2011 Second Quarter & Half Year Results

BG Group plc

2011 SECOND QUARTER & HALF YEAR RESULTS

Second Quarter Key Points

·; Earnings up 27%; cash generated by operations up 11%

·; Interim dividend of 10.8 cents per share, up 10%

·; Reserves and resources doubled in Brazil since 2010; upside potential now 8 billion boe net

·; Brazil reservoir performance significantly reduces unit costs; unit resource value increased

·; Lifted first one million barrels of equity oil from Lula field

·; Assumed operatorship offshore Tanzania; agreements to operate offshore Kenya

BG Group's Chief Executive, Sir Frank Chapman said:

"We made good progress in both our E&P and LNG businesses. In Brazil, we saw major increases in our reserves and resources; with the new resources delivering a higher unit value as their production is expected to require no additional surface facilities. We have invested $4.4bn in organic growth in the first half and made good progress across our major growth projects in Australia, Brazil and the USA; progress that continues to de-risk the delivery of our growth programme."

a) 'Business Performance' excludes disposals, certain re-measurements and impairments as exclusion of these items provides a clear and consistent presentation of the underlying operating performance of the Group's ongoing business. For further information see Presentation of Non-GAAP measures (page 17) and notes 1 to 3 (pages 25 to 29). Unless otherwise stated, the results discussed in this release relate to BG Group's Business Performance.

b) 2010 results have been restated to reflect the presentation of the majority of the businesses that comprised the Power Generation segment as discontinued operations, see note 1 (page 25) and note 6 (page 31).

c) Prior period taxation represents the revision of deferred tax balances at 1 January 2011 due to changes in UK taxation rates.

Business Review - Group

a) See note 1 (page 25).

b) Includes capital investment relating to discontinued operations for the quarter of $nil (2010 $25 million) and for the first half of $nil (2010 $27 million).

Second quarter

Revenue and other operating income increased by 26% to $5 115 million, reflecting the benefit of higher commodity prices and a 3% increase in E&P production, with solid operational performance across the Group's assets.

As a result of the above and a lower exploration charge in the quarter, total operating profit increased by 43% to

$2 152 million.

Cash generated by operations increased by 11% to $2 581 million as a result of higher profits and, as anticipated, the partial reversal of prior period margin calls on the Group's hedged LNG contracts.

As of 30 June 2011, the Group's net debt was $9 468 million with an average maturity of around 8 years, and the gearing ratio was 24%. During the quarter, BG Group signed a cooperation agreement with Bank of China that allows for up to $1.5 billion of new funding alternatives to support the Group's major growth programme. The Group's undrawn committed facilities have been increased to $5.5 billion with maturities from 2012 to 2016.

Net finance costs amounted to $59 million for the quarter, against $25 million income in 2010, including foreign exchange gains of $7 million (2010 $71 million gain).

Capital investment (including acquisitions of $113 million) in the quarter was $2 537 million and comprised investment in E&P ($1 918 million), LNG ($537 million) and T&D ($82 million). This investment focused primarily on the Group's major growth projects in Australia, Brazil and the USA and represents a 58% increase in underlying organic capital investment compared with second quarter 2010. More details on project developments are provided in the relevant segmental business highlights.

Half year

Revenue and other operating income of $9 918 million was 16% higher than in the same period in 2010, reflecting 48% and 14% increases in realised oil and gas prices, respectively. This revenue performance, combined with a lower exploration charge, was the main contributor to the 19% increase in total operating profit from $3 456 million to $4 117 million.

Cash generated by operations of $4 380 million was 9% lower than last year, principally as a result of changes in working capital associated with margin calls on the Group's hedged LNG contracts. As already observed, the cash outflow associated with margin calls has reversed in the second quarter, a trend that is expected to continue in future periods when the underlying LNG contracts settle.

The $153 million increase in net finance costs was driven primarily by changes in foreign exchange (2011 foreign exchange losses of $15 million compared with a $122 million gain in 2010).

The Group's effective tax rate (including BG Group's share of joint venture and associates' tax but excluding prior period taxation) for the full year is expected to be 45% (2010 38.5%). The increase is primarily as a result of the change in UK North Sea taxation announced in March 2011. This led to an additional charge of $324 million consisting of a $121 million charge for the half year in addition to a one-off tax charge of $203 million in respect of the revision of opening deferred tax balances. The one-off charge was partially offset by an $8 million credit as a result of a reduction in the UK taxation rate applicable outside the UK North Sea (net $195 million). The Group's effective tax rate in future years is expected to be 43% to 44% in the near term and trend downwards thereafter as more of the Group's profits are generated from outside of the UK North Sea.

