BG tells the government that the new North Sea windfall tax is halting future exploration as its profits fell in the last quarter
BG turned up the pressure on the government when it warned future oil and gas exploration projects in the North Sea would be put on hold following a controversial windfall tax on offshore producers.
Frank Chapman, BG chief executive, issued the warning after disclosing that first-quarter figures fell after the energy company took a $265m (£162m) provision to cover the hike in North Sea taxes announced by the chancellor in March.
As well as being hit by higher tax, BG's numbers were affected by the disruption to production following civil unrest in Egypt and Tunisia, flooding in Australia and the temporary closure of two North Sea platforms for repair and maintenance.
BG had a rocky time on the stockmarket with shares sliding nearly 2% after confirming it had missed earnings and production targets – a rare event for a group that usually meets, or exceeds City forecasts.
Chapman vented his frustration by lashing out at George Osborne's decision to increase the supplementary tax on the profits of North Sea oil and gas producers from 20% to 32%.
He said BG would continue with North Sea projects already underway but future work would be jeopardised by the chancellor's decision to alter the tax system.
Chapman said: "Because the UK fiscal burden has increased, you wouldn't be surprised to hear that (North Sea) projects have moved further down our order of priorities. As far as the UK is concerned, this is the third change to the fiscal regime in a relatively short period.
"Ours is an industry where very substantial investments are made in order to produce returns over a long period. But we are concerned about the volatility of the British fiscal environment."
Chapman argued the company operated in a world that was competing for capital investment and one where there were more opportunities than available capital. Therefore, it should come as no surprise that every possible project was "evaluated against stringent economic and financial criteria".
First-quarter pre-tax profit was down 8% at $1.014bn due to a decrease in production of 5% following disruption during the revolutions in Tunisia and Egypt, and severe flooding in Australia. Production was also down because of the temporary shutdown of North Sea platforms, due to safety issues.
The results were painful for BG because higher oil and gas prices failed to offset the effect of lost production on profits.
Chapman said it was a "challenging quarter" and the company expected only modest production growth in 2011. But he said plans for ramp-up in production in 2012 and 2013 are unaffected and are "supported by significant progress with our growth projects in Brazil, the USA and Australia, as well as further exploration and appraisal success in Brazil and Tanzania".
BG has been a star performer among the giant oil and gas companies, thanks to its stake in the huge oil finds being made in offshore Brazil, where it has partnered with state-run Petrobras in the oil-rich Santos Basin. BG plans to produce 550,000 barrels a day in Brazil by 2020, or a third of the company's forecast total production by the end of the decade.
In February, Chapman said the industry would need to produce gas at an even faster rate, after predicting the world will need to find fields 20 times as rich Norway's to feed demand over the next 12 years.