London-listed BG Group (LON:BG) has become the second big player in the oil and gas sector to shock the market this month.
Shares in the FTSE 100 heavyweight took a bath as the company lowered its production guidance for 2014 and 2015 because of problems in Egypt. After half an hour of trading on Monday, the shares were 12.4% lower at 1,098.5p.
The group said production volumes in 2014 are expected to fall in the range of 590,000 to 630,000 barrels of oil equivalent per day, some way below the 660,000 boepd the market had been expecting.
BG expects 2015 production to be between 710,000 and 750,000 boepd (excluding portfolio changes), which represents a sizeable reduction in the previously indicated guidance range, given in September, of 775,000 to 825,000 boepd.
The group has issued force majeure notices under its liquefied natural gas agreements in Egypt, reflecting the diversions of gas volumes to the domestic market in excess of the existing pooling arrangements that are currently taking place.
In addition to the problems in Egypt, the group grumbled that the low rig count in the US will results in a volume decline in 2014 of a similar amount experienced in 2013.
The group said it would take non-cash post-tax impairments of around US$1.3bn in its 2013 results in respect of its Egyptian operations and US$1.1bn in respect of the US.
The group predicted post-tax profits after the impairments would be around US$2,2bn, or 65 cents a share.
“Year on year decline in Egypt and the US are the drivers of volume decline from 2013 to 2014, with the rest of the base portfolio broadly flat overall,” said Chris Finlayson, BG Group’s chief executive.
“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," he added.
BG is no stranger to dropping bombshells on the market, having warned in September of last year that production in 2014 would be lower than the market had been expecting. The shares took a biffing, drifting down to 1,154.5p in early October, but subsequently recovered by the end of the year to 1,297.5p.
The latest warning will disappoint fans of a sector already reeling from Shell’s (LON:RDSB, LON:RDSA) profit warning on 17 January. Shell cut fourth quarter earnings guidance to around US$2.9bn, some US$2bn shy of forecasts.