Bg Group Proposal

Introduction

BG Group operates as an integrated natural gas company. The overall goal of the company is "to create shareholder value". BG Group strives to achieve this goal by taking on profitable projects with acceptable levels of risk and investing on a portfolio basis, which consequently diversifies away the effects of idiosyncratic risk. Furthermore, BG Group takes non-financial considerations into account and incorporates ethical issues into their appraisals to properly balance the needs of all stakeholders.

Appraisal

The demand for natural gas is rapidly expanding and it is crucial that BG Group continues to make smart investment decisions to maintain their position as a major international participant in the natural gas market. BG Group's new investment proposal to extract natural gas involves a complex operation which may require large initial outlays with long lead times until receipt of revenue, "typically over five years". Nevertheless, this project adds value to shareholder wealth after taking into account the risks of drilling. Thus making this proposal an attractive investment for the company. Additionally, BG Group can add this project to their existing portfolio of natural gas wells to diversify the risks involved in individual projects.

Therefore, BG Group should undertake the proposal conditional upon limiting the negative externalities involved with this particular proposal. BG Group recognises that extracting natural gas can have economic, environmental and social impacts and already have long term efforts in place to reduce these impacts, including policies for ecosystem services. Additionally, it would be good business to operate responsibly and BG Group should work to ensure that the local community benefit from their operation. As such, they should ensure that they have a successful relationship with the host government and local community. Due to BG Group's position in the natural gas market, they can take full advantage of...