BG cuts capex, writes down \$8.9bn: UpdateOREANDA-NEWS.UK energy firm BG Group will cut its capital investment on a cash basis to \$6bn-\$7bn in 2015, a 30pc reduction compared with its earlier plans for this year and the 2014 spend. The fall results from significantly lower oil prices and the completion of some projects.

BG's capital investment stood at \$9.4bn last year, and the firm previously expected to invest \$8bn-\$10bn in 2015. But it has now deferred discretionary spend on exploration and has rescheduled a number of projects in Australia, Egypt and Tanzania, as well as some development wells in the UK. New projects are under scrutiny and can be postponed or cancelled if they do not provide the right economic return.

The sharp drop in commodity prices since the middle of 2014 forced BG to write down \$8.9bn before tax – \$5.9bn after tax – in the fourth quarter. Most of the pre-tax non-cash impairment charge – \$6.8bn – has been recognised on its Australian assets, of which \$4.1bn related to lower future commodity price assumptions and the remainder to BG's Queensland Curtis LNG (QCLNG) assets, although this will be offset by an estimated \$3.3bn pre-tax profit on the disposal of the wholly-owned subsidiary QCLNG Pipeline Pty Ltd.

In Egypt, \$800mn has been written down on further reserve downgrades and expectations of limited LNG exports. Lower commodity price assumptions resulted in a \$600mn impairment charge before tax in the North Sea, \$500mn in Tunisia and \$200mn in the US.

The write downs in 2014 were partially offset by a \$782mn gain on the disposal of the CATS pipeline in the UK and \$449mn of "exceptional one-off and prior period taxation credits".

BG made a \$1.04bn loss in 2014, compared with a profit of \$2.44bn in 2013. The company said that a \$1/bl change in the oil price is expected to translate into "between \$60mn-70mn at an earnings level and between \$70mn-80mn on post-tax operating cash flow, both on an annualised basis for 2015 only."

The group produced 606,000 b/d of oil equivalent (boe/d) in 2014, within its guidance range but 4pc less than the year before. BG sees its 2015 output at 650,000-690,000 boe/d.

"In the new environment we are well placed to manage the downturn as we are reaching the end of a high capital expenditure cycle and will continue to add further production in 2015 from Brazil and Australia," said BG interim executive chairman Andrew Gould.

BG expects output growth in Brazil and Australia to more than offset lower net volumes elsewhere, primarily in Egypt, Kazakhstan, the UK and Trinidad and Tobago.

Train 1 at the QCLNG plant in Australia is set to reach plateau production of some 4mn t/yr in the second quarter, and Train 2 should come on line in the third quarter. In Brazil, the fourth and fifth floating production, storage and offloading (FPSO) units will continue to ramp-up during 2015 with additional well connections, with the sixth FPSO on stream in the fourth quarter of 2015.

The company wants to continue to invest "in low cash operating cost projects in Brazil and Australia" this year. Capital spend in Brazil is planned at a similar level to 2014's \$2.4bn, while it will be halved in Australia from \$3.6bn and stays roughly the same for exploration at about \$800mn.

BG's incoming chief executive Helge Lund will be joining next month from Norwegian state-controlled Statoil.