OREANDA-NEWS. February 05, 2014. BG Group has issued Force Majeure notices under its LNG agreements in Egypt reflecting the ongoing diversions of gas volumes to the domestic market in excess of the existing pooling arrangements.

The Group will publish its preliminary 2013 fourth quarter and full year results on 4 February 2014. Currently the Group expects to report:

2013 production volumes of around 633 thousand barrels of oil equivalent per day (kboed), in line with guidance

LNG Shipping & Marketing total operating profit of approximately \\$ USD 2.6 billion, in line with guidance

Business performance earnings flat at approximately USD 4.4 billion (around 130 cents per share)

Non-cash, post-tax impairments of approximately USD 2.4 billion associated with Egypt (around
USD 1.3 billion) and the US (around USD 1.1 billion)

Total results earnings (post impairments) of approximately USD 2.2 billion (around 65 cents per share)

The Group also updates on its outlook for 2014:

2014 production volumes expected in the range of 590 – 630 kboed

2014 E&P unit operating costs expected to be USD 15.50 – 16.25 per boe

2014 E&P unit depreciation costs expected to be \\$ USD 12.25 – 13.00 per boe

2014 LNG Shipping & Marketing total operating profit expected in the range of USD 2.1 - 2.4 billion

For 2015, BG Group expects production volumes to be in the range of 710 – 750 kboed excluding portfolio changes, and continues to expect to be free cash flow positive*** in 2015 at the Group’s reference conditions.

Commenting on the update Chris Finlayson, BG Group Chief Executive 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. We have elected to issue Force Majeure notices in Egypt reflecting the ongoing diversions of gas volumes to the domestic market. Year on year decline in Egypt and the US are the drivers of volume decline from 2013 to 2014, with the rest of the base portfolio broadly flat overall. The contribution from our key growth projects in Brazil and Australia, which remain on budget and schedule, is increasing, but the growing asset base and higher royalties, combined with the decline in production, are leading to higher unit operating costs in 2014. However, our long-term strategy remains unchanged, our capital expenditure level will decline and we continue to expect to be free cash flow positive in 2015.”

2013 results - expectations   

For 2013, BG Group expects production and LNG Shipping & Marketing results to be consistent with market guidance. Full year 2013 business performance earnings are expected to be flat at approximately \\$4.4 billion (around 130 cents per share). The effective tax rate for 2013 is expected to be 41%. Full year 2013 production is expected to be approximately 633 kboed, which includes around 570 kboed from base assets. LNG Shipping & Marketing total operating profit is expected to be approximately USD 2.6 billion.

Total results earnings are expected to be down approximately 33 % at around USD 2.2 billion, or around 65 cents per share, including approximately USD 2.4 billion of non-cash, post-tax impairments that reflect the difficult operating environment in Egypt and lower forward gas prices in the US, coupled with lower production profiles in both countries.

In Egypt, diversions to the domestic market during the fourth quarter were higher than expected.  The revised pooling arrangements put in place for 2013 have not been honoured and domestic diversions are currently at around capacity, close to 1 billion standard cubic feet of gas per day.  As a result, BG Group has been unable to meet in full its obligations to deliver gas to Egyptian LNG and given the current levels of domestic diversions and the continued uncertainty around the level of future diversions, BG Group has served Force Majeure notices under its LNG Agreements to buyers and lenders. BG Group remains committed to the Egyptian LNG Project and will continue to negotiate with the Egyptian authorities and other stakeholders to seek a long term solution.