* 2012 LNG profit target increased 30 pct
* Weak gas prices prompts 80 pct cut in shale drilling
* Affirms 7 pct/yr output growth target to 2020
* Shares rise 2.7 pct, outperform peers
By Tom Bergin
LONDON, Feb 9 Gas producer BG Group
is to cut back shale gas drilling activity by almost 80 percent
because weak gas prices are making its relatively low-grade
The move, announced along with a 40 percent rise in fourth
quarter profits on strong oil prices and a lower tax rate, will
mean its 2015 output will be some 110,000 barrels of oil
equivalent per day lower than earlier indicated.
UK-based BG reaffirmed its target of growing oil and gas
production by an average 7 percent per annum out to 2020 but
Chief Executive Frank Chapman, who is due to step down by the
end of next year, said output growth would be muted to 2015
because of the shale drilling decision.
Output would ramp up sharply between 2015 and 2020, he said
BG's U.S. shale gas assets are largely "dry gas" and so
yield little if any of the highly valuable natural gas liquids
(NGLs) on which the economics of shale now depends.
With gas prices unable to cover drilling costs, operators
make money by selling the liquids they produce in conjunction
with the gas. While oversupply has killed gas prices, NGLs can
be sold at prices that often exceed still-buoyant crude prices.
U.S. gas prices have been under pressure for the past couple
of years because a production glut, caused in large part by
shale development, and reached a 10-year low in January.
BG remained bullish about its liquefied natural gas (LNG)
sales business, lifting its profit and production outlook for
Strong demand for the fuel in Asia, as economies expand
rapidly and the Japanese nuclear accident at Fukishima last year
prompts a shift to gas-fired power generation, has lifted prices
for LNG, natural gas which is cooled until it liquefies for
easier shipping in special tankers.
BG said fourth-quarter earnings, which exclude one-offs and
non-cash charges, were $1.48 billion against a consensus
forecast of $1.11 billion from a company survey of analysts.
Analysts at JP Morgan said that even stripping out the impacts
of the low tax rate, BG outperformed expectations by 8 percent.
The company's shares traded 2.8 percent higher at 1,486
pence at 0917 GMT, outperforming a 0.9 percent rise in the STOXX
Europe 600 Oil and Gas index.
Larger rival BP reported a 14 percent rise in underlying
fourth-quarter earnings compared with the same period in 2010,
while Royal Dutch Shell reported an 18 percent
BG, which is based in Reading, outside London, reported a 1
percent drop in production in the quarter, due to technical
problems in the North Sea.
It added that appraisal work showed its new discoveries
offshore Tanzania contained 3 trillion cubic feet of resources,
supporting hopes that the East African region could emerge as a
major LNG hub, after other companies announced big finds in
BG lifted its full year dividend 10 percent and
said it would sell around $5 billion of largely downstream, gas
distribution and power generation and transmission assets, in
the coming tow years.
It added capital investment would rise over the coming two
years. Analysts at Citigroup said the increase was related to
higher costs at its Queensland, Australia LNG project.