As previously announced, the Group is undertaking an extensive investment programme to deliver its growth. Capital investment in the half year (including acquisitions of $432 million) was $4 833 million and comprised investment in E&P ($3 744 million), LNG ($936 million) and T&D ($153 million). This investment focused primarily on the Group's major growth projects in Australia, Brazil and the USA and represents a 28% increase in underlying organic capital investment compared with 2010. This expenditure is in line with the Group's previous guidance of $10 billion for the full year at reference conditions.

In line with the Group's financial performance, the Board has approved the payment of an interim dividend of 10.80 cents per share. This is half of the 2010 total dividend, in accordance with the Board's established policy. 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 8 September 2011 as 6.63 pence per share to shareholders on the register as at 5 August 2011.

Disposals, re-measurements and impairments - continuing operations

A post-tax gain of $123 million for the quarter (2010 $443 million charge) was recorded in respect of disposals, re-measurements and impairments. This comprised a post-tax gain of $121 million (2010 $302 million charge) in relation to mark-to-market movements on long-term commodity contracts and economic hedges, a $24 million post-tax gain in respect of disposals of non-current assets and impairments (2010 $135 million charge) and a $22 million post-tax charge (2010 $6 million charge) in respect of re-measurements of treasury financial instruments.

A post-tax charge of $100 million for the half year (2010 $377 million charge) was recorded in respect of disposals,

re-measurements and impairments. For further information, see note 2 (page 26).

Exploration and Production (E&P)

a) See note 1 (page 25).

Additional operating and financial data is given on page 36.

Second quarter

Revenue and other operating income increased by 35% to $2 787 million, reflecting the benefit of higher realised prices and a 3% increase in production volumes. Total operating profit of $1 420 million was 90% higher as a result of the increase in revenue and other operating income and a lower exploration charge.

Higher production volumes in the quarter reflected continuing production build-up in the USA, Brazil and at Hasdrubal in Tunisia. In the UK North Sea, the Everest, Lomond and Erskine fields progressively returned to production following the shutdown in the first quarter. BG Group expects Buzzard to return to full capacity in the third quarter following a period of restricted production. Whilst there continued to be sporadic disruption from social unrest in Egypt and Tunisia, this had a relatively small impact on production in the second quarter.

BG Group continues to expect modest production growth in 2011, ahead of the strong ramp-up in production volumes which begins in 2012 and continues through the decade.

International gas price realisations were 17% higher at 39.02 cents per produced therm, reflecting changes in the production mix and the effects of higher oil prices. The average realised gas price in the UK increased by 48% to 44.43 pence per produced therm, as a result of higher contract and market prices.

The exploration charge of $120 million is $246 million lower than 2010 as a result of lower well write-off costs.

Unit operating expenditure increased to $8.93 per barrel of oil equivalent, reflecting the impact of higher commodity prices, adverse foreign exchange movements and changes in the production mix, including higher than portfolio average costs associated with the production start-up activities in Brazil. BG Group continues to expect unit operating costs to be between $8.50 and $9.00 per barrel of oil equivalent at an oil price of around $100 per barrel for the full year.

Capital investment of $1 918 million in the quarter comprised investment in the Americas ($673 million, including $113 million on acquisitions), Australia ($496 million), Europe and Central Asia ($443 million) and Africa, Middle East and Asia ($306 million).

Half year

Revenue and other operating income increased by 22% to $5 297 million, principally as a result of higher realised prices. Total operating profit increased by 38% to $2 678 million, reflecting the increase in revenue and other operating income and a lower exploration charge.

The Group's average realised gas price per produced therm increased by 14% to 41.12 cents, reflecting generally higher market prices and changes in the production mix.

Unit operating expenditure increased to $8.46 per barrel of oil equivalent, reflecting the impact of the UK North Sea shutdown during the first quarter, higher commodity prices and changes in the production mix.

Capital investment of $3 744 million in the half year comprised investment in the Americas ($1 450 million, including $376 million on acquisitions), Australia ($899 million), Europe and Central Asia ($798 million, including $56 million on acquisitions) and Africa, Middle East and Asia ($597 million).

Second quarter business highlights

Bolivia

In July, BG Group sanctioned Phase II of the Margarita project. This follows on from the sanction of Phase I in 2010, where construction is underway and early production facilities are onstream. Production from the two phases and the early production facilities is expected to reach over 40 thousand barrels of oil equivalent per day net to BG Group by 2014. Net investment in Phase I is estimated at $164 million and Phase II at $250 million.

Brazil

In June 2011, BG Group issued a material reserves and resources upgrade for its interests in the pre-salt Santos Basin, offshore Brazil. Mean total reserves and resources are now estimated to amount to some 6 billion barrels of oil equivalent (boe) net to BG Group, with an upside potential of 8 billion boe net.

The mean total reserves and resources represents a doubling of BG Group's previous best estimate of 3 billion boe prevailing at the time of the Group's February 2010 Strategy Presentation. The aggregate range of total reserves and resources net to BG Group is from 4 billion boe (P90) to 8 billion boe (P10). 

