BG Group Says Full Year Earnings Increased 64% in 2005

'BG Group has increased full year earnings by 64%, driven by strong underlying volume growth.

'During the course of 2005 we brought a number of material new projects into operation. These projects add to an already substantial asset base which is distinctive in terms of its production life and provides a firm base for BG well beyond 2010. In addition, we are working on significant expansions and new opportunities, combining to make the outlook for future growth very positive.

'As a result of this step change in our business, the Board is recommending a 57% increase in the full year dividend to 6 pence per share'.

  • Earnings up by 114% for the quarter and 64% for the full year.
  • Full year dividend increased by 57% to 6.0 pence per share.
  • E&P production increased by 21% for the quarter and 10% for the full year to 184 mmboe.
  • LNG operating profit increased by 276% for the quarter and 87% for the full year.
  • T&D operating profit increased by 45% for the quarter and 43% for the full year.
  • Atlantic LNG Train 4 in Trinidad, commenced production.
  • Entry into Nigeria and Libya upstream.
  • Entered into MoU to purchase 2 mtpa LNG from Brass, Nigeria.
  • Three year average unit finding and development cost was $7.07/boe.
  • Three year average proved reserve replacement rate was 152%. The one year proved reserve replacement rate was 120% at year end prices and 174% on an underlying basis.
  • Three exploration discoveries in the fourth quarter and 14 for the full year.
  • New exploration licenses in Brazil, Canada, Egypt, India, Libya, Norway and the UK.
Total operating profit increased by 97% (£423 million) to £858 million reflecting E&P volume growth of 21%, higher prices and strong organic growth in the LNG and T&D segments.

Net finance costs were £7 million lower due to reduced average net debt levels. The effective tax rate (including BG Group share of tax attributable to joint ventures and associates) was unchanged at 40%. The recent increase in North Sea taxation is expected to add approximately 4% to the Group's effective rate in 2006. The impact of the North Sea tax on the Group's tax rate will vary according to the level of profit in the North Sea but is expected to diminish over time as more of the Group's profits come from outside the UK. In addition there will be a one-off adjustment in 2006 to reflect the increased North Sea tax on opening deferred tax balances, reflecting a credit of £61 million to restate the deferred tax asset associated with mark-to-market balances and a charge of £38 million for other deferred tax balances.

Earnings rose by 114% due to strong operating performances, higher prices and lower finance costs.

Total operating profit increased by 57% to £2 380 million reflecting higher E&P volumes and margins together with strong growth from the LNG and T&D segments.

Net finance costs were £16 million lower primarily due to reduced average net debt levels and higher investment income following the receipt of cash proceeds from the sale of the Group's interest in the North Caspian Sea PSA. The effective tax rate (including BG Group share of tax attributable to joint venture and associates) was 40%.

Earnings for the full year increased by 64% (£528 million) to £1 357 million.

Capital investment of £1 516 million included £29 million for the acquisition of the remaining 50% of Brindisi LNG SpA in Italy and continuing investment in Europe (£418 million), North America and the Caribbean (£403 million), Mediterranean Basin and Africa (£312 million), Asia and Middle East (£194 million) and South America (£160 million).

Cash generated by operations increased by £907 million to £2 489 million primarily due to higher operating profit. As at 31 December 2005, net funds were £253 million and now exclude net debt attributable to MetroGAS which was deconsolidated in December 2005. On 8 November 2005, the Group announced a share buy back of up to £1 billion of ordinary shares.

In considering the dividend level, the Board takes account of the outlook for earnings growth, cash flow generation and financial gearing. The Group's cash flows are becoming more substantial and durable as a number of material, longer life assets come into operation. Given this strong financial position and outlook the Board believes it is now appropriate to rebase the dividend. The Board recommends a final dividend of 4.09 pence per share bringing the full year dividend to 6.00 pence per share, an increase of 57% compared with last year.

During the fourth quarter E&P total operating profit increased by 103% to £729 million due primarily to higher prices and volumes partially offset by the cost of increased exploration activity. At constant US$/UK£ exchange rates and prices, total E&P operating profit increased by 15%.

Production volumes increased by 21%, primarily driven by West Delta Deep Marine (WDDM) in Egypt following the early start up of Egyptian LNG Trains 1 and 2. The Group's average realized UK gas price per produced therm was 38.9 pence as short term prices rose sharply. Average international gas prices were 21.4 pence per produced therm reflecting the benefit of new production into high value markets and higher international commodity prices.

The exploration charge of £80 million is £21 million higher reflecting the planned increase in exploration activities across the Group.

Capital investment of £290 million included expenditure in the UK (£85 million), Egypt (£34 million) and Mauritania (£20 million).

For the year E&P operating profit increased by 63% to £1 942 million primarily due to the 10% increase in production volumes and higher prices, partially offset by a higher exploration charge.

The increase in production was primarily due to higher volumes from WDDM and increased liquids exports from the Karachaganak field in Kazakhstan.

Unit operating expenditure was up 20 pence to £2.21 ($4.04) per boe, principally due to the impact of higher upstream prices on input costs, tariffs and royalties.

Capital investment of £935 million includes expenditure of £277 million in the UK, including £81 million on the Buzzard field, and expenditure in WDDM in Egypt of £161 million.

In the fourth quarter, three discoveries were made in the UK (2) and Mauritania (1).

On December 2nd, BG Group reached agreement with ONGC to operate jointly three offshore deepwater exploration blocks on the east coast of India. Subject to agreeing farm-in arrangements and Government approval, BG Group and ONGC will each own a 50% participating interest in these blocks.

On December 8th, BG Group signed concession agreements for the three blocks awarded in October's Libyan licensing round.

BG Group was successful in the 2005 Norwegian licensing round in December. The awards cover three licenses in the North Tampen Area (northern North Sea) and one in the Haltenbanken Area (Norwegian Sea). BG Group will be operator in all of the licenses.

On January 19th, BG Group acquired a 45% interest in, and operatorship of, deepwater Block 332, offshore Nigeria.

In 2005, BG Group completed 29 exploration and appraisal wells of which 14 have been successful. Discoveries were made in Canada (8), Egypt (1), Mauritania (2), Trinidad (1), and the UK (2).

Three discoveries made since the start of 2006: In the UK CNS (2) and in India (1).

Chief Executive Frank Chapman said: 'Today we're reporting another set of record results and further improvements to our expected earnings trajectory. We are increasing our E&P and LNG volume targets for the second year in a row and we have added yet more value to our framework for growth to 2009 and beyond. Our overall aim is to continue delivering exceptional value to shareholders, and I am confident that we are well placed to do so.'