Why Shares In BG Group plc Plummeted

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.”

The first and most important thing you need to do to become a successful investor is this: start investing. It's a lot less daunting than it sounds, and to help you on your way The Motley Fool has produced this exclusive wealth report.

"Your Ten Step Guide To Making A Million In The Market"  is completely free and comes with no obligation -- click here for your copy.


> Mark does not own shares in BG.