The Lula, Guará, Cernambi, Iara and Carioca fields account for 95% of BG Group's total reserves and resources in the Santos Basin.

The recent increase in BG Group's estimate of its reserves and resources in Brazil was based upon a wealth of drilling, appraisal and other new data. Importantly, this includes dynamic data showing much higher well deliverability and greater connectivity within the reservoirs allowing increased recovery per well.

In addition to improved reservoir characteristics and resource estimates, there has been significant progress on the cost front. Experience with tendering, construction progress and operations experience with FPSOs has given confidence in the cost and schedule for surface facilities. Meanwhile a substantial improvement in drilling performance in the first half of 2011 has provided greater confidence that anticipated drilling cost reductions will be achieved over future phases.

 In summary, as a consequence of the above BG Group now expects:

·; Higher flow rates and recovery per well;

·; Earlier achievement of plateau production from fewer wells;

·; Lower unit costs and higher unit value.

Significantly, BG Group expects that virtually all of the additional resources announced in June, contained within the Lula, Guará, Cernambi, Iara and Carioca fields, will be recovered from the same surface facilities envisaged in BG Group's field development plan prior to the resources upgrade. The incremental volumes are thus of a substantially higher value and result in significant unit cost reductions and higher unit value for the now increased total resources base.

Finally, during the quarter, BG Group took delivery of the oil tanker Windsor Knutsen which will be used to transport

BG Group's equity oil from Brazil. The Windsor Knutsen was converted from a conventional Suezmax tanker into the world's largest shuttle tanker, with the capacity to hold 1.1 million barrels of crude oil. First crude oil from the Lula FPSO has been lifted and is in transit to be delivered in August. BG Group has also committed to charter four further Suezmax shuttle tankers which are expected to be delivered in the period 2013 to 2014.

Egypt

In May, BG Group and its partner sanctioned Phase 8b, the next phase of investment in the West Delta Deep Marine Concession (WDDM) offshore the Nile Delta. This is one of a series of investments to maintain production from this concession that supplies gas for domestic and export needs. Phase 8b will bring seven additional wells onstream, allowing BG Group to meet its contracted gas commitments.

In 2011, BG Group, with its partners, also invested in WDDM development Phases 7 and 8a. The Phase 7 third pipeline came onstream in January with the compression project due onstream later this year. Phase 8a will bring onstream nine additional sub-sea wells. The first stage of drilling for Phase 8a has been completed with first gas expected in late 2011.

Kazakhstan

In June 2011, a fourth liquid stabilisation train at the Karachaganak Processing Complex was successfully put into operation. The start-up of the new oil processing facility raises the stabilisation and export capacity of the plant to 10.3 million tonnes of condensate per year.

Kenya

In May, BG Group announced it had signed Production Sharing Contracts with the Government of Kenya for two offshore exploration blocks - L10A and L10B. BG Group will be the operator of both blocks and will hold a 40% equity interest in block L10A and a 45% interest in block L10B. These blocks together cover an area of more than 10 400 square kilometres in the southern portion of the Lamu Basin. The initial work programme consists of a commitment to acquire seismic data during an initial two-year exploration period.

Norway

In June, the plan for development and operation of the Knarr field (previously known as Jordbær) was approved by the Norwegian Parliament. Production is scheduled to start in 2014. Knarr is an oil field in a water depth of 410 metres, situated in the Tampen North area in the Norwegian North Sea. Also in June, the lease and operate contract for the FPSO for the Knarr field was signed.

Tanzania

BG Group received approval from the Government of Tanzania to assume the role of Operator of Blocks 1, 3 and 4, offshore Tanzania, effective from 1 July 2011. To date, three successful exploration wells have been drilled. As part of the operatorship transition arrangements, BG Group has led a number of project activities over recent months in preparation for the next stage of the exploration and appraisal programme, scheduled to commence in late 2011.

USA

Progress in BG Group's shale gas operations continued to gather pace with production continuing to build-up and the 200th EXCO-operated Haynesville horizontal well being brought into production. During the quarter, 38 wells were spudded and 22 rigs were operating in the Haynesville, while 8 wells were drilled in the Marcellus shale.

Liquefied Natural Gas (LNG)

a) See note 1 (page 25).

Additional operating and financial data is given on page 36.

Second quarter

LNG total operating profit for the quarter increased by 2% to $553 million. The second quarter result was ahead of expectations due to a change in the phasing of trade for the year.

Shipping and marketing total operating profit of $494 million was 3% higher, reflecting an increased number of global diversions. During the quarter, BG Group diverted 84% of cargoes (2010 60%) to global markets outside the USA including 20 to Asia, 13 to South America and 8 to Europe.

BG Group's share of operating profit from liquefaction activities of $81 million was in line with 2010.

