BG Group has cut its 2014-15 production forecasts and issued a series of force majeure notices under its LNG agreements in Egypt.
The notices are due to the diversion of gas volumes to domestic markets in excess of existing pooling arrangements, preventing BG from meeting its export obligations as part of an Egyptian LNG project.
Giving a trading update ahead of its full year results, BG Group said 2013 production would be inline with expectations, at around 633,000 boe/d.
But, it cut its 2014 guidance to 590,000–630,000 boe/d, and its 2015 guidance to 710,000-750,000 boe’d, down from 775,000-825,000 previously predicted for 2015.
Image: BG Group is a partner on the Lula field, produced via the Cidade de Paraty FPSO, pictured.
Operating costs were also predicted to rise in 2014, to $15.50-16.25/boe, up from the $12.17/boe expected in the 2013 full-year upstream results. BG Group said this reflected the impact of increasing production from royalty-paying fields in Brazil and Bolivia; declining volumes in Egypt; flotel campaigns in the North Sea, to complete the enhanced asset integrity program; and, the impact of the ramp up and expensing of additional facilities in Australia and Brazil, ahead of achieving plateau production.
BG Group also said earnings were expected to be down about 33%, at about US$2.2 billion, including about $2.4 billion of non-cash, post-tax impairments, that reflect the difficult operating environment in Egypt and lower forward gas prices in the US, coupled with lower production profiles in both countries.
The announcements saw BG Group’s share price fall 15%.
Chris Finlayson, BG Group chief executive said: “Despite the good progress we have made in 2013, we face short term issues, which are reflected in our revised 2014 guidance. This is very disappointing. We have elected to issue Force Majeure notices in Egypt reflecting the ongoing diversions of gas volumes to the domestic market.
“Year on year decline in Egypt and the US are the drivers of volume decline from 2013 to 2014, with the rest of the base portfolio broadly flat overall. The contribution from our key growth projects in Brazil and Australia, which remain on budget and schedule, is increasing, but the growing asset base and higher royalties, combined with the decline in production, are leading to higher unit operating costs in 2014.
“However, our long-term strategy remains unchanged, our capital expenditure level will decline and we continue to expect to be free cash flow positive in 2015.”
Giving detail on specific projects, BG said, in Brazil, FPSOs 2 and 3 will continue to ramp up, following the delays to the installation of buoyancy supported risers. The operator (Petrobras) expects to install FPSOs 4 and 5 in the second half of the year.
In Australia, the QCLNG project is on track for first LNG in Q4, with the second train expected to come onstream about six months later.