By Karolin Schaps

LONDON, Oct 28 (Reuters) - BG Group reported a worse-than-expected 26 percent fall in third-quarter operating profit as its output in Egypt halved and a steep drop in oil prices took its toll on Britain's third-biggest energy company.

However, the oil and gas producer - which has poached long-serving Statoil chief executive Helge Lund to help turn around the flagging British company - is starting to reap benefits from costly investments in Brazil and Australia.

BG's total operating profit fell 26 percent to $1.3 billion in the third quarter, undershooting a company-provided consensus of $1.4 billion. Output in Egypt - which now accounts for about ten percent of its natural gas production - fell to 55,000 barrels of oil equivalent per day (boepd)and high domestic demand left it with nothing to export.

Shares in BG were down 2 percent at 1109 GMT, underperforming the FT350 oil and gas index, which was up 0.3 percent.

Its share has plummeted 30 percent since the start of the year compared with the index's roughly 2 percent gain. The fall has been exacerbated by a 25 percent fall in crude prices in the past four months.

But BG's new projects in Brazil, where it first started producing in 2010, started to show positive results as production levels there have risen above 100,000 barrels of oil equivalent per day for the first time.

Analysts also welcomed reassurance that BG's flagship Queensland Curtis LNG project, a $20.4 billion export facility, was on track to deliver its first cargo by the end of the year.

"We believe that production and cash flow growth from Brazil, Australia and the LNG Tradingportfolio will provide enough momentum for share price outperformance," said analysts at Jefferies, which rates the stock a "buy".

Analysts at Morgan Stanley rate BG's shares equal-weight including an upside of 13 percent on their target price of 1,180 pence. BG's shares are currently trading at 1,023 pence.

BG is in the middle of a radical asset review to weed out projects that have weighed on its performance after warning in April that production would be at the lower end of its target range this year due to problems in Egypt.

The company was also shaken by the resignation for personal reasons of Chief Executive Chris Finlayson after just 16 months in the job.

BG's third-quarter revenue rose 4 percent to $4.6 billion as oil output from Brazil rose to more than 100,000 barrels of oil equivalent per day (bopd).

It repeated that its full-year production would be at the lower end of its guidance of 590,000-630,000 boed.

"Our developments in Brazil and Australia are progressing well and, in the case of Brazil, beginning to have a material impact on our business," BG Group interim Executive Chairman Andrew Gould said.

The company declined to give any details on asset disposal plans but it hinted at reducing investments in Canadian and British projects. BG said it was taking a "prudent approach" to developing its Canadian Prince Rupert LNG plant, partly due to volatile oil prices.

In Britain, BG has delayed an investment decision at its high-pressure high-temperature Jackdaw project as it studies lower risk options, it said.

OIL PRICE PRESSURE

Oil companies have seen billions wiped off their stock market values in recent weeks as crude prices dropped 25 percent over the past four months due to slowing global demand, particularly in China, and ample supplies.

In the third quarter BG sold its oil at an average of $104 per barrel, down from $112 the previous year, while its average UK gas price fell 17 percent to 37 pence per therm.

Brent oil prices have fallen another 11 percent since the start of the fourth quarter and BG Chief Financial Officer Simon Lowth said on a conference call he expected further impact from weak prices on the business.

BG's key profit-making business, its LNG unit, made $1.8 billion in revenue in the third quarter, 4 percent more than last year.

Its Equatorial Guinea operations sent 14 cargoes in the third quarter but BG warned that a planned maintenance shut down would cut 5-6 cargoes next year. (Editing by Kate Holton and Susan Thomas)