range of 650,000-690,000 barrels of oil equivalent a day.
Earnings per share decreased 65% to 12.6 cents a share.
Write to Selina Williams at selina.williams@wsj.com
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