The prettiest girl at the dance will always get the most attention from the boys – especially rich ones. Reports that Chinese suitors have approached BG Group with a view to buying into the UK company’s Brazilian bonanza make sense: BG is sitting very pretty indeed in Brazil, having doubled its reserves estimates in the Santos Basin to 6bn barrels.
That is potentially a game-changer for BG, yet it has barely moved the needle for investors. BG’s share price has only slightly outperformed, declining 4 per cent since the announcement against a 6 per cent fall for the sector. That suggests that investors are still unsure what the additional reserves are worth. One way for BG to help them make up their minds would be to sell a stake to a strategic investor.
After all, doubt over whether it has the financial and operational heft to finance its 27 per cent share of the Santos Basin production costs is one factor weighing on BG’s shares. The group is spending $10bn a year on capital investment and is already highly geared – 24 per cent at the end of June compared to 12 per cent at Shell, for example. Farming out a stake to, say, an Asian national oil company, would address the financing issue.