BG Group Plc Management Discusses Q4 2011 Results - Earnings Call Transcript

BG Group plc (BRGYY.PK)

Q4 2011 Earnings Call

February 09, 2012 9:00 am ET

Executives

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Robert Peter Wilson - Non Executive Chairman, Chairman of Nominations Committee, Chairman of Chairmans Committee, Chairman of Finance Committee, Member of Remuneration Committee and Member of Sustainability Committee

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

Martin Houston - Chief Operating Officer, Head of Liquefied Natural Gas Unit, Executive Vice President - Atlantic Europe and Mediterranean Basin, Managing Director of Americas & Global Lng, Executive Director, Member of Group Executive Committee, Member of Group Performance Committee and Member of Sustainability Committee

Chris Lloyd - Head of Investor Relations

Analysts

Irene Himona - Societe Generale Cross Asset Research

Jason Gammel - Macquarie Research

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

Jon Rigby - UBS Investment Bank, Research Division

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

Gordon M. Gray - Collins Stewart plc, Research Division

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

Lucy Haskins - Barclays Capital, Research Division

Michael J. Alsford - Citigroup Inc, Research Division

Unknown Analyst

Martijn Rats - Morgan Stanley, Research Division

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

Colin Smith

Hootan Yazhari - BofA Merrill Lynch, Research Division

Paul G. Spedding - HSBC, Research Division

Presentation

Robert Peter Wilson

Ladies and gentlemen, good afternoon. I'm Robert Wilson, Chairman of BG. It's very good to see you here again for our 2012 Strategy Presentation. I'd just like to say 1 or 2 things before getting the presentations underway. The presentation this year is a little bit different from the format you've seen in previous years. There's not going to be a lot of time going over the 2012 results -- 2011 results, 2012 will be a bit optimistic. And we're not going to spend a lot of time on 2011 results, because you've already spent quite a lot of time on this, I know. And I'm not intending by that incidentally to preclude questions in the Q&A session on 2011 results. But we do want to spend a little bit more time on discussing the strategy update.

There's 1 particular aspect which is going to be a little bit different, too, in that because over the years, we've noticed that our LNG business, which you all know has actually given us some astonishingly good results, but there has been, and there still is an element of the investor community, which rather dismisses these results as low-quality, short-term earnings, a sort of one-off break. I think by now that it's clear that we have a much solider business than that, and one that we can look forward to the future with great optimism. And what you're going to hear is actually a little bit of further explanation, more information about the LNG business, which will enable you to build models on the future profitability of this business rather than the systematic short-term indications of profitability, which we've relied on in the past.

As it happens, I know that some of you have already developed models that are very close to the reality. So it's not going to come as a big surprise to some of you. So that is one thing, though, that is going to be a little bit different about the presentation this year. I should say, too, that after 8.5 years, I'm just about to stand down as Chairman of BG. It's been a hugely exhilarating period for me. I must say I thoroughly enjoyed it.

And I've been very lucky, too, in having a highly successful Chief Executive to work with throughout that period. I can tell you, it's a lot easier being a Chairman if you've got a successful CEO than if you've got a business that's struggling. So I'm now pleased to be able to hand on my role to Andrew Gould, who is known of, if not known to, all of you in his capacity as -- or his past capacity as Chairman and Chief Executive of Schlumberger. Schlumberger is a great company, the most successful company in the oil field services sector. Andrew's knowledge of this industry is profound. And very interestingly, and I think very valuably, he's seen the industry from a slightly different perspective than the traditional IOC managers and leadership would've done. I think that's going to be a great help to us, as will Andrew's very strong connections with the national oil companies because, of course, he's been a service supplier to them rather than a sort of a rival.

I'd like to ask Andrew just to come up so that those of you that haven't seen or met him before at least get a chance to recognize him. And this is the man. If anything goes wrong in the future, it'll be Andrew or Frank.

And with that, I'd like to hand the meeting over to Frank to get started. Thank you.

Frank J. Chapman

Well, Bob, I'd like to also say thank you to you enormously. You've been a tremendous support and a terrific mentor, guiding us with your vast experience of international extractive industries. It has been a huge pleasure to work with you, and I look forward, of course, to the transition to Andrew and this new knowledge and skills that he will bring. But once again, thank you very much, Bob, for all of you've done for me and for the company.

So ladies and gentlemen, as I walk around this, good afternoon, and welcome to BG Group's 2012 Annual Strategy Presentation. I know you're getting very good at this. I want to draw your attention to our legal notice, which I'm going to leave you to read later.

Now today's presentation is structured around market knowledge and commercial agility, exploration performance and fast-track development of economic projects. These are distinctive capabilities at the very heart of BG and key to the continued delivery of shareholder value. Now before we get into this, Fabio will kick off, summarizing our financial performance and our funding plans. Then we'll get on to strategy, beginning with the outlook for global gas and LNG markets. We'll then look at prospects for our global LNG business and the latest chapter, U.S. LNG exports. We'll review strong exploration and appraisal performance and further increases in our resources. We'll look at the fast-track development of economic projects, focusing on Australia and Brazil, and finally, to the outlook for production. And as you're going to see, we are making good progress with delivering our plans.

The key messages I want to convey are the outlook for gas and LNG demand is strong with markets important to BG Group generally remaining tight. Our LNG business is set fair with the prospect of excellent profit momentum for many years, 10 years of industry-leading exploration that added another billion barrels oil equivalent of resources in 2011. We're on track in Australia for first LNG in 2014. We're on track in Brazil to deliver 2.3 million BOE per day of capacity by 2017. The combination of these and other named projects, underpinned by discovered resources, will deliver growth to 1.4 million BOE per day by 2020.

You'll recognize our strategy remains unchanged. It's founded on a deep understanding of our target markets and customers. We couple this with skills to connect to those markets' long-life, competitively priced resources. And while we retain our distinctive gas capability, we've adapted our approach to oil and secured a material increase in our exposure to oil prices. The combination of a clear and stable strategy and our distinctive capabilities has, over some 15 years now, driven strong profit growth of 28% per annum. Our presentation will show that this trend of value creation is set to continue as a suite of new E&P and LNG projects are brought onstream.

But before we come to all of this, Fabio will summarize 2011 results and comment on our funding plans. Fabio?

Fabio De Oliveira Barbosa

Thank you, Frank. Good afternoon, ladies and gentlemen. Very briefly on the results. In 2011, E&P operating profits rose by 37%, benefiting from higher realized prices but held back by production shortfalls, primarily in the UK North Sea assets. LNG profits were at 5% with a strong demand and price in Asia being offset by the impact of our hedging program. Underlying T&D performances in Brazil and India were strong, and despite the results being down 39% due to timing of gas cost recovery at Comgás. Overall, our operating profit rose 19%, mirrored by strong cash generation from operations, up 17% at $9.8 billion.

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