BG Group targets strong growth as profits fall

British gas producer BG Group Plc said it was targeting strong growth in oil and gas production in the coming decade but near-term weakness and a bigger than expected drop in profits hit shares. BG said it expected to grow output at the upper end of its compound annual growth rate target range of 6 to 8 percent to 2020, after it made big oil and gas discoveries in Brazil and bought US shale gas assets.
Chief Executive Frank Chapman said BG would be producing 1.6 million barrels of oil equivalent per day (boepd) in 2020, compared with 673,000 boepd in the fourth quarter. However, low demand for gas due to the weak global economy, would mean only slight output growth this year, BG said. Dealers said investors were disappointed with the 2010 outlook, while Colin Smith at ICAP said even the announced growth plan was disappointing.
"That target should have been increased on a like-for-like basis to include the EXCO acquisition where BG now expects net production of 100,000 boed by 2015," he said referring to BG's purchase of half of Dallas-based Exco Resource's Haynesville shale assets. BG's output target compares to a growth target of 1-2 percent at BP Plc, Europe's largest oil and gas company, and a target of 2-3 percent at Royal Dutch Shell Plc.
BG shares were down 3.4 percent at 1,109 pence at 0957 GMT, behind a 1.8 percent fall in the DJ Stoxx European oil and gas sector index. However, analysts at Morgan Stanley said BG's strategy plan was "very strong" despite the 2010 outlook and analysts at Bernstein, Citigroup and Panmure affirmed their "buy" and "outperform" ratings on the company.
BG said fourth-quarter net profit fell 38 percent to 465 million pounds ($730.7 million) due to weak gas prices. Excluding one-offs and non-operating items the result was 592 million pounds, just short of an average forecast of 606 million pounds from a Reuters poll of 12 analysts.
Gas prices have been hit by an increase in production in the US and low demand caused by the global recession. The result compares with Shell's 75 percent drop in profits in the fourth quarter compared to the same period in 2008, a 37 percent drop at Chevron and a 23 percent drop at the largest company in the sector by market value, Exxon Mobil. Production rose a lower than expected 8 percent in the fourth quarter compared to the same period of 2008.