BG Group share price falls 1 per cent after £6bn impairment charge on falling oil prices

 
Jessica Morris
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BG Group took an $8.9bn impairment charge on oil prices (Source: Getty)

BG Group has written-down the value of its business due to crumbling commodity prices - nonetheless the group believes it is well-placed to weather the oil price rout.

The figures

The oil and natural gas company was hit by an £5.9bn pre-tax impairment charge mainly due to the fall in global commodity prices. "The substantial impairments ... were principally focused on Australia, but also in areas such as the North Sea and Tunisia," said Andrew MacFarlane, industrials credit analyst at the securities arm of Mitsubishi.

This meant BG Group made a 1.5bn pretax loss last year, down from a £3.6bn profit in 2013. The group also said its full-year dividend payment was unchanged at 28.75 cents per share.

Why it's interesting

It's the latest oil and gas producer to suffer amid crumbling oil prices, which has shed around 60 per cent since July last year. As the decline has eaten into companies' profits, they've been forced to cut costs, and BG Group said it would cut operating costs by 10 per cent this year (a move which will include some job losses.)

MacFarlane said BG Group remains higher-levered than some of its major counterparts, and faces "higher risks of downgrades as a result." Generally, oil companies have flexibility when it come to dealing with falling oil prices, nonetheless "BG Group does face a more difficult situation than many."

What BG Group said

"The sharp deterioration in commodity prices in the second half of the year has led us to recognise significant asset impairment charges in the fourth quarter," said Andrew Gould, interim executive chairman at BG Group.

"In the new environment we are well placed to manage the downturn as we are reaching the end of a high capital expenditure cycle and will continue to add further production in 2015 from Brazil and Australia."

"We will proactively manage our costs, both capital and operating, to adapt to the new business circumstances."

In short

While the group has been hit by falling oil prices it will offset damage by constraining capital expenditure this year. Its financial position will also be helped by increased production from projects in Australia and Brazil.

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