BG Group
Amount owned by Egypt $900m
No one is making too many extravagant promises, BG Group having been a serial disappointment in the past, but there are signs of some sort of resolution to the problems it has suffered in Egypt.
Gas production in the country accounts for about 10 per cent of the group total, but it has been diverted away from exports through the company’s liquefied natural gas (LNG) terminal there and towards the domestic market, where it fetches a much lower price.
BG is owed $900 million for those earlier supplies, an improvement on the $1.6 billion that it was owed at one stage. An agreement signed by two state-owned companies at the weekend will see a $4 billion investment in the existing field there, half of it to come from BG.
In return, the company is expected to see those outstanding balances paid and a rather better price from gas it produces, which will hopefully now go through that LNG terminal to the outside world.
The problems in Egypt are one of three factors moving the BG price. The second is the progress on the LNG facility in Queensland, which is seeing shipments at a rate of about one a week, up with expectations. Still, the company has indicated that the low oil price will reduce profits from its LNG side from a better than expected $2.5 billion in 2014 to $700 million to $1 billion this year. The third imponderable is the future of its huge reserves off Brazil, given the corruption scandal that has engulfed its state-owned partner Petrobras. This prompted Sami Iskander, the BG chief operating officer, to warn of “unknown unknowns” at the 2014 results early last month. BG’s other partner, the Portuguese energy business Galp, took a gloomier view of the project at a recent presentation to its investors, warning that the forecast production schedule might not be met.
BG says it believes that the delivery of the various floating platforms ordered over the next couple of years is guaranteed. Like other oil and gas companies, it has hatcheted back on capital spending until the price recovers. The shares, up 9½p at 822p, sell on perhaps 40 times earnings for 2015, the nadir of its fortunes. They will recover, though it is probably too early to start buying again.
MY ADVICE Avoid for now
WHY Sentiment will come back in BG’s favour amid the promise of the Egypt deal, but there is no immediate catalyst visible to move shares
Faroe Petroleum
Faroe share of Shango 20%
It is a fair bet that the budget tomorrow will contain some sort of tax breaks for the oil and gas industry aimed at stimulating investment in the UK’s sector of the North Sea. It is equally certain that whatever revised regime emerges, it will be significantly less attractive than that operating in the Norwegian sector.
There, the authorities will cheerfully refund 78p for every £1 spent on exploration and development. One of the biggest beneficiaries, and one of the biggest players there, is Faroe Petroleum.
Faroe has just started its 2015 appraisal drilling programme, at the Shango well, which is about 5km from Skirne, a field already producing. The company is better placed than other oil explorers, and not only because of those Norwegian tax advantages.
It raised £62 million in the summer at 120p, an auspicious piece of timing, though not necessarily for its investors — the shares slipped 2p to 68p yesterday. Last autumn it sold its 10 per cent stake in the Glenlivet gasfield, west of Shetland.
Capital spending, therefore, is expected to be light for 2015, and the four test wells this year are fully funded and can be paid for out of cashflow from Faroe’s existing production. Two are at the promising Pil discovery made last year. Even at the present oil price the fields are economic.
This may seem an odd time to invest in the oil and gas sector, but Faroe looks as good a punt as any and sentiment will one day return. A highly speculative long-term buy, then; be prepared to lock them away.
MY ADVICE Buy long term
WHY Faroe is as well placed as any in the sector for an upturn
AstraZeneca
Brilinta sales $3.2bn - $3.5bn
Brilinta, which treats patients recovering from heart attacks, is one of the planks that support the promise by Pascal Soriot, the AstraZeneca chief executive, to increase revenues to more than $45 billion by 2023, against a figure of just short of $27 billion in 2014.
Brilinta sales were themselves up by 70 per cent last year; analysts expect its total sales to reach $3.2 billion to $3.5 billion by then. Analysts were split, though, on the extent to which those sales would be boosted by the latest test of the compound, the largest in the company’s history, which looked at whether it could be used beyond a 12-month period to ensure against further heart attacks.
The data suggests that it is of some use, though to market it fully AstraZeneca would need to file for approval with the relevant American and European authorities. Other growth areas are respiratory treatments and oncology drugs, with approval for AZD9291 for lung cancer being fast-tracked in the United States and possibly on the market by the end of the year.
AstraZeneca shares, after an erratic performance, ended up 77½p at £46.34½. They yield a little more than 4 per cent, as ever the main reason for holding them.
MY ADVICE Hold
WHY Dividend yield still attractive in the long term
And finally . . .
Halfway figures from PureCircle knocked the shares back by 9 per cent as the company warned about rising prices for its main raw material, leaves of the natural sweetener stevia. The hope is that this will gradually replace other products in soft drinks and the like. The company is one of the biggest, and oddest, to be quoted on AIM. Halfway sales were only $43 million, yet PureCircle has a market cap of approaching £1 billion. In November it raised fresh funds to expand its production facilities.
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