BG Group set to invest up to $5bn in Brazil

BG Group plans to invest up to $1.25bn (£862m) a year in Brazil over the next four years as it develops its share of the world’s most exciting oil discoveries for many years.

Frank Chapman, the oil and gas company’s chief executive, who was in Brazil meeting government officials yesterday, told reporters that the company planned to spend $4bn to $5bn in the country by 2012.

The figure represents a quarter of its total capital spending plans and could raise questions about whether BG will need more help to exploit Brazil’s huge but technically challenging offshore oil fields.

Recent market speculation has suggested that ExxonMobil, the world’s biggest oil company, could use its $28bn net cash reserves to buy BG, which has a market capitalisation of $47bn.

BG indicated in November that its planned capital spending for this year was likely to be higher than the previous indication of £3.2bn, in spite of its decision to defer a planned investment in Karachaganak, one of the biggest gas and oil fields in Kazakhstan. It also needs to invest heavily in Australia after spending £2bn to buy the Queensland Gas Company last year.

BG holds a 25 per cent stake in one of the main finds off the coast of Brazil, the Tupi field, in which state-controlled Petrobras has 65 per cent and Galp Energia of Portugal 10 per cent. Tupi has estimated reserves of 5bn to 8bn barrels and a pilot development, designed to come on stream by the end of next year, is expected to produce 100,000 barrels a day.

However, concerns have been growing in the industry about the difficulties and costs associated with Brazil’s “pre-salt” fields, which are buried under 7,000 metres of sea, rock and salt.

Neil McMahon of Sanford Bernstein, the broker, suggested in a recent research note that Exxon might form a joint venture with Petrobras to develop the fields. He said Exxon might have the firepower to buy BG but the British company was “probably considered too expensive on a book-value basis”.

BG’s shares closed down 4p at 946p.

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