February 5, 2013 1:41 pm

BG Group: clarity required

Struggling with transition from go-go explorer to ho-hum producer

What’s a few thousand barrels of oil between friends? In the case of BG Group, it is the difference between being a stock market darling and just any old oil company. When the London-listed group revised its production targets three months ago, its share price tumbled 20 per cent. On the face of it, there was little in Tuesday’s full-year results for 2012 to reverse that trend: BG is still having trouble meeting its production targets. A well-received presentation from new chief executive Chris Finlayson was encouraging, but investors must wait for his more detailed strategy update in May to figure out quite where the company stands.

BG’s essential problem is that it is finding it tough to make the transition from go-go explorer and acquirer of valuable oil and gas assets to ho-hum producer. Let’s face it, the one thing an oil production company needs to do is meet production targets, and this is where BG keeps slipping up. It cannot even blame Petrobras this time, since BG’s production difficulties in 2012 were Egypt (technical problems at gas wells) and the North Sea, which alone accounted for two-thirds of the shortfall. Mr Finlayson even revised this year’s production target down a shade, to between 630,000 and 660,000 barrels a day, giving the notable impression that it was more likely to be the former.

October’s profit warning damaged the credibility of BG’s formerly compelling growth story, and this needs to be rebuilt. A lot of its £37bn of market capitalisation is tied to the success of future projects such as Australian gas and Brazilian oil. Its shares fell 1.5 per cent on Tuesday’s numbers but climbed 4 per cent later on the strength of Mr Finlayson’s debut remarks. They trade at a 50 per cent forward earnings premium to either BP or Shell. Investors still clearly think BG should grow faster than its two bigger sisters. It’s just that they would love to know how.

Email the Lex team in confidence at lex@ft.com

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