Santos Basin Guara - a 'Super Giant' field

Friday, Sep 11 2009 by

BG Group announced on 9 September that the Guara discovery in the Santos Basin pre-salt, offshore Brazil is now estimated to contain recoverable volumes of 1.1 to 2.0 billion barrels of oil equivalent.

The DST flowed at 7,200 boepd but was facilities-constrained, though test data indicates that a permanent production well would be capable of producing initial rates of up to 50,000 boepd.

BG Group and partners have agreed a schedule which will prioritise the installation of production facilities on Guara. The development will use a 120 000 barrels per day Floating Production, Storage and Offloading vessel (FPSO), targeting first production from 2012. This will follow the 100 000 barrels per day first phase of the Tupi field, due onstream at the end of 2010 (BG Group 25%, operator Petrobras 65%, Galp 10%). 

It is clear that the Santos Basin pre-salt will make a very material contribution to the production and cash flow of BG Group for many years to come.'

Approx half of BG's revenue is from its E&P activities, with its other main focus on gas (Australian LNG, and more recently US shale gas), though the above comment indicates the Brazilian production will contribute materially in future.  And of course, should gas prices recover, that side of the equation will receive a boost too.

BG is XD today (interim divi of 5.62p)


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BG Group Limited, formerly BG Group plc, is a United Kingdom-based natural gas company. The Company has a portfolio of business interests focused on gas and oil exploration and production and on liquefied natural gas (LNG). It has two business segments: Upstream, which includes exploration and production and liquefaction, and LNG Shipping & Marketing, which combines the development and use of LNG import facilities with the purchase, shipping and sale of LNG and re-gasified natural gas. Its remaining Transmission and Distribution businesses, principally Mahanagar Gas Limited in India, and certain corporate activities are included in the Other activities segment. The Upstream business segment covers exploration and production activities plus liquefaction operations associated with integrated LNG projects. The LNG Shipping & Marketing segment covers activities, including purchases, ships, markets and sells LNG, as well as the Company's interests and capacity in re-gasification facilities. more »

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16 Posts on this Thread show/hide all

StrollingMolby 11th Sep '09 1 of 16

Snippet from the Evening Standard link ee posted on the M&A forum:

But the other big deal to be done is BG, the international oil and gas explorer and liquefied natual gas global leader. BP and Shell should be looking and others undoubtedly are. Tupi and now its Gaura supergiant finds off the coast of Brazil is putting BG on the map while JP Morgan is just one research house which says the company's stock is a giveaway at present because no-one is properly valuing its Australian LNG assets acquired over the last two years.

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emptyend 11th Sep '09 2 of 16

In reply to StrollingMolby (post #1)

One of the issues re BG M&A is that it is perhaps unlikely that the same buyer would pay top dollar for both the Aussie gas assets and the deep Brazil oil? XOM certainly makes sense for Brazil - but perhaps a Shell or GdF might be keener on the Aussie stuff?

Merely a matter of time, I'd guess, before someone gets tempted to have a go.


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StrollingMolby 11th Sep '09 3 of 16

In reply to emptyend (post #2)

Do you have a view on potential asset values in a bid situation, or have you seen any BG notes (such as the JPM one) ?

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djpreston 11th Sep '09 4 of 16

In reply to emptyend (post #2)

ee, I wouldnt say that XOM would show no interest in the Ausie LNG interests. BG's strong position in LNG for SE ASia would, I feel, very much interest them so thus Id see them willing to pay top dollar. Thats not to say that different groups could lodge bids for the individual parts....

Fund Management: European Wealth
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JPGH 11th Sep '09 5 of 16

BG would hardly be interested in a partial sale. Its all or nothing at a price that shareholders want or close to what BG management anticipate the value of currently owned assets to be in 2 yrs time or so. So its a take out or a merger.

