BG expects energy industry costs to fall

Nov 04, 2008 01:00 AM

by Russell Hotten

The industry is now likely to see a "significant fall" in costs as raw material prices fall and oil services sub-contractors adjust to a new era of cheaper crude.
In expectation of falling costs, Mr Chapman said that BG was putting on hold a decision to expand a huge oil and gas project in Kazakhstan. It follows a similar move by Royal Dutch Shell, which has delayed a decision on financing a second phase of an oil sands project in Canada.

Mr Chapman said that BG was in talks with the Kazakh state oil company KazMunaiGaz about the rescheduling phase three of the Karachaganak project.
"We think there will be a significant fall in costs," said Mr Chapman. "What we do not want to do is make a commitment to it at the peak of the cost cycle."

Oilfield services and equipment costs rocketed as the price of crude reached record levels, hitting $ 147 a barrel in July. Oil and gas producers now expect industry costs to drop after oil futures declined 33 % in October, a record monthly drop, on signs that the global economic slowdown is curbing fuel consumption.
BG, the UK's third-largest oil and gas company, posted third-quarter profits up 140 % to £ 857 mm, well ahead of analysts' forecasts of £ 754 mm. BG added that it was on track to sustain a 6 %-8 % compound annual growth rate in production from 2005 to 2020.

"The update provides a timely reminder that BG remains a leading growth story in energy," analysts at Morgan Stanley said in a research note. And ING analyst Jason Kenney said the third-quarter results are stunning and the big reserves boost shows it to be a major growth play with a very attractive strategy.
BG said that it has raised its average contract price for UK gas deliveries by 62 %. The company is now charging 55 pence a therm in the year started October 1, up from 34 pence a therm a year earlier.

Finance director Ashley Almanza said: "A number of gas sale contracts have come to an end and we now have the opportunity to reprice this."
BG plans to sell about 60 % of its UK gas under contracts by October, down from about 75 % previously.

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