BG Group warns Egypt problems will leave production below expectations

Egypt's government has been diverting its agreed share of gas to the domestic market. Photograph: Martin Schutt/EPA

BG Group shares have tumbled after the it warned that problems inEgypt would result in gas production well below expectations for this year and next.

In an unscheduled statement to the stock market, BG said it expected to produce between 590,000 and 630,000 barrels of oil equivalent a day (boed) this year,. Analysts forecasted about 650,000 boed.

The oil and gas company's shares fell by more than 14% at £10.84½ in early trading.

BG also cut its 2015 guidance to between 710,000 and 750,000 boed. In September it set a target of 775,000-825,000. BG made the statement after it became clear that its own production expectations had fallen behind City forecasts.

BG, which relies on Egypt for about a fifth of its production, said it was declaring force majeure notices in the country because the government was diverting its share of gas from a joint agreement to the domestic market. It also faces production shortfalls in the US.

Chris Finlayson, its chief executive, said: "Despite the good progress we have made in 2013 we face short-term issues which are reflected in our revised 2014 guidance. This is very disappointing. Year-on-year decline in Egypt and the US are the drivers of volume decline from 2013 to 2014."

BG operates a liquefied natural gas plant in Egypt and about 50% of its production is contracted for use in the Egyptian domestic market. The new regime in Egypt has been diverting more than the agreed amount into the domestic market meaning that BG cannot meet its obligations to supply Egyptian liquefied national gas to its main customer, France's GDF Suez.

BG reports full-year results for 2013 on 4 February. Results for 2013 remain roughly in line with market forecasts.

Finlayson also said it had higher unit operating costs, partly caused by increased production and higher royalties at its main growth projects in Brazil and Australia.

"Our long-term strategy remains unchanged, our capital expenditure level will decline and we continue to expect to be free cash flow positive in 2015," he said.