Energy giant BG Group has declared force majeure for its operations in Egypt as it admits facing a production shortfall for 2014.
The company warned that it expected to produce between 590,000 and 630,000 barrels of oil equivalent per day this year – down on the number expected by analysts.
It also cut forecasts issued in September for 2015 production from between 775,000 to 825boed down to 710,000 to 750,000boed, and warned earnings are set to be down a third to $2.2billion (£1.3billion) because of lower US gas prices and the volatile situation in Egypt.
Shares in BG Group fell around 15% in the wake of the warning.
The ongoing crisis in Egypt cost the company more than $1.3billion (£787million) last year, as diversions to the domestic market meant the company was unable to meet its full obligations to deliver gas to Egyptian LNG.
Chris Finlayson, BG Group’s chief executive, admitted the figures were ‘very disappointing’ as the firm prepared for hgher operating costs and lower production over the next year.
“Despite the good progress we have made in 2013 we face short term issues which are reflected in our revised 2014 guidance,” he said.
“This is very disappointing. We have elected to issue Force Majeure notices in Egypt reflecting the ongoing diversions of gas volumes to the domestic market. 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.
“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.”
The firm is due more than $1.3billion in unpaid gas bills by the Egyptian government, which has started a repayment plan with BG Group and other majors in the country following last year’s civil unrest.
The need to provide the domestic market with more gas than expected saw resources diverted from the Egyptian LNG project, leading to today’s force majeure declaration in the country.
“BG Group remains committed to the Egyptian LNG project and will continue to negotiate with the Egyptian authorities and other stakeholders to seek a long-term solution,” the company said.
The firm said it expected full-year production for 2013 to come in at around 633,000 boed, with 2014 looking for strong growth from Brazil and Australia to counteract the losses from Egypt and the USA.
North Sea production is also expected to be slower, with the Buzzard field due for a planned maintenance shutdown and the Jasmine field ramp-up at a slower rate.
Despite the warning, however, Finlayson said the company was looking for better financial results next year.
“Our long-term strategy remains unchanged,” he said.
“Our capital expenditure level will decline and we continue to expect to be free cash flow positive in 2015.”