The BG price tag is such that only 3 or 4 private companies from the list (BP, Shell, Exxon, Conoco-Phillips, Chev-Tex, Total, Eni, Gazprom, possibly Lukoil), some of the semi NOC's might  also be keen (but their 20% premium/scavenger like approach will not impress BG shareholders), can possibly afford it and even they might not be all that keen on some of the assets (e.g. Oz CSM/LNG or some of the tiddler UKNS assets). Maybe BG will offer "a sign" by disposing some of these smaller assets and tidy up the portfolio a bit?.

Looking at their website, the Brazil discovery is only a tiny value of the whole BG story. They have

(i) exploration and production business ( with its Oil/Gas/Condensate/NGL/CSM reserves/resources both in development and production phases, their key data is here. Note production is at 620,000 boepd (200,000 bopd, rest is gas), 6 billion boe 2P, another 3.2 billion boe resources (unbooked) and another 3 billion boe in risked exploration. Say "they" settle at pricing for 10 billion 2P at $8/boe. There's $80 billion (£50 billion or 25% above current SP) straight away.

(ii) LNG business from Liquefaction facility to point of sale. This is hard to value but consider the following. 13 million te LNG delivered through its shipping business, 7 million through its equity share in various LNG trains. Then there is the Regas side of the business. Say 15 years at net revenues of £1.2 billion per annum or £18 billion total.

(iii) There's the power generation business:- cant value except as a multiple (say 10) of annual earnings (see H1 2009 for an idea) Say 10 x £0.2 billion or £2billion.

(iv) transmission/pipelines:- cant value this except as a multiple of annual earning (say 10 x 0.5 billion) or £5 billion based on H1 2009 data.

(v) Others: - throw in £2 billion for bits and bobs/buildings ..etc.

so thats £77 billion or 110% premium to todays closing 1135p  SP. Say 2400p full an final offer. I'd take it.


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emptyend 11th Sep '09 6 of 16

In reply to StrollingMolby (post #3)

No sorry I haven't.  Would be interested to know too, if anyone has the research.

Re djp's comment - fair point. I've not looked at the details of the assets, fit and strategy.


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StrollingMolby 14th Sep '09 7 of 16

Director purchase just announced - from 11 August 2009 !


I'm amazed that listed companies, especially of this market cap, do not have a requirement for directors (incl .NEDs) to pre-clear their proposed transactions in case of a conflict, closed period, etc... allowing the company secretary to make timely disclosure.


Putting that gripe aside, 12,500 shares at £9.87 is not insignificant.  :o)

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emptyend 14th Sep '09 8 of 16

I'm amazed that listed companies, especially of this market cap, do not have a requirement for directors (incl .NEDs) to pre-clear their proposed transactions in case of a conflict, closed period, etc... allowing the company secretary to make timely disclosure.

I would have thought that the normal procedure would be that the Company Secretary would advise all directors, via the new-fangled email thingie, that a Close Period had commenced and that no dealing was allowed until Event XYZ had occurred.  For this not to happen (in a company doubtless replete with procedures and processes) appears remarkable!


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StrollingMolby 15th Sep '09 9 of 16

Another oil and gas discovery in Brazil

Abare West is in 2163 metres of water, approximately 290 km off the coast of Sao Paulo State and encountered a hydrocarbon column containing oil, gas and carbon dioxide in pre-salt reservoir sections. The well will be fully analysed and the forward plan for this discovery will be incorporated into the evaluation plan for this accumulation approved by ANP.

BG Group Chief Executive Frank Chapman said: "Abare West further extends an outstanding sequence for BG Group and partners operating in the Santos Basin, with eight discoveries in three years."

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JPGH 11th Oct '09 10 of 16

BG receives an unsolicited bid (£1.5 billion) for its Power Gen business

LONDON, Oct 11 (Reuters) - British gas producer BG Group (BG.L) has received an unsolicited bid for most of its 1.5 billion pound ($2.4 billion)power generation business and could announce a sale shortly, the Sunday Times reported.

