BG gas trading hit by US shale downgrade and Elgin leak
Total's North Sea Elgin platform
BG Group's gas trading was hit by a downgrade of its U.S. shale assets and falling European production as a result of a gas leak at Total's North Sea Elgin facility earlier this year, BG Group said.
The U.S. asset downgrade and production drop in Europe were partly offset by strong performance in its liquefied natural gas (LNG) business as well as by strong growth expectations for Africa and Australia, the British energy company said in its second quarter earnings report.
"The long-term shut down at the Elgin/Franklin field, the deferral of the Jasmine field start-up to 2013, and the scaling back of drilling operations in the U.S., are expected in aggregate to reduce the year-end production rate by some 50,000 barrels of oil equivalent (per day)(boed)," BG Group's chief executive Frank Chapman said.
Total operates the Elgin/Franklin fields, but BG Group has a 14.11 per cent stake in them.
Chapman said that Elgin/Franklin production and the start-up of Jasmine oil and gas field in the North Sea were expected during 2013.
Although opportunities elsewhere in the portfolio were expected to offset some 40 per cent of this drop, Chapman said that the expected net result production at year-end would be 720,000 boed, down from 750,000 the previous year.
Much of BG Group's gas production reduction was a result of reduced activity in the United States.
"In the U.S., as a result of a lower long-term Henry Hub price premise, BG Group recorded a $1.3 billion non-cash post-tax impairment charge against our shale gas business," Chapman said.
BG Group said it had changed its reference conditions for U.S. Henry Hub gas prices from $5.00 per million British thermal units (mmbtu) to $4.25 per mmbtu from 2015.
Chapman said that the company had reduced its U.S. rig count to six, down from a peak of 35, as a result of the lower gas prices in North America.
"Our efforts in the U.S. business are now focused on progressing our significant opportunities for the export of LNG from North America to BG Group's global customers."
BG Group plans to export 5.5 million tonnes of LNG per annum (mtpa) from the Sabine Pass facility over the period 2015-18, and the company has several other early stage U.S. LNG export development in place.
BG Group's lower production in North America and Europe were partly offset by strong performance in its LNG trading business as well as by high expectations for its production in Africa and Australia.
The company said that its LNG operating profits had grown by some 25 per cent to the upper end of a range of $2.6 billion to $2.8 billion.
The company also said that it expected its first Australian LNG exports by 2014.
"Drilling activities will continue to ramp up as the rig count increases from the current 8 to 12 by year end," the company said.
BG Group also said that rising costs for local goods and services, as well as an appreciation of the Australian dollar meant that its LNG expenditure in Australia had risen from $15 billion to over $20 billion.
BG Group gas production in Africa is also rising, with its fifth consecutive Tanzania gas discovery announced last May.
Following discoveries of vast offshore natural gas reserves over the past year, East Africa is set to become one of the world's top LNG exporters, with major energy firms scrambling to get a slice of the resources.
BG Group also started up new gas production in Egypt.
"Africa is abundant with engineering opportunity. We look at some of the projects and the problems."
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