BG Group, the oil and gas producer, reported a steep increase in third-quarter profits on the back of soaring oil prices but gave warning of sharply rising development costs around the world.

The gas group, which agreed a recommended takeover of Queensland Gas in Australia last week, reported an 140 per cent increase in net profits to £857 million as it took advantage of higher oil and gas prices, an 11 per cent increase in hydrocarbon production and healthy profits from shipping liquefied natural gas (LNG) around the world.

However, sharply rising costs mean that BG will delay a decision on whether to proceed with Phase III of the Karachaganak project in Kazakhstan. The company hopes that development costs will fall in future.

The move echoes a decision by Royal Dutch Shell last week to delay the expansion of an oil sands project in Canada because of rising costs.

The recent collapse in crude oil prices from $147 a barrel in July to around $63 a barrel is now forcing oil companies to rethink their most expensive development projects.

BG used the third-quarter update to confirm that it was on track to sustain a 6 to 8 per cent compound annual growth rate in production from 2005 to 2020.

It also said that the price at which it could sell most of its North Sea gas contracts was likely to jump by 62 per cent from an average of 34p a therm to 55p a therm this year as a handful of legacy contracts comes to an end.

The company has also doubled its operating profit outlook for the LNG business.

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