Capital investment of $537 million in the quarter included $509 million in Australia associated with the development of the Queensland Curtis LNG (QCLNG) project.

Half year

LNG total operating profit was $1 123 million. Shipping and marketing total operating profit of $995 million was 6% lower than last year as first quarter 2010 results benefitted from strong weather-related gas demand. During the half year, BG Group diverted 84% of cargoes (2010 68%) to global markets outside the USA including 41 to Asia, 23 to South America and 19 to Europe.

The Group's share of total operating profit from liquefaction activities was in line with 2010 at $168 million.

BG Group continues to expect the LNG segment operating profit for 2011 to be towards the upper end of the previously published guidance range of $1.9 billion to $2.2 billion.

Capital investment of $936 million in the half year included $875 million in Australia.

Second quarter business highlights

Australia

In Australia, the QCLNG project continues to gather momentum with QGC now directly and indirectly employing close to 3 600 people across its Queensland business. In the first half of 2011, BG Group has invested a total of $1.8 billion in Australia across the E&P and LNG segments. At the LNG site, the first concrete has been poured and the contract for dredging the access route in Gladstone harbour has been let. All of the 540 km of 42 inch pipeline is now in Australia and is being delivered to holding sites along the pipeline route. In the upstream, the first water treatment plant at Windibri is mechanically complete and work has commenced on a second larger plant at Kenya. The extensive flooding experienced earlier in the year has delayed progress on the drilling programme. A recovery plan is in place. The 2014 first LNG date is unchanged.

USA

BG Group and the owner of the Lake Charles import terminal have filed a formal application to the US Department of Energy to export LNG from the terminal. The application requests approval to export up to 15 mtpa of LNG. BG Group is examining the feasibility of modifying the import terminal for an LNG export project and no formal investment decision has been made.

Transmission and Distribution (T&D)

a) See note 1 (page 25).

Second quarter

Revenue and other operating income increased by 18% to $868 million, principally reflecting a 3% increase in volumes and favourable foreign exchange movements at Comgás in Brazil and higher prices at Gujarat Gas in India.

T&D total operating profit for the quarter of $167 million was 9% lower, largely as a result of the timing effect of gas cost recovery at Comgás.

At Comgás, excluding the timing effect of gas cost recovery, total operating profit was 29% higher, principally reflecting higher volumes and favourable sales mix and foreign exchange movements. The increase in volumes at Comgás was driven by higher demand from the industrial segment. In the quarter, $44 million was passed back to customers compared with a $28 million net recovery of gas costs in 2010. At the end of the quarter, $78 million remained due to be passed back to customers in future periods. The Group expects substantially all of this to be passed back by the end of 2011.

Other T&D activities operating profit increased by $21 million principally as a result of higher profits at Gujarat Gas and the phasing of profits at BG Italia Power.

Half year

Revenue and other operating income increased by 14% to $1 653 million, reflecting a 5% increase in volumes and favourable foreign exchange movements at Comgás and higher prices at Gujarat Gas.

T&D total operating profit for the half year of $312 million was 4% lower, as the increase in revenue and other operating income was more than offset by the timing effect of gas cost recovery at Comgás.

At Comgás, excluding the timing effect of gas cost recovery, total operating profit was 22% higher, principally reflecting higher volumes and favourable sales mix and foreign exchange movements. The increase in volumes at Comgás reflects the higher demand from the industrial and cogeneration segments. In the first half of the year, $65 million was passed back to customers compared with a $39 million net recovery of gas costs in 2010.

Other T&D activities operating profit increased by $46 million to $126 million, principally reflecting higher profits at Gujarat Gas and the phasing of profits at BG Italia Power.

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

Principal Risks and Uncertainties

First Quarter Business Highlights

This results announcement also represents BG Group's half-yearly financial report for the purposes of the Disclosure and Transparency Rules (DTR) made by the UK Financial Services Authority. In order to comply with the requirements of the DTR, included in this section (which forms part of the interim management report for the purpose of the DTR) are the first half business highlights which are not included earlier in this results announcement.

Exploration and Production - first quarter business highlights

Brazil

There were significant advances in the quarter with the growth programme in Brazil. Production at the first permanent module on Lula Sul increased to some 25 000 barrels of oil per day (bopd), and construction of the next two Floating Production, Storage and Offloading (FPSO) modules advanced to around 50% complete, in line with plans. Tenders for the fourth and fifth FPSOs are expected in this quarter, and work to construct the hulls for eight further modules is also progressing to plan.

In April, the Extended Well Test on Lula North East commenced utilising the BW Cidade de São Vicente FPSO. Current gross production has reached 18 000 bopd, constrained by facilities.

