By Richard Hunter (Hargreaves Lansdown)

BG Group (the former British Gas company minus the retail distribution arm Centrica) conducts its business via four key divisions: ‘Exploration and Production’ of both gas and oil; management of ‘Liquefied Natural Gas’ export and import plants; the ‘Transmission and Distribution’ division is the operator of major pipelines and distribution networks to industry and finally the ‘Power Generation’ division, owns and operates natural gas-fired power generation plants around the world. Gas accounts for approximately 70pc of its volumes, while oil and liquids represent the remaining 10 pct and 20 pct, respectively.

The group’s recent third quarter results (28 October 2009) saw the company exceeding analysts’ forecasts. Thanks largely to lower natural gas and oil prices, third quarter net profit declined by 43.5pc to £484m, against £857m in Q3 2008. However, as has been the case for some time, resilient performances from the group’s Transmission & Distribution division and from its Liquefied Natural Gas (LNG) business helped to cushion the downturn. On the production front, output materialised at 615,000 barrels a day, a rise of 4.8pc on the year, although below many analyst expectations of nearer 8pc, thanks mainly to a delay in the start-up of the Hasdrubal facility in Tunisia. As for the outlook, production targets over the fourth quarter are expected to come in around 700,000 barrels of oil equivalent, a 12pc increase on last year. Finally, given the group’s continuing international growth, like its major rivals, BG is moving during 2010 to report its results in US dollars.

On the downside for shareholders going forward, energy prices remain at the mercy of the global economy, with falling prices hitting profitability over the third quarter. Furthermore, production growth disappointed over the period (Q3 2009), whilst the share price valuation remains at a premium to rivals such as BP and Royal Dutch Shell. On the positive, BG still continues to offer one of the best production growth rates within the industry, with management forecasting production growth of 6pc to 8pc per annum through to 2020. In addition, the group is continuing its aggressive exploration programme in Brazil, whilst its LNG business is building up its Australian Coal Seam exposure, with management hopeful for long term growth prospects. Finally, the progressive dividend policy remains supportive. On balance, current market consensus opinion denotes a strong buy.