Why Shares In BG Group plc Plummeted

BG Group plc (LON: BG) disappoints investors with bleak predictions for years ahead.

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 27 January, 2014 9:22 am GMT

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: The market got off to a poor start this morning as shares in BG Group (LSE: BG) (NASDAQOTH: BRGYY.US) plummeted nearly 15% in early trade, after the group revised its 2014 production guidance.

So what: The UK energy provider warned that production this year and next will miss expectations. The FTSE 100 member said it expected to produce between 590-630 thousand barrels of oil equivalent per day (kboed), lower than the 660,000 analysts previously predicted.

The company also reduced its target for 2015 to 710-750 thousand kboed, from around 800 thousand previously.

One of the main drivers of volume decline is the US which suffers from a low rig count. The other is Egypt — accounting for around 20% of production — which has been diverting gas volumes to its domestic market in excess of previously agreed numbers.

Now what: The mismanagement which saw BG reduce its presence in the United States must be addressed: the drive for value over volume clearly isn’t working.

BG’s chief executive, Chris Finlayson, said:

“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.”