BG Group Delivers Strong '08 Performance Led by E&P and LNG Sectors


Hassi Mouina
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Queensland LNG Project
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Lomond Platform
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"BG Group has delivered record results this year with strong performances in E&P and LNG. Major reserves and resources additions were achieved, with 2P reserves up 64%. There was transformational strategic progress in Australia and Brazil; two ventures that will support BG Group's growth over the next two decades," said BG Group's Chief Executive, Frank Chapman.

Fourth Quarter

Revenue and other operating income increased by 28% to £2 989 million and total operating profit increased by 13% to £1 139 million principally reflecting increased LNG income and the translation effect of a stronger US$, partially offset by lower upstream commodity prices.

Net finance income of £21 million reflects the translation effect of the US$/UK£ exchange rate on US dollar cash balances.
Cash generated from operations increased by 92% to £1 922 million.

Capital investment in the quarter of £3 117 million, included £2 091 million on the acquisition of Queensland Gas Company Limited (QGC), and continuing investment in E&P (£858 million), LNG (£110 million), T&D (£38 million) and Power (£20 million).

Full Year

Revenue and other operating income increased by 51% to £12 602 million and total operating profit increased by 65% to £5 355 million reflecting higher commodity prices, increased E&P volumes and a strong performance from LNG throughout the year.

The Group's effective tax rate (including BG Group's share of joint ventures and associates' tax) was 42.5% (2007 43.0%) for the full year.
Earnings per share increased by 74% to 91.6 pence. At constant E&P commodity prices and US$/UK£ exchange rates earnings per share increased by 28%.

Cash generated from operations increased by 70% to £6 274 million and at the end of the year, net debt was £972 million.

Capital investment in the year of £5 444 million, included the acquisition of QGC (£2 407 million), and continuinginvestment in E&P (£2 567 million), LNG (£273 million), T&D (£136 million), Power (£60 million) and Other activities (£1 million).

In considering the dividend level the Board takes account of the outlook for earnings growth, cash flow and financial gearing. The Group is strongly financed to meet its growing portfolio of development opportunities. Accordingly, the Board recommends a final dividend of 6.55 pence per share bringing the full year dividend to 11.23 pence per share, an increase of 20% compared with last year.

Fourth Quarter Business Highlights

BG Group has acquired control of Queensland Gas Company Limited (QGC) and is in the final stages of securing 100% ownership. Since BG Group acquired its initial stake in QGC, excellent progress has been made, with 2P reserves increasing to 3.7 tcf and total resources to over 11 tcf. This success has led to the acceleration of the combined first and second trains of the Queensland Curtis LNG scheme, beginning in 2014.

Exploration and Production (E&P)

Fourth Quarter

E&P total operating profit of £677 million was 11% lower reflecting lower commodity prices and volumes, partially offset by the translation effect of a stronger US$. Volumes were 2.4 mmboe lower primarily due to shutdowns to tie in new facilities in Egypt, the UK and Kazakhstan.

Unit operating expenditure increased by £1.43 to £3.93 ($6.55) per boe principally due to the impact of recent high commodity prices on royalty costs and transportation tariffs and the adverse impact of the stronger US$/UK£ exchange rate on costs.

The Group's average realized gas price per produced therm increased principally due to the delayed impact on contract prices of higher commodity prices earlier in the year and the stronger US$/UK£ exchange rate. The exploration charge was £145 million.

Capital investment of £2 927 million included expenditure in Australia (£2 119 million) which includes  the acquisition costs of QGC, UK (£133 million), Kazakhstan (£120 million), Tunisia (£108 million), Egypt (£98 million) and Trinidad and Tobago (£60 million).

Full Year

E&P total operating profit increased by £1 125 million to £3 512 million reflecting higher commodity prices and a 3% increase in production volumes, partially offset by a higher exploration charge.

Unit operating expenditure increased by 77 pence to £3.38 ($6.40) per boe primarily due to the impact of higher commodity prices on royalty costs and transportation tariffs.