In April, BG Group announced the conclusion of a Drill Stem Test (DST) on the Guará Norte well (3-SPS-69) in Block BM-S-9 in the Santos Basin. The DST confirmed high productivity of some 6 000 bopd of light oil (approx 30° API) with flow rates constrained by test facility capacity. Production potential from this well is estimated at around 50 000 bopd. The Guará Norte well was drilled at a water depth of 2 118 metres, approximately 305 kilometres (kms) off the coast of São Paulo state and around 15 kms northeast of the original discovery well.

In March, BG Group announced the successful completion of drilling on the Iara Horst well in the BM-S-11 concession in the Santos Basin. The well encountered good quality oil (28° API) in a thick reservoir section. Initial results from Iara Horst have demonstrated superior reservoir characteristics to the discovery well located around eight kms away. A DST, completed in April, confirmed reservoir quality and well productivity. Further evaluation activity continues.

In February, BG Group announced a new discovery of oil (approximately 26° API) in Block BM-S-10 in the Santos Basin. The discovery well, known as Macunaíma, is located in a water depth of 2 134 metres, approximately 244 kms off the coast of Rio de Janeiro state. Further evaluation of the discovery continues.

USA

BG Group's shale gas operations continued to gather momentum, with 46 wells spudded and 22 drilling rigs operating in the Haynesville shale during the quarter. Seven wells were drilled in the Marcellus shale.

Tanzania

In April, BG Group announced its third Tanzanian gas discovery. The Chaza-1 well is located in Block 1 approximately 18 kms offshore southern Tanzania in a water depth of around 950 metres. The discovery is some 200 kms south of BG Group's Pweza and Chewa discoveries. To date, approximately 5 000 square kilometres (sq kms) of new 3D seismic data has been acquired in Blocks 1, 3 and 4. It is intended that a second drilling campaign will commence in late 2011.

Kenya

In March, BG Group signed a Heads of Agreement with the Kenyan government to acquire a 40% equity interest in the exploration block L10A and a 45% interest in block L10B, subject to negotiation of Production Sharing Contracts.

BG Group would operate both blocks.

India

In April, following India's New Exploration Licensing Policy (NELP) IX licensing round, a consortium led by

BG Group (50% and operator), was identified as the qualifying bidder for an exploration block (MB-DWN-2010/1) offshore the west coast of India. The block is approximately 350 kms from the coast, covering an area of 7 963 sq kms and in water depths in excess of 2 000 metres. The award of the contract will be subject to final confirmation from the government of India and regulatory approvals.

Norway

In the 21st licensing round held in April, the Norwegian government awarded BG Group a 40% interest in and operatorship of licence PL599, located in the Norwegian Sea.

Liquefied Natural Gas - first quarter business highlights

Australia

In March, BG Group signed a sales agreement with Tokyo Gas Co. Ltd. (Tokyo Gas), concluding negotiations announced in March 2010 for the supply of 1.2 million tonnes of LNG a year for 20 years from 2015. Tokyo Gas will be supplied with LNG from the Queensland Curtis LNG (QCLNG) facility in Australia, and from the Group's global LNG portfolio. Tokyo Gas has acquired a 1.25% equity interest in the reserves and resources of certain BG Group tenements in the Walloons Fairway of the Surat Basin in Queensland. Tokyo Gas has also become a 2.5% equity investor in QCLNG Train 2, the second of two liquefaction trains which will form the first phase of the QCLNG development, which is planned to come onstream in 2014.

BG Group has signed a sales agreement with Chubu Electric Power Co. Inc, (Chubu Electric) concluding negotiations announced in October 2010 for the long-term supply of LNG. Under the agreement, Chubu Electric will purchase up to 122 cargoes over 21 years, starting in 2014. This will be supplied from BG Group's global LNG portfolio, including the QCLNG facility in Australia.

Progress continued with the QCLNG project during the quarter. Mitigation of the effects of the severe flooding, which has primarily impacted the drilling programme, is in hand with the 2014 first LNG date unchanged.

Transmission and Distribution - first quarter business highlights

In April, BG Group signed and completed a Sale and Purchase Agreement (SPA) with its partners in Genting Sanyen Power in Malaysia for them to acquire the Group's 20% interest in the power plant for approximately $80 million.

In April, the SPA for the sale of BG Group's 40% interests in both the Santa Rita and San Lorenzo power stations in the Philippines was terminated as certain consents and waivers were not received. BG Group's holding in these assets will continue to be classified as held for sale and treated as discontinued operations.

Statement of Directors' responsibilities

Legal Notice

Going Concern

Related Parties

Presentation of Non-GAAP measures

Independent review report to BG Group plc

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly

financial report for the six months ended 30 June 2011, which comprises the consolidated income statement, consolidated statement of comprehensive income, consolidated balance sheet, consolidated statement of changes in equity, consolidated cash flow statement and related notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the Directors. The Directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

As disclosed in note 1, the annual financial statements of the Group are prepared in accordance with IFRS as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, 'Interim Financial Reporting', as adopted by the European Union.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the

half-yearly financial report based on our review. This report, including the conclusion, has been prepared for and only for the company for the purpose of the Disclosure and Transparency Rules of the Financial Services Authority and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, 'Review of Interim Financial Information Performed by the Independent Auditor of the Entity' issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure and Transparency Rules of the United Kingdom's Financial Services Authority.

