A 7% cut to 2014 production guidance sees FTSE 100 oil and gas play BG Group (BG.) fall ahead of a capital markets event on its exploration and liquefied natural gas (LNG) businesses later today.
The response is a reminder of the forward-looking nature of markets as investors discount the in-line update on 2013 – with guidance for 630,000-660,000 barrels of oil equivalent per day (boepd) unchanged – and focus instead on next year's shortfall
BG doesn't have any overall production target for 2014 output but consensus expectations pencilled in around 720,000 boepd. BG has now guided for a 47,000 boepd hit in 2014 thanks to turmoil in Egypt, Norwegian delays and lower volumes from the US.
Specifically the latest phase of development on the WDDM concession in Egypt has been slowed by the instability in the country taking around 20,000 boepd. The BG-operated Knarr development offshore Norway has been delayed by four months due to adaptations to a production facility –accounting for another 10,000 boepd – and finally reduced drilling activity in response to lower American natural gas prices sees another 17,000 boepd come off next year's total.
Guidance of 775,000-825,000 boepd has been maintained for 2015 but management note this is subject to a recovery in US natural gas markets and future events in Egypt.
Broker Investec reiterates its 'sell' rating on the stock, puts its £11 price target under review and notes: 'Despite strong earnings and cash flow growth, on our current forecasts BG is still trading on a 25% P/E (price/earnings) premium versus the European sector in 2017.'
On a brighter note the company confirms its Queensland liquefied natural gas (LNG) project and massive oil fields offshore Brazil are on track – a key consideration when we last looked at BG in detail ahead of its July (26 Jul) interims.
Deutsche Bank, which has a 'buy' rating and £14 price target, comments: 'Ultimately, with the value upside in the name largely driven by Brazil and Australia we suspect that weakness today will represent a buying opportunity.'