BG Group (BRGYY.PK)

Q2 2012 Earnings Call

July 26, 2012 6:00 am ET

Executives

Bruce Connery

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Frank J. Chapman - Chief Executive, Executive Director, Chairman of Exploration & Appraisal Committee, Chairman of Group Executive Committee, Member of Chairmans Committee, Member of Portfolio Development Committee, Member of Sustainability Committee, Member of Finance Committee and Member of Investment Committee

Fabio De Oliveira Barbosa - Chief Financial Officer, Executive Director, Member of Group Executive Committee, Member of Chairmans Committee and Member of Finance Committee

Analysts

Theepan Jothilingam - Nomura Securities Co. Ltd., Research Division

Brendan Warn - Jefferies & Company, Inc., Research Division

Oswald Clint - Sanford C. Bernstein & Co., LLC., Research Division

Michael J. Alsford - Citigroup Inc, Research Division

Michele Della Vigna - Goldman Sachs Group Inc., Research Division

Hootan Yazhari - BofA Merrill Lynch, Research Division

Thomas Adolff - Crédit Suisse AG, Research Division

Irene Himona - Societe Generale Cross Asset Research

Anish Kapadia - Tudor, Pickering, Holt & Co. Securities, Inc., Research Division

Jason Gammel - Macquarie Research

Presentation

Operator

Hello, and welcome to the BG Group Second Quarter Results Call. [Operator Instructions] Just to remind you, this call is being recorded. I'll now hand you over to Bruce Connery, Head of Investor Relations. Please begin.

Bruce Connery

Good morning, ladies and gentlemen, and welcome to BG Group's Second Quarter Results Conference Call. During the course of this call, our Chief Executive, Sir Frank Chapman; and our Chief Financial Officer, Fabio Barbosa, will take you through the quarter's key business highlights. Then Sir Frank and Fabio will take your questions. During the call, we'll be focusing on our business performance results as highlighted in our result statements. We'll also be making various forward-looking statements. Factors that could cause our actual results to differ materially from the results we currently expect are identified in detail in BG Group's annual report and accounts for 2011. Thank you. And now over to Sir Frank.

Frank J. Chapman

Good morning, ladies and gentlemen. I'd like to begin by running through headline figures from our results today and briefly update you on the progress we're making on our key growth projects and other portfolio developments. I will then hand over to Fabio, who will take you through the key financial data in more detail.

Cash flow from operations grew by 21% to $3 billion in a quarter where total operating profit was down 8% at $2 billion. For the half year, cash flow from operations was up 32%, operating profit was 6% higher and earnings grew by 21%.

Now let me take you through some of the key project milestones and operational developments.

In Brazil, Petrobras, the operator of the big 5 discoveries, where we have very material interests, presented its latest business plan, which confirmed its commitment to the fast-track development of our joint interest in line with BG Group's own plans.

Earlier this month, the partners approved contracts worth $4.5 billion for the first 6 topside modules and integration packages for the Brazilian constructed FPSOs.

The BM-S-11 partners have also issued tenders for an additional chartered FPSO expected onstream in 2015. The second FPSO destined for installation on the Sapinhoá field in 2013 is 92% complete. The third FPSO to be installed on Lula North East also in 2013 is 85% complete and now in Brazil for topsides integration. And FPSOs 4 and 5 are on schedule at some 25% complete.

A substantial proportion of our first phase facilities is now under contract. And this, alongside continuing improvements to drilling durations, affirms our capital cost estimates for Brazil and our expectation of more than 600,000 BOE per day production, next to BG Group by 2020.

In Australia, we continue to make progress towards first LNG in 2014. We drilled around 80 wells in the quarter and continue to build an extensive inventory of drilling locations supporting upstream execution in the second half of the year.

Further, the Argyle field compression station is undergoing final commissioning. On the pipeline, the entire 200-kilometer gas collection header has been welded and is now being trenched, while clearance and grading of the 340-kilometer export pipeline is now some 40% complete, with pipe-joints being laid down along the route.

At the LNG plants on Curtis Island, tank and jetty construction progressed, and the first shipment of 6 production modules has departed from Thailand.

Turning now to the U.S. As a result of the -- a lower long-term Henry Hub price premise, we further reduced our rig count to 6. Our efforts in the U.S. are now focused on progressing our significant opportunities for the export of LNG from North America to BG Group's global customers.

Elsewhere, we saw progress on other important projects. In Egypt, Phase 8b of the West Delta Deep Marine development started gas production and new facilities at the Margarita and Bongkot South fields in Bolivia and Thailand continued their ramp-up.

In Kazakhstan, completion of the comprehensive agreement there paves the way to unlock the substantial remaining potential of the giant Karachaganak field.

Turning now to exploration and appraisal. Offshore Tanzania, we made a fifth consecutive discovery with the Mzia-1 well. This was our first success in the deeper Cretaceous section of the basin, opening an extensive new play fairway in our acreage.

Meanwhile, a new gas discovery was made in the Egypt El Burg concession and the fourth Bowen tight gas sands well reached TD in Australia and is under evaluation.

Alongside this, we saw a further successful appraisal in Brazil. Looking forward, the long-term shutdown at the Elgin/Franklin field, the deferral of Jasmine startup to 2013 and the scaling back of drilling operations in the U.S. are expected in aggregate to reduce year-end production by some 50,000 BOE per day.

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