The newspaper, without citing sources or naming the bidder, said BG had appointed Goldman Sachs (GS.N) to advise it on the offer.


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djpreston 12th Oct '09 11 of 16

Aye - not a bad sum and not especially that earth shattering in the context of BG as a whole.

Most estimates IVe seen around the value of the generation assets were £1.5bn to £1.7bn. or c 50p/shr.

What is useful is that generation is of course lower return than the upstream business and with everythign that BG has on its plate, Brazil, Ozzie LNG, BG will have ample scope to deploy the funds more effectively.

The way that BG shares ahve underperformed since the disappointment over 09 production, etc, theyve been one Ive happily snapped up. with the shares well below risked NAV now despite it having much longer reserve life and production growth (5-7%) than its peers. It also has good gearing to the US Gas prices and I suspect wil be loooking to add assets here. Throw in possible bid action and BG is as close to a no brainer as I can find at the moment.

Fund Management: European Wealth
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JPGH 12th Oct '09 12 of 16

I would also like to see a major tidy up and see BG dump the pipelines/transmission business too and become a pure Oil & Gas play.

Have you heard anything about BG's Jackdaw well in UKNS? From the pub mind.......Costing > £100 million for one well I have heard (using a jack up rig too).  Bloody expensive for such a medium to small sized prospect.


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djpreston 12th Oct '09 13 of 16

Not heard a ####ie bird......

Fund Management: European Wealth
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djpreston 12th Oct '09 14 of 16

Lol I think that the posting software nanny is a bit over sensitive. The above was supposed to be d i c k i e bird.

Does that mean if I make referecne to ####ie Bird (in a cricketing context) it gets hit?

Edit - Yep.  ;-)))

I hope no company we invest in ever has a CEO, Chairman or other key employee with the contraction of Richard......

Fund Management: European Wealth
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StrollingMolby 13th Nov '09 15 of 16

Another well drilled in the Santos Basin confirms the huge potential of the Tupi evaluation area.

BG Group today confirmed that in the Santos Basin pre-salt, offshore Brazil, hydrocarbons had been encountered in a new well known as Tupi North-East (3-BRSA-755A-RJS or 3-RJS-662A) on block BM-S-11.

Tupi North-East is located in the Tupi evaluation area in a water depth of 2 115 metres, approximately 265 km from Rio de Janeiro. The well is 18 kilometres to the north-east of the Tupi discovery well (1-RJS-628 or 1-BRSA-369).

Partners Petrobras (65%, operator), BG Group (25%) and Galp (10%) drilled the well which penetrated an approximately 250 metre thick section of carbonate reservoirs. Wireline testing confirmed the presence of light oil at approximately 28 API.

This is a further successful appraisal well which reinforces the partners' estimates that the Tupi accumulation holds 5 - 8 billion barrels oil equivalent of recoverable reserves.

Drilling on Tupi North-East has been concluded and drill stem tests to evaluate reservoir productivity will be conducted over the next few weeks.

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emptyend 13th Nov '09 16 of 16

In reply to StrollingMolby (post #15)

I don't think anyone doubts that there is a huge amount of oil there. It is more of a question of:

a) what the production costs will be and

b) how much of the cashflow the foreign partners will get to keep.

See the latest from the lawmakers:

A special committee in Brazil's lower house Wednesday approved a government plan for distribution of future royalties from the country's offshore subsalt oil reserves among Brazilian states and municipalities.

Under the plan, 15% of revenue from subsalt production will go toward royalty payments.....

The committee chairman, congressman Henrique Eduardo Alves, estimated that in addition to the royalty payments, the federal government would obtain approximately 49% of total revenue from subsalt production based on its stake in state-controlled oil company Petrobras (PBR).

Another 21% would stay with Petrobras and its partner companies and the remaining 15% would be invested in production.

...I'm not sure how this compared with earlier expectations, though.


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