BG takes hit as Government tax rises

By This Is Money
Updated: 11:19 EDT, 10 May 2011

Gas and oil exploration giant BG posted a sharp fall in profits as the Government's raid on North Sea drilling kicked in, and the firm warned its future is now largely away from the UK.

CEO Frank Chapman: Confident of 'growth projects in Brazil, the US and Australia'

BG took a hit of £162m to reflect the rise in the offshore drilling tax to 32%, from 20%, announced in the March Budget.

Its effective tax rate this time rose to 45% from 42% as a result of the Chancellor's move, it added.

The oil and gas group was also hit by the problems in North Africa, bad weather in Australia and maintenance shutdowns on two major platforms in the North Sea.

Production growth in 2011 will be 'modest', chief executive Frank Chapman said, though he expects a ramp-up in output through next year and into 2013 as huge developments in Egypt and offshore Brazil start to come on stream.

Pre-tax profits in the three months to March dropped by $581m (£355m) to $1.4bn (£885m), though revenues rose 10% to £2.9bn.

BG also took a further charge of £136m, mostly for commodity contract impairments. Net profits fell to £380m from £603m a year earlier.

BG is the second major UK oil and gas company this week to warn of the impact of the Government tax raid. British Gas owner Centrica said on Monday it faces an additional £300m bill and is considering shutting down part of its huge Morecambe Bay gas field. BG did not comment directly about the tax hike today, but did emphasise that its future is now largely away from the UK.

Mr Chapman added: 'Our 2020 goals are unaffected and are supported by the significant progress with our growth projects in Brazil, the US and Australia.'

BG is part of a consortium that has made major oil discoveries in the Santos Basin, offshore Brazil, while it has also spent heavily building up is shale gas interests in the US.

The group also has a growing liquefied gas operation. Profits here by fell by 10% to £348m in the latest three months, but Mr Chapman said the LNG division's full-year profits would still hit £1.35bn, the top end of its forecasts.