BG Group, whose global expertise is centered around natural gas, on Wednesday said it plans to slash U.S. drilling, as well as other global gas-weighted projects, because of low commodity prices.
The company did not disclose how many rigs it is currently running in the U.S. onshore nor how many would be dropped.
“The decision to scale back the U.S. rig count was driven by capital expenditure rationing considerations in the light of U.S. gas prices,” BG officials said. The company “has a short lead time to reestablish rig count, and therefore can increase production, should U.S. gas price levels improve the economic ranking of the U.S. opportunities.”
BG plans to continue to develop its U.S. liquefied natural gas (LNG) export opportunities, “which benefit from the effects of low U.S. gas prices.” In 2011, BG Group’s BG Gulf Coast LNG LLC agreed to purchase 3.5 million million tons per annum (mtpa) of LNG from Cheniere Energy Partners LP’s Sabine Pass Liquefaction LLC (see Shale Daily, Oct. 27, 2011). It was Cheniere’s first sales contract for its U.S. Gulf Coast liquefaction project and the first for export of LNG from the Lower 48.
Shares of the UK-based producer tumbled nearly 14% on Wednesday on news of production deferrals from the company’s projects in Brazil and the UK. BG closed at 1,147.50 British pounds/share ($1,847.70/share) on the London Stock Exchange on Wednesday, a decline of 13.69%, or 182.00 British pounds/share ($293.06/share), from the day’s opening share price of 1,335.00 British pounds ($2,149.62).
In announcing 3Q2012 earnings, the company said it had signed an agreement to sell an undisclosed stake in the Queensland Curtis LNG (QCLNG) project in Australia to China National Offshore Oil Corp. (CNOOC) for US$1.93 billion. Under the terms of the deal, CNOOC would reimburse BG for its proportionate share of capital invested in QCLNG since Jan. 1 until the transaction is completed, which is expected in mid-2013.
The deal also calls for BG to supply CNOOC with five million tons per annum (mtpa) of LNG for 20 years, effectively making BG the largest supplier of LNG to China. CEO Frank Chapman added that the agreement “means that we now have completed or reached asset sales agreements that should release a total of $7.6 billion of capital by mid-2013, with a material benefit to the [BG’s] balance sheet.”
But the company also announced several production deferrals, which caused BG to revise its 2013 outlook and put in more in line with 2012. Production in the North Sea’s Elgin-Franklin natural gas field is shut down but is expected to progressively return to production in 2013, BG said. Meanwhile, production in Jasmine, another North Sea field, is expected to enter service in 2013.
During 3Q2012, net profits were $1.19 billion (35 cents/share), a 16% increase from the $1.02 billion (30.1 cents) earned during the same quarter in 2011. Production increased 5%, to 59.4 million boe (44.2 million boe of natural gas, 8.2 million boe of natural gas liquids, and 7.0 million boe oil). Those figures translated to production volumes of 646,000 boe/d overall, or 481,000 boe/d of natural gas, 89,000 boe/d of NGLs and 76,000 boe/d of oil.
According to SmithBits data, BG had no operated rigs in the United States as of Oct. 26, but joint venture (JV) partner EXCO Resources Inc. has five rigs running in DeSoto Parish, LA, in the Haynesville Shale, and one rig running in Armstrong County, PA, in the Marcellus Shale (see Shale Daily, Nov. 7, 2011).
In a related matter, EXCO CEO Doug Miller said his company had four offers to buy TGGT Holdings LLC (see Shale Daily, Feb. 27). That company, a JV with BG, operates more than 1,000 miles of gathering pipelines in North Louisiana and East Texas with interconnections to 25 existing or planned intrastate and interstate pipelines in the region. TGGT’s pipelines have a combined delivery capacity of about 4 Bcf/d, including 1.4 Bcf/d of treating capacity.
“We’re in discussions with BG right now on how to do it,” Miller said Tuesday during EXCO’s 3Q2012 earnings conference call. “I expect an announcement within the next week on which approach we’re taking.” He added that the options being discussed with BG were to either sell TGGT outright or to place it into a master limited partnership.
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