BG Group Ramps Reserves to More Than 1.3B boe in 2Q

BG Group reported second quarter business performance highlights for 2010.

  • Earnings per share of 26.6 cents, up 19% year-on-year
  • Cash generated by operations of $2 323 million, up 57% year-on-year
  • Interim dividend of 9.82 cents per share (6.35 pence per share)
  • Tupi Alto, seventh consecutive successful well on the Tupi accumulation
  • QCLNG received state environmental approval, federal approval expected later this year
  • Total US shale gas net reserves and resources increased to over 1.3 billion boe

BG Group's Chief Executive, Frank Chapman said, "These are good results, accompanied by continued progress with the delivery of our growth plans. We had further appraisal success in the Santos Basin, offshore Brazil, and production from our first permanent production facility on Tupi is expected later this year. In Australia, our total reserves and resources are now 2.9 billion boe, and we remain on track to sanction the QCLNG project later this year. We have substantially increased our total US shale gas reserves and resources to over 1.3 billion boe."

Second quarter

Revenue and other operating income increased by 18% to $4 127 million, principally reflecting higher commodity prices in the E&P and LNG segments.

Total operating profit increased by 6% to $1 532 million, reflecting the growth in revenue and other operating income, partially offset by a higher exploration charge in the quarter.

Cash generated by operations increased by 57% to $2 323 million reflecting the increase in operating profit and lower levels of working capital.

Net finance income of $19 million for the quarter (2009 $60 million costs) included foreign exchange gains of $71 million (2009 $8 million gain). As at 30 June 2010, net debt was $5 047 million and the gearing ratio of the Group was 17%.

Capital investment (including acquisitions of $1 233 million) in the quarter was $2 770 million and comprised investment in E&P ($2 433 million), LNG ($254 million), T&D ($57 million) and Power ($26 million).

Half year

Revenue and other operating income of $8 774 million was 11% higher, reflecting generally higher commodity prices. Total operating profit of $3 527 million was 8% higher as a result of the increase in revenue and other operating income, partially offset by lower realizations in the LNG segment.

Cash generated by operations increased by 39% to $4 831 million.

Net finance income of $1 million (2009 $127 million costs) included foreign exchange gains of $122 million (2009 $2 million loss).

The Group's effective tax rate (including BG Group's share of joint venture and associates' tax) for the full year is expected to be 41%. The current quarter's tax charge includes an adjustment to reflect this tax rate for the first six months of the year.

Capital investment in the half year (including acquisitions of $1 233 million) was $4 671 million and comprised investment in E&P ($3 463 million), LNG ($1 053 million), T&D ($109 million) and Power ($46 million).

The Board has approved the payment of an interim dividend of 9.82 cents per share. This is half of the 2009 total dividend, in accordance with the Board's usual policy. Following the change of reporting currency with effect from the first quarter of this year, this interim dividend for 2010 has been based on 19.63 cents as the US Dollar equivalent of the 2009 total Sterling dividend. The interim dividend has been converted to Sterling at the average of the closing exchange rate for the three business days preceding this announcement and will be paid on 10 September 2010 as 6.35 pence per share to shareholders on the register as at August 6, 2010.

Second quarter

Revenue and other operating income of $2 059 million was 19% higher, reflecting higher realized oil, liquids and international gas prices, partially offset by lower realized gas prices in the UK and a 2% fall in production volumes. Total operating profit increased by 2% to $746 million as a result of the increase in revenue and other operating income, partially offset by a higher exploration charge, including the write-off of the Mandarin well in Norway ($255 million).

Lower production volumes in the quarter reflect the extent and phasing of planned work-over and maintenance activity, partially offset by higher production from the USA and from Hasdrubal in Tunisia. BG Group continues to expect slight production growth for the full year.

International gas realizations were 35% higher at 33.35 cents per produced therm, reflecting gas prices linked to higher oil and Henry Hub market prices. The average realized gas price in the UK fell by 17% to 29.97 pence per produced therm as a result of lower contract prices.

The exploration charge of $366 million is $166 million higher as a result of higher well write-off costs. Unit operating expenditure increased to $7.77 per barrel of oil equivalent, reflecting the impact of higher commodity prices and the phasing of maintenance activity.

Capital investment of $2 433 million in the quarter comprised investment in the Americas ($1 669 million, including $1 233 million on acquisitions in the USA as part of our alliance with EXCO Resources, Inc.), Africa, Middle East and Asia ($297 million), Europe and Central Asia ($293 million) and Australia ($174 million).

Half year

Revenue and other operating income increased by 22% to $4 353 million as a result of a 2% increase in production volumes and higher oil, liquids and international gas prices, partially offset by lower realized UK gas prices. Total operating profit increased by 24% to $1 938 million, reflecting the increase in revenue and other operating income. The average realized international gas price increased by 9% to 32.99 cents per produced therm as a result of gas prices linked to higher oil and Henry Hub market prices. The average realized gas price in the UK fell by 28% to 36.15 pence per produced therm as a result of lower contract prices.

Unit operating expenditure increased to $7.35 per barrel of oil equivalent, reflecting the phasing of maintenance activity, the impact of higher commodity prices and changes in the production mix.

Capital investment of $3 463 million in the half year comprised investment in the Americas ($2 070 million, including $1 233 million on acquisitions in the USA as part of our alliance with EXCO Resources, Inc.), Europe and Central Asia ($564 million), Africa, Middle East and Asia ($540 million) and Australia ($289 million).

