Daily Telegraph: With oil prices and output fuelling the share price, BG Group is worth exploring: "...given the company's relatively small size, the shares are often boosted by the possibility of a takeover by the likes of BP or Shell.": Tuesday 20 December 2005

The Questor column
Edited by Philip Aldrick (Filed: 20/12/2005)

BG Group issued a trading statement yesterday -nothing extraordinary in that you might think. But the oil and gas exploration company does not normally issue trading statements.

The short missive revealed everything was going swimmingly for the BG in the fourth quarter. Upstream production has "increased significantly" amid "favourable trading conditions" at the former exploration arm of British Gas.

The previous quarter saw output of 41.2m barrels of oil equivalent (mmboe). For October and November only it was 35 mmboe which puts it on track to beat the last quarter by a hefty margin.

High energy prices have also helped BG. The company has been selling its oil for $59 a barrel and gas for 36p a therm in the UK. High prices and high output led to BG's share price rising 6 to 557p.

The company has previously flagged it is considering spending up to £1billion on a buyback programme after pulling in £800m from selling its interest in an oil field in the Caspian Sea.

Plus, given the company's relatively small size, the shares are often boosted by the possibility of a takeover by the likes of BP or Shell.

However, there are negatives. The company will take a knock from the 10pc tax increase on North Sea oil and gas producers announced earlier this month.

BG's dividend yield is low at around 0.7pc and trades at a premium. Numis Securities values the business at 8.5 times debt adjusted cash flow compared with 7.8 times for BP. Despite this, with production levels and energy prices set to remain high this stock is worth a look. A tentative buy.