The ex-Statoil chief has issued his first statement of intent since taking over the reins at BG in February – a month earlier than scheduled – in a letter to shareholders in the company’s annual report.
Lund acknowledged that BG had sustained “operational setbacks” over the past two years, having been hit by lower liquefied natural gas exports from Egypt and construction challenges and cost overruns on its Queensland Curtis LNG (QCLNG) project in Australia.
He said “we must take account of the lessons learned from these experiences as we develop our long-term plans”.
Lund stated BG would “undertake a review of the longer-term strategy for our business during 2015” and shareholders would be updated on plans later this year.
The company plunged to a loss of more than $5 billion in the fourth quarter of last year after suffering a post-tax non-cash impairment of $5.9 billion in the quarter, which included a $4.5 billion writedown on its operations in Australia as well as a downgrade of its reserves in Egypt.
Lund said the recent oil price drop has “changed the dynamics” of the industry and cautioned “the future operating environment is challenging, volatile and hard to predict”.
After presiding over drastic cutbacks at Statoil, the BG supremo signalled he intends to pursue a similar cost-cutting course in his new domain as well as further optimise the company’s asset portfolio following the sale of $6.6 billion worth of non-core assets last year.
Lund pledged to give his full attention “to improving our efficiency [and] tightening both our operating costs and capital expenditure, including our exploration spend”.
Furthermore, the company would “continue to develop and optimise our LNG supply portfolio” after recently bringing online the QCLNG project.
BG has pledged to cut capital expenditure this year to between $6 billion and $7 billion, compared with $9.4 billion in 2014, as it adapts to a lower oil price environment.
The oil price drop has also had a negative impact on gas prices as long-term supply contracts in Asia are linked to the crude price and this has been exacerbated by slower economic growth in both Asia and Europe that has cut demand for players such as BG.
However, the company remains bullish about long-term market prospects for gas and expects growth of 2.4% per annum over a 10-year period, fuelled mainly by Asian economies that account for 75% of global LNG demand.