PricewaterhouseCoopers LLP

Chartered Accountants

26 July 2011

London

Consolidated Income Statement

Second Quarter

a) See note 1 (page 25).

b) See Presentation of Non-GAAP measures (page 17) for an explanation of results excluding disposals, certain re-measurements and impairments and presentation of the results of joint ventures and associates.

c) Operating profit/(loss) is before share of results from joint ventures and associates.

d) Comprises earnings from continuing operations of $1 245 million (2010 $439 million) and from discontinued operations of $(2) million (2010 $163 million).

e) This measurement is shown by BG Group as it is used as a means of measuring the underlying performance of the business.

The notes on pages 25 to 35 form an integral part of these condensed financial statements.

Consolidated Income Statement

Half Year

a) See note 1 (page 25).

b) See Presentation of Non-GAAP measures (page 17) for an explanation of results excluding disposals, certain re-measurements and impairments and presentation of the results of joint ventures and associates.

c) Operating profit/(loss) is before share of results from joint ventures and associates.

d) Comprises earnings from continuing operations of $1 840 million (2010 $1 602 million) and from discontinued operations of $nil (2010 $(40) million).

e) This measurement is shown by BG Group as it is used as a means of measuring the underlying performance of the business.

The notes on pages 25 to 35 form an integral part of these condensed financial statements.

For information on dividends paid in the period, see note 9 (page 33).

Consolidated Statement of Comprehensive Income

a) Income tax relating to hedge adjustments is a $36 million charge for the quarter (2010 $23 million charge) and a $77 million credit for the half year (2010 $50 million credit).

b) Income tax relating to fair value movements on 'available-for-sale' assets is a $1 million credit for the quarter (2010 $1 million credit) and a $2 million credit for the half year (2010 $1 million credit).

The notes on pages 25 to 35 form an integral part of these condensed financial statements.

Consolidated Balance Sheet

The notes on pages 25 to 35 form an integral part of these condensed financial statements.

Consolidated Statement of Changes in Equity

The notes on pages 25 to 35 form an integral part of these condensed financial statements.

Consolidated Cash Flow Statement

a) Includes profit/(loss) before tax from discontinued operations for the quarter of $(2) million (2010 $166 million) and for the half year of $1 million (2010 $(133) million).

b) Includes capitalised interest for the quarter of $38 million (2010 $13 million) and for the half year of $67 million (2010 $27 million).

c) Cash and cash equivalents comprise cash and short-term liquid investments that are readily convertible to cash.

d) The balance at 30 June 2011 includes cash and cash equivalents of $2 203 million (31 December 2010 $2 533 million) and cash included within assets held for sale of $1 million (31 December 2010 $18 million).

The notes on pages 25 to 35 form an integral part of these condensed financial statements.

Notes

1. Basis of preparation

These primary statements are the condensed financial statements ('the financial statements') of BG Group plc for the quarter ended and the half year ended 30 June 2011. The financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006, and should be read in conjunction with the Annual Report and Accounts for the year ended 31 December 2010 which have been prepared in accordance with IFRS as adopted by the EU, as they provide an update of previously reported information. The latest statutory accounts delivered to the registrar were for the year ended 31 December 2010 which were audited by BG Group's statutory auditors PricewaterhouseCoopers LLP and on which the Auditors' Report was unqualified and did not contain statements under Sections 498(2) or 498(3) of the UK Companies Act 2006. These financial statements have been prepared in accordance with IAS 34 'Interim Financial Reporting' as adopted by the EU, the requirements of the Disclosure and Transparency Rules issued by the Financial Services Authority and the accounting policies, methods of computation and presentation as set out in the 2010 Annual Report and Accounts. These financial statements have been reviewed, not audited, by PricewaterhouseCoopers LLP.

The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities at the date of the financial statements. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change.

From September 2010, following the decision to dispose of the majority of the Group's Power Generation segment, these operations have been treated as discontinued operations. Power businesses that remain with BG Group have been allocated to other business segments based on their activity and location. A single amount is presented on the income statement for discontinued operations, comprising the post-tax results of these businesses and the post-tax profit or loss recognised on re-measurement to fair value less costs to sell and on disposal of the businesses. Comparative information has also been restated to reflect the presentation of discontinued operations as a separate line item.

Presentation of results

The presentation of BG Group's results separately identifies the effect of:

·; The re-measurement of certain financial instruments; and

·; Profits and losses on the disposal and impairment of non-current assets and businesses.

