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BG value plunges amid Egypt turmoil

BG value plunges amid Egypt turmoil

Oil and gas explorer BG Group had billions of pounds wiped off its value yesterday after it cut profit and output forecasts, blaming turmoil in Egypt.

The group’s shares plunged 14% – leaving it worth about £36.8billion – after it said last year’s earnings fell by 33% to around £1.33billion.

Full-year results the firm is due to unveil next week will be hit by a £1.45billion non-cash, post-tax impairment charge to reflect the difficult operating environment in Egypt, as well as lower future gas prices in the US, it added.

BG, which employs around 5,200 people in operations in more than 20 countries, also said it expected to produce between 590,000 and 630,000 of barrels of oil equivalent (boe) per day this year.

The 2014 output forecast is as much as 12% lower than expected by analysts and up to 7% below its 2013 production.

In addition, BG cut its 2015 guidance to between 710,000 and 750,000 barrels of oil equivalent (boe) per day from a target of 775,000-825,000 announced in May. Chief executive Chris Finlayson said: “Despite the good progress we have made in 2013, we face short-term issues which are reflected in our revised 2014 guidance. This is very disappointing.”

The downgrades are the latest in a series of poor updates from BG.

Over the past 18 months, the firm has cut its output forecasts three times and abandoned a goal to produce 1million boe per day by 2015.

BG counts on Egypt for about one-fifth of its total production, but it said yesterday the government there had not honoured gas deals, preventing it from meeting its export obligations for an Egyptian liquefied natural gas (LNG) project.

As a result, BG has served so-called “force majeure” notices to affected buyers and lenders, effectively freeing all sides from contract terms due to circumstances beyond their control.

Egypt has undergone a prolonged period of political and civil unrest since the toppling of long-running president Hosni Mubarak in 2011. National priorities have shifted, and the government now wants to make sure domestic customers have adequate supplies – even if that means slashing exports.

BG said negotiations with the Egyptian authorities were ongoing, adding that it remained committed to the LNG project despite uncertainty over the number of cargoes it will produce in 2014. The group said it expected to report UK output of 36.5million (boe) for 2013, up from 35.2million the year before.

BG, which is the second-largest British oil and gas producer after BP, was created when British Gas was broken up and privatised in the 1990s.

The company has a significant exploration and production business in the UK, with interests focused on the central North Sea.