Second quarter business highlights
Brazil

In June, BG Group confirmed the success of a new well known as Tupi Alto in BM-S-11 (BG Group 25%) in the Santos Basin, offshore Brazil. This is the seventh consecutive successful well on the Tupi accumulation and confirms the extended presence of light oil.

Oman

In June, BG Group informed the government of the Sultanate of Oman of its decision to relinquish its 100% interest in Block 60, onshore Oman. Although BG Group maintained a highly collaborative relationship with the Omani government and delivered a successful appraisal program on Abu Butabul, the decision to end its activity in Oman was based upon the desire to focus on other commercial priorities within the Group's global portfolio.

Tanzania

In June, BG Group completed a farm-in to blocks 1, 3 and 4, offshore southern Tanzania, a prospective new hydrocarbon play with significant resource potential. BG Group acquired 60% of Ophir Energy plc's interests in each of the offshore blocks. The three blocks cover more than 27 000 square kilometers of the Mafia Deep Offshore Basin and the northern portion of the Ruvuma Basin. Exploration drilling is planned to commence before the end of 2010.

UK/Norway

In June, the Plan for Development and Operation for the Gaupe field (formerly Pi) was approved. Gaupe is an oil and gas field situated south of the Varg field and close to the Norway and UK median line in the North Sea. Gaupe will be a two-well subsea tie-back to the Armada field on the UK Continental Shelf. Gross recoverable reserves on Gaupe are estimated at around 30 mmboe. Gaupe will be the first BG Group field to come onstream in the Norwegian Continental Shelf and is due onstream by 2012.

USA

In May, BG Group announced that it had entered into further joint venture agreements with EXCO Resources, Inc. (EXCO) focused on assets in the Appalachian Basin, located primarily in Pennsylvania and West Virginia. In June, BG Group closed this transaction acquiring a 50% interest in a total of 654 000 net acres in the Appalachian Basin, including approximately 5 900 producing wells and 2 100 miles of supporting infrastructure. BG Group paid a total consideration of $835 million, plus $150 million drilling carry, equating to an estimated unit resource cost of $0.40 per thousand cubic feet. The new joint venture extends the Group's successful alliance with EXCO and further strengthens BG Group's unconventional gas portfolio, adding substantial resources adjacent to the premium gas markets of the US eastern seaboard.

In June, BG Group acquired additional properties prospective for the Haynesville and Bossier shales via its alliance with EXCO for a consideration of approximately $178 million. The properties include producing assets, gathering lines and acreage in Shelby, San Augustine and Nacogdoches Counties, Texas. Much of the interest acquired is incremental to the producing assets, gathering lines and acreage acquired by BG Group and EXCO through the acquisition of Common Resources, L.L.C., which closed in May. These transactions provide critical mass to BG Group's US upstream gas business, with total reserves and resources presently estimated at over 1.3 billion boe.

Second quarter

LNG total operating profit for the quarter increased by 16% to $540 million. Shipping and marketing total operating profit of $478 million was 16% higher, reflecting higher realized prices. BG Group's share of operating profit from liquefaction activities of $81 million was in line with 2009. Capital investment of $254 million in the quarter included $143 million in Australia and $90 million relating to LNG ships.

Half year

LNG total operating profit was 9% lower at $1 173 million. Shipping and marketing total operating profit was 10% lower at $1 063 million, reflecting lower realizations.

The Group's share of total operating profit from liquefaction activities of $164 million was in line with 2009. Capital investment of $1 053 million in the half year included $492 million arising on recognition of a finance lease under IAS 17, following the commissioning of a natural gas liquids-stripping facility at Lake Charles in the USA, $276 million relating to LNG ships and $257 million in Australia.

Second quarter business highlights
Australia

In June, BG Group received environmental approval from the Queensland state government for the Queensland Curtis LNG project. The approval follows review of the project's Environmental Impact Statement by the Queensland Coordinator-General. The Federal environmental approval process is ongoing. The project is making good progress and remains on track for sanction later this year.

Second quarter

Revenue and other operating income increased by 18% to $658 million as a result of higher volumes at Comgás in Brazil, following a recovery in demand within the industrial and power segments, and at Gujarat Gas in India. T&D total operating profit for the quarter of $174 million was 8% lower, reflecting the timing effect of gas cost recovery at Comgás, partially offset by higher volumes.

The net recovery of gas costs at Comgás in the quarter was $28 million compared with $89 million in 2009. At the end of the quarter, $19 million of net benefit is due to be passed back to customers in future periods. Excluding the timing effect of gas cost recovery, operating profit at Comgás increased by 41%, reflecting higher volumes and favorable Brazilian Real foreign exchange movements.

Half year

Revenue and other operating income increased by 22% to $1 272 million, reflecting higher volumes at Comgás and Gujarat Gas.

T&D total operating profit was $299 million for the half year.

The net recovery of gas costs at Comgás in the half year was $39 million compared with $122 million in 2009. Excluding the timing effect of gas cost recovery, operating profit at Comgás increased by 38% as a result of higher volumes and favorable Brazilian Real foreign exchange movements, partially offset by lower unit margins. Other T&D activities operating profit increased by $22 million to $55 million, reflecting higher volumes and prices at Gujarat Gas.

Capital investment mainly represents the development of the Comgás pipeline network.

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