Is BG Group a Buy?

LONDON -- Confidence in multinational oil and gas producer BG Group (LSE: BG  ) (NASDAQOTH: BRGYY  ) has taken a severe battering in recent months. The shares collapsed almost a quarter in the space of a fortnight to 1,000 pence following November's third-quarter report, which severely scaled back projected production estimates through to 2015.

As a consequence, industry veteran Chris Finlayson was parachuted into the chief executive's hot seat to steady the ship. I believe that between his stewardship -- his 35 years in the business include a chunky stint at Royal Dutch Shell -- and the quality of the firm's assets that are coming online over the next year, BG should get back to delivering solid growth to investors.

Full-year statement confirms production worries
BG's 2012 results released last week confirmed lasting fears over production levels.

The company now expects output this year of between 630,000 and 660,000 barrels of oil equivalent per day, versus 657,000 barrels last year. Further, the group tore up its target of 1 million barrels a day by 2015. Project delays in Brazil and the U.K., a scaling back of shale gas operations in the U.S., and concerns over gas reserves in Egypt all prompted the company to downgrade expectations.

Although group volumes are expected to stagnate over the next 12 months, production looks set to spike sharply in coming years and drive meaty returns. BG's Sapinhoa field in Brazil commenced production in January, while the Queensland Curtis LNG project in Australia is on course to deliver its first payload in 2014.

Broker Canaccord Genuity predicts that 2014 output will leap higher to 746,000 barrels a day from 643,000 this year before igniting to between 886,000 and 867,000 during 2015.

Production leap from 2014 to turbocharge earnings
Adjusted diluted earnings per share edged just 0.1% higher in 2012, while Canaccord expects BG's current troubles to push EPS 1.8% lower to 79.7 pence at the close of the year.

But earnings are forecast to explode thereafter with a 23.8% increase to 98.7 pence per share for 2014, followed by a 19.6% jump to 118.1 pence per share in 2015. A P/E ratio of 14.2 for the current year is scheduled to fall to 11.5 and 9.6 for 2014 and 2015, respectively, according to Canaccord.

There's gold in them there wells
Like all fossil-fuel explorers and producers, BG Group comes with a heightened risk profile, exacerbated by the production problems the firm has highlighted in recent months. The Fool's free "How To Unearth Great Oil & Gas Shares" report identifies a cluster of great investment opportunities among other energy specialists, should BG Group and its recent troubles fail to whet your appetite. Click here to download our free report.


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