Last updated: December 13, 2012 9:07 pm

BG hands over reins at a tricky time

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Bg

Dragon liquefied natural gas import terminal at Milford Haven, Wales, used by BG, which has ambitious growth plans

BG Group will replace its chief executive, Sir Frank Chapman, with Chris Finlayson following a protracted run-off for the position that started last year.

The decision comes amid wider concerns about the FTSE 100 oil and gas producer’s ability to deliver important projects in Australia and Brazil on time and on budget in the coming years.

It also follows a surprise warning on production levels that hit the BG share price in October.

Mr Finlayson, a former Royal Dutch Shell executive and head of BG Advance – which manages exploration, capital projects, IT and technology – will take the helm on January 1.

Sir Frank moves to an advisory role before retiring in June.

The decision leaves Martin Houston, chief operating officer, and finance director Fabio Barbosa as losers in the race for the top job.

The race has been complicated by Mr Barbosa’s leave of absence because of illness announced in September.

Although he appeared alongside Sir Frank at results presentations this year, Mr Barbosa, a former chief financial officer of the Brazilian mining company Vale, appeared to have been ruled out of contention.

That left Mr Finlayson, who joined the board 13 months ago shortly after his arrival from Shell, in a straight internal shoot-out with Mr Houston, a BG veteran who joined British Gas, BG’s predecessor company, in 1982.

Mr Finlayson’s experience includes spells developing Shell’s liquefied natural gas interests in Nigeria and handling the development of its Sakhalin 2 project in east Russia – when it was Shell’s largest integrated oil and gas project.

The issue of who would succeed Sir Frank was complicated by a parallel search for suitable external candidates conducted by Andrew Gould, chairman.

On Thursday, Mr Gould said the decision to appoint Mr Finlayson had been unanimous. “The board identified and assessed three internal candidates and a number of external candidates. It was a tough competition but reached a clear conclusion,” he said.

The impact of Sir Frank’s own illness on the succession planning was played down by the company. BG confirmed Thursday that Sir Frank had been receiving medication since June for early-stage myeloma – a form of cancer that affects the production of plasma cells in the bone marrow.

BG was keen to point out that Sir Frank had suffered no symptoms from the condition or side-effects from the medication, and remained fit to continue beyond December as an adviser to the company.

However, the expectation was no longer that Sir Frank would host a strategy day in February as his swansong, alongside the announcement of full-year results. The strategy update would now be held later in the year, the company said.

Mr Finlayson inherits ambitious growth plans that, though potentially transformative, risk stretching BG beyond its means.

Under Sir Frank’s leadership, BG has increased is market capitalisation from $13bn in 2000 to $58bn (£36bn). That compares with £82bn for BP. During the same time period, the company has vastly expanded its resource base, from 1.2bn barrels of oil equivalent to 17bn boe, while the share price has soundly outperformed those of rivals.

Mr Gould said Sir Frank’s achievement had been to “grow BG Group out of a minor division of the old British Gas into a vibrant international oil and gas major”.

Mr Finlayson faces the tricky task of maintaining the group’s growth momentum and monetising its capital-hungry slate of development projects.

The latter task will have been eased by a spate of asset disposals that are expected to release $7.6bn of capital from the balance sheet.

“The underlying challenges are relatively severe for whoever takes over,” said Stuart Joyner, an Investec analyst. “But Chris is a seasoned operator so he’ll be perceived as a safe pair of hands.”

Shares in BG Group fell 18p to £10.47 on Thursday.

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