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Is BG Group plc Set For Electrifying Earnings Growth In 2014?

Today I am looking at the earnings prospects of fossil fuel play BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) for the coming year.

Rising output to boost earnings

BG Group has demonstrated regularly that the business of extracting oil can be a risky and often unrewarding process. News this month that recoverable oil volumes at the Carioca field of the coast of Brazil had fallen short of expectations illustrates this, as project partner Petrobras announced that asset volumes stand at some 460m barrels, well below estimates of 1.7bn made in recent years.

BG Group also has a number of wider production battles ahead of it as we enter 2014. The ongoing political uncertainty in Egypt was a key factor in driving group production 10% lower in July-September, and development in the country may be halted should problems persist, a more-than-likely scenario. Elsewhere, industry problems in the US has forced the firm to scale back activity there.

Still, industry experts expect group production volumes to tread steadily higher in coming years, in turn propelling revenues higher. Investec expects aggregate oil and gas output of 650,000 barrels of oil equivalent per day (boepd) to nudge to 668,000 boepd in 2014 before taking off thereafter — production of 765,000 boepd and 866,000 boepd is anticipated in 2015 and 2016 respectively.

In recent weeks first gas was delivered to its liquifaction terminal at its colossal Queensland Curtis LNG project in Australia, marking the end of a two-year process to lay thousands of kilometres of pipeline from the Surat Basin coal seam gas fields. Commissioning of the first of two production trains is set to begin in the next few months, with maiden commercial LNG on track for the second half of next year.

The firm has also made excellent progress in boosting production at its assets in Bolivia, Thailand and the UK, and in Brazil the mobilisation of production vessels in offshore Brazil is set to prompt a production gush here  in 2014.

City analysts have pencilled in a 2% decline in earnings, to 78.2p per share. But an 8% rebound in 2014 is forecast, to 84.3p, as production begins to lift off.

These projections leave BG Group dealing on a P/E rating of 14.8 for next year, comfortably above a forward mean of 19 for the complete oil and gas producers sector. In my opinion BG Group’s production profile — although previously lumpy — is set to deliver strong returns over the long term.

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> Royston does not own shares in BG Group.