These items, which are detailed in note 2 to the financial statements (page 26) are excluded from Business Performance in order to provide readers with a clear and consistent presentation of the underlying operating performance of the Group's ongoing businesses.

New accounting standards and interpretations

A number of amendments to accounting standards issued by the IASB are applicable from 1 January 2011. They have not had a material impact on the Group's financial statements for the half year ended 30 June 2011.

2. Disposals, re-measurements and impairments

Second quarter and half year: Revenue and other operating income

Re-measurements included within revenue and other operating income amount to a credit of $189 million for the quarter (2010 $443 million charge), of which a credit of $48 million (2010 $65 million charge) represents non-cash mark-to-market movements on certain long-term UK gas contracts. For the half year, a charge of $219 million in respect of re-measurements is included within revenue and other operating income (2010 $303 million charge), of which a charge of $3 million represents non-cash mark-to-market movements on certain long-term UK gas contracts (2010 $23 million charge). Whilst the activity surrounding these contracts involves the physical delivery of gas, the contracts fall within the scope of IAS 39 and meet the definition of a derivative instrument. In addition, re-measurements include a $141 million credit for the quarter (2010 $378 million charge) and a $216 million charge for the half year (2010 $280 million charge) representing unrealised mark-to-market movements associated with economic hedges.

Second quarter and half year: Disposals and impairments of non-current assets

In April, BG Group signed and completed a Sale and Purchase Agreement (SPA) with its partners in Genting Sanyen Power in Malaysia for them to acquire the Group's 20% interest in the power plant. This resulted in a pre and post-tax profit of $28 million in the quarter. Other disposals and write-offs resulted in a pre and post-tax charge of $4 million in the quarter and a pre-tax charge of $9 million in the half year (post-tax $4 million credit).

During the first quarter of 2010, BG Group committed to sell its Canadian E&P assets. Accordingly, these assets were reclassified as held for sale and revalued to the lower of their carrying amount and fair value less costs to sell. This resulted in a pre-tax impairment charge of $52 million (post-tax charge $37 million) against these assets.

During the second quarter of 2010, BG Group completed the disposal of its Canadian E&P assets. This resulted in a pre-tax profit on disposal of $12 million (post-tax $7 million) in the quarter. Also during the second quarter of 2010, a pre-tax impairment charge of $191 million (post-tax charge $138 million) was recognised against certain assets in the E&P segment.

Second quarter and half year: Net finance costs

Re-measurements presented in net finance costs include certain derivatives used to hedge foreign exchange and interest rate risk, partly offset by foreign exchange movements on certain borrowings.

Second quarter and half year: Taxation

During the first quarter of 2011, taxation includes a $47 million credit which primarily relates to the impact of the increase in UK North Sea taxation on re-measurement balances.

3. Segmental analysis

a) Business Performance Other operating income is attributable to segments as follows: E&P $2 million (2010 $(13) million) and LNG $(3) million (2010 $(20) million).

3. Segmental analysis continued

a) External sales are attributable to segments as follows: E&P $4 730 million (2010 $3 968 million), LNG $3 526 million (2010 $3 026 million) and T&D $1 653 million (2010 $1 448 million). Intra-group sales are attributable to segments as follows: E&P $573 million (2010 $357 million) and LNG $nil (2010 $45 million).

b) Business Performance Other operating income is attributable to segments as follows: E&P $(6) million (2010 $28 million) and LNG $15 million (2010 $84 million).

3. Segmental analysis continued

4. Net finance (costs)/income

a) In 2011, interest payable includes foreign exchange gains of $7 million for the quarter and foreign exchange losses of $15 million for the half year. In 2010, interest receivable includes foreign exchange gains of $71 million for the quarter and $122 million for the half year.

b) Relates to the unwinding of the discount on provisions and amounts in respect of pension obligations which represent the unwinding of discount on the plans' liabilities offset by the expected return on the plans' assets.

c) Net finance (costs)/income on disposals, re-measurements and impairments for the quarter of $(30) million (2010 $(10) million) and for the half year of $(25) million (2010 $9 million) is included in note 2 (page 26) and principally reflects mark-to-market movements on certain derivatives used to hedge foreign exchange and interest rate risk, partly offset by foreign exchange movements on certain borrowings.

d) Excludes Group share of net finance costs from joint ventures and associates for the quarter of $16 million (2010 $10 million) and for the half year of $30 million

(2010 $23 million).

5. Taxation

5. Taxation continued

a) Prior period taxation relates to the revision of deferred tax balances at 1 January 2011, primarily as a result of the increase in UK North Sea taxation announced in

March 2011.

Business Performance taxation for the half year, excluding prior period taxation but including share of taxation from joint ventures and associates, was $1 791 million (2010 $1 430 million).The effective tax rate for the half year is based on the best estimate of the weighted average annual income tax rate expected for the full year.

