UPDATE 2-BG says still happy with Shell bid as oil price rise boosts LNG

May 8, 2015 6:53 AM

(Adds LNG business details, analyst comment, updates shares)

By Karolin Schaps

LONDON, May 8 (Reuters) - BG Group said on Friday it was still happy with Shell's $70 billion takeover bid despite a recent upturn in oil prices that led the company to increase the profit outlook for its liquefied natural gas (LNG) business.

A near 20 percent rise in oil prices since Shell made its agreed bid for BG on April 8, when the cash and shares price valued BG at 47 billion pounds ($72.6 billion), has raised concerns that investors might question that valuation and put pressure on Shell to conclude the deal as quickly as possible.

"There is no change to our view on the offer," BG's new chief executive, Helge Lund, said on his first results conference call since taking the reins in early February.

The recent oil price rise has improved BG's outlook for LNG prices and led the company to raise its LNG earnings forecast for 2015 to $1.3-1.5 billion from a previous guidance of $0.7-1 billion.

BG's LNG unit, one of the main pillars of the business which Shell said justified its takeover offer, significantly ramped up volumes in the first quarter, selling 21 more cargoes than the same time last year thanks to the newly opened QCLNG facility in Australia.

Analysts at Jefferies, who recommend buying the stock, estimated that BG's first-quarter average LNG price was $11.15 per mmbtu (million British thermal units), compared with average Asian spot cargo prices of $7.40 per mmBtu last week.

BG last year agreed the sale of the QCLNG pipeline to APA Group for $5 billion, but a reduction in the pipeline tariff meant the sale would now conclude at $4.5-5 billion instead, BG said on Friday.

BG's first-quarter results, however, also showed how deeply the drop in oil prices early this year had hit its business as it reported a 41 percent drop in core earnings to $1.6 billion from $2.7 billion at the same time last year.

The company's revenue and other income fell 21 percent year on year to $4 billion, despite a doubling in output from its Australian and Brazilian operations.

Shell and BG are expected to conclude their takeover deal, which is subject to a range of regulatory approvals, in early 2016.

Lund, who joined BG after a stellar 10-year career at the top of Norway's Statoil, said he welcomed the Shell deal with "mixed emotions" as a takeover had not been envisaged when he took the job at BG.

He is expected to leave the company once the takeover completes but said on Friday he had not yet spent any time thinking about what he might do next.

BG's shares were up 0.9 percent at 1185 pence by 0904 GMT, valuing the company at 40.5 billion pounds ($62.6 billion). ($1 = 0.6474 pounds) (Editing by Jane Merriman and Greg Mahlich)