BG counts cost of North Sea levy

PROFITS at BG Group came in at the top end of City forecasts but the oil and gas producer is paying a high price for the Chancellor's new levy on North Sea profits.

The group posted first-quarter earnings of £133m, down £3m on the year-earlier period thanks to lower prices. Peers have suffered falls of 40-50%, but a 19% jump in exploration and production volumes underpinned the performance. 'BG made a successful start to the year and delivered robust operating results, despite significantly weaker prices,' said chairman Richard Giordano.

But the 10% hike in North Sea oil profits, unveiled in the Budget last month, delivered a triple blow. BG's effective tax rate was expected to rise to about 40% this year, it said, from 34.5% last. It also faced a £50m charge to restate its deferred tax liability to the new effective rate. And BG has cut its target for returns on average capital employed - a key performance measure - by one percentage point for next year. The group earlier this year dropped the target to 11-12% from 13%.

Shares in BG were off 1.8% at 305p in early afternoon trade. The stock was down 2.5% ahead of the results. BG shares have outperformed the rest of the UK oil sector by 13% in the past six months, helped by its above average volume growth profile, its bias towards gas that protects it from weaker oil prices, and in recent times its zero exposure to fuel refining where bigger rivals BP and Shell have suffered sharp profit falls.