The Independent (UK); OUTLOOK: BG Group makes a meal out of great story: “On the stringent SEC measure, it is well ahead of Shell and BP on reserves replacement with a ratio comfortably above 100 per cent. Shell, given its own reserves disaster, can only look on in envy.” (ShellNews.net) 16 Feb 05

JEREMY WARNER

Feb 16, 2005

BG GROUP may or may not be the great company its share price seems to suggest, but if it is to give the outside world any real way of knowing, it needs to sharpen up its presentational skills. Barely a tenth of the size of BP, its results conference yesterday lasted twice as long. The chief executive, Frank Chapman, speaks a language that few even in the oil industry would properly understand. Why talk about future prospects when instead you can bang on about the "opportunity set we are hoping to mature" with the help of "embedded expansion options"?

Perhaps because BG ranks a distant third to BP and Shell in the UK oil and gas sector. Mr Chapman must therefore believe he has to try harder to succeed. He styles the company as a go-go growth business, not some stodgy old yield stock, but you have to wonder whether this is more out of necessity than choice. BG's dividend last year paled against the paybacks from BP and Shell.

Formed five years ago when British Gas did the splits for the second time and demerged its UK gas transmission network, BG has made a pretty decent fist out of the legacy North Sea assets it inherited. Remarkably, it has managed to halt the decline in North Sea production by exploiting what were once seen as marginal fields. But since the long-term trend is for UK output to fall, BG has been forced further and further afield to the shores of Trinidad, Egypt and even Iran.

On the face of it, the strategy is reaping dividends (if not of the kind shareholders like to see). Unlike many of its peers, BG is adding new sources of oil at a faster rate than it is pumping the stuff. On the stringent SEC measure, it is well ahead of Shell and BP on reserves replacement with a ratio comfortably above 100 per cent. Shell, given its own reserves disaster, can only look on in envy. Yet it is hard to believe that BG has a long-term or even medium-term future as an independent E&P company. Perhaps that was what Mr Chapman was really doing yesterday - burnishing BG's credentials ready for the day when one of the oil majors comes knocking. But then the management gobbledygook makes it hard to tell quite what his game might be.

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