The exploration charge of £451 million is £115 million higher than 2007 reflecting a greater number of exploration wells drilled in the year.
Capital investment of £4 952 million included expenditure in Australia (£2 445 million) which includes the acquisition costs of QGC, Tunisia (£505 million), UK (£424 million), Egypt (£413 million), Kazakhstan (£293 million), Trinidad and Tobago (£189 million) and Brazil (£92 million).

Fourth Quarter Business Highlights

In December, BG Group announced the exchange of equity interests in certain North Sea production assets with subsidiaries of BP plc. Subject to regulatory and third party approvals, BG Group will acquire BP's equity in the Everest, Lomond and Armada fields, increasing its equity stake in these fields from around 60% to around 80%. BG Group will also acquire 32% equity in the Erskine field from BP.

BG Group will become operator of the Everest and Lomond fields and will continue to operate the Armada field. BG Group will transfer its interests in the southern North Sea to BP, including the Easington Catchment Area fields. This agreement consolidates and strengthens BG Group's UK Continental Shelf interests. Completion is expected around mid-2009, subject to regulatory and third party approvals.

In December, BG Group announced an agreement with Kazakhstani National Company KazMunaiGas and subsidiary KazMunaiGas Exploration Production to co-operate in exploring a range of upstream opportunities in Kazakhstan and other countries.

BG Group was successful in the first Algerian license round, held under the new hydrocarbon law, securing the Guern el Guessa concession. Guern el Guessa lies just to the northwest of the existing Hassi Ba Hamou permit, where BG Group has drilled several successful wells, and covers an area of about 12 200 square kilometers. BG Group will hold a 49% interest and be the operator; Sonatrach will hold a 51% interest.

In January 2009, BG Group and partners announced first gas from the Poinsettia field development (BG Group 45.88% and operator) located approximately 40 kilometers off the north coast of Trinidad. Gas is transported into a newly installed pipeline connecting Poinsettia to the existing Hibiscus platform and thereafter to Atlantic LNG. Production is expected to reach a maximum rate of 350 mmscfd on completion of the drilling program.

In January 2009, BG Group acquired a 45% participating interest in the OPL 284-DO Production Sharing Contract(offshore western Niger delta, Nigeria), after completing a farm-in agreement with Sahara Energy Exploration and Production Limited (Sahara). BG Group assumes the role of technical partner in the block while Sahara remains operator. OPL 284-DO is located in water depths of 200 - 1 000 meters.

Liquefied Natural Gas (LNG)

Fourth Quarter

LNG total operating profit increased by £293 million to £456 million due to higher income in the shipping and marketing business and the translation effect of the stronger US$/UK£ exchange rate.

Shipping and marketing performed strongly with total operating profit increasing by £300 million to £445 million. Strong demand from key markets continued during the quarter and this, combined with the effective marketing of BG Group's flexible portfolio, resulted in strong margin expansion.

BG Group's share of operating profit from liquefaction activities increased by £8 million to £46 million principally due to the impact of the stronger US$/UK£ exchange rate.

Capital investment of £110 million in the quarter included £50 million relating to LNG vessels, £37 million in Chile and £12 million in the UK.

Full year

LNG total operating profit increased by 204% to £1 585 million.

Shipping and marketing total operating profit increased by 229% to £1 524 million as BG Group utilized its flexible portfolio to access high value markets throughout the year. During the year, BG Group supplied 13 markets around the world.

BG Group's share of operating profit from liquefaction activities increased by 14% to £145 million principally due to increased market prices and an increase in the tariff at Atlantic LNG Train 4 which entered its commercial phase during 2007.

Capital investment of £273 million in the full year included £130 million in Chile, £66 million relating to LNG vessels and £53 million in the UK.

Fourth Quarter Business Highlights

In February 2009, BG Group entered into an agreement with the Queensland Government to acquire land at North China Bay on Curtis Island, off Gladstone, for its proposed Queensland Curtis LNG plant.

BG Group and Castle Peak Power Company (CAPCO) have terminated discussions related to BG Group supplying CAPCO one million tonnes per annum of LNG, due to the cancellation of the LNG terminal project in Hong Kong.
 

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