6. Discontinued operations

The post-tax profit/loss of the businesses comprising discontinued operations for the second quarter, including profits and losses on disposals and impairments, was a $2 million loss (2010 $163 million profit) and for the half year was $nil (2010 $40 million loss).

During the first quarter of 2010, BG Group signed a Sale and Purchase Agreement for the sale of its power plants in the USA and its investment in the Seabank power plant in the UK. Accordingly, these assets were reclassified as held for sale and revalued to the lower of their carrying amount and fair value less costs to sell. This resulted in a pre-tax impairment charge of $325 million (post-tax charge $226 million) against the Group's US power plants.

During the second quarter of 2010, BG Group completed the disposal of its power plants in the USA. This resulted in a pre and post-tax profit on disposal of $4 million. The Group also completed the sale of its investment in the Seabank power plant in the UK, which resulted in a pre and post-tax profit on disposal of $142 million.

7. Earnings per ordinary share - continuing operations

Basic earnings per share calculations in 2011 are based on the weighted average number of shares in issue of

3 388 million for the quarter and 3 388 million for the half year.

The earnings figure used to calculate diluted earnings per ordinary share is the same as that used to calculate earnings per ordinary share given above, divided by 3 410 million for the quarter and 3 410 million for the half year, being the weighted average number of ordinary shares in issue during the period as adjusted for dilutive equity instruments.

8. Reconciliation of net borrowings(a) - Half Year

Net borrowings attributable to Comgás were $957 million (31 December 2010 $798 million).

As at 30 June 2011, BG Group's share of the net borrowings in joint ventures and associates amounted to approximately $1.8 billion, including BG Group shareholder loans of approximately $1.5 billion. These net borrowings are included in BG Group's share of the net assets in joint ventures and associates which are consolidated in BG Group's accounts.

a) Net borrowings/funds are defined on page 41.

b) Excludes $17 million relating to a decrease in cash and cash equivalents classified as held for sale.

c) Excludes $2 million relating to a decrease in borrowings classified as held for sale.

d) Net borrowings comprise:

e) These items are included within commodity contracts and other derivative financial instrument balances on the balance sheet.

f) Includes finance lease receivable of $187 million (2010 $134 million) included within non-current assets on the balance sheet.

8. Reconciliation of net borrowings - Half Year continued

Liquidity and Capital Resources

All the information below is as at 30 June 2011 unless otherwise stated

The Group's principal borrowing entities are: BG Energy Holdings Limited (BGEH), including wholly owned subsidiary undertakings, the majority of whose borrowings are guaranteed by BG Energy Holdings Limited (collectively BGEH), and Comgás and Gujarat Gas which conduct their borrowing activities on a stand-alone basis.

BGEH had a $4.0 billion US Commercial Paper Programme, of which $1 796 million was unutilised, and a $2.0 billion Eurocommercial Paper Programme, of which $1 189 million was unutilised. BGEH also had a $7.5 billion Euro Medium Term Note Programme, of which $3.1 billion was unutilised.

BGEH had aggregate committed multicurrency revolving borrowing facilities of $4.4 billion, of which $2.32 billion expires in 2013 and $2.08 billion in 2016. There are no restrictions on the application of funds under these facilities, which were undrawn as at 30 June 2011.

In July, BGEH signed an additional $100 million committed facility expiring in 2016 and a further $1 billion committed facility expiring in 2012.

In addition, BGEH had uncommitted borrowing facilities including multicurrency lines, overdraft facilities of £45 million and credit facilities of $20 million, all of which were unutilised.

Comgás had committed borrowing facilities of Brazilian Real (BRL) 1 697.6 million, of which BRL 203.8 million was unutilised, and uncommitted borrowing facilities of BRL 130 million, of which BRL 100 million was unutilised.

9. Dividends

The final dividend of 11.78c ($401 million) in respect of the year ended 31 December 2010 was paid on 20 May 2011

to shareholders on the register at the close of business on 15 April 2011. The interim dividend of 10.80c ($366 million) in respect of the year ending 31 December 2011 is payable on 8 September 2011 to shareholders on the register as at 5 August 2011.

 10. Quarterly information: earnings and earnings per share

11. Commitments and contingencies

Details of the Group's commitments and contingent liabilities as at 31 December 2010 can be found in note 25,

page 122 of the 2010 Annual Report and Accounts.

The Group's capital commitments have increased by $2.0 billion in the six month period to 30 June 2011 reflecting

the ongoing development of the Group's major growth projects. There have been no material changes to the Group's other commitments and contingent liabilities in the six month period to 30 June 2011.

12. Related party transactions

The Group provides goods and services to, and receives goods and services from, its joint ventures and associates. In addition, the Group provides financing to some of these parties by way of loans. Details of related party transactions for the year ended 31 December 2010 can be found in note 26, page 124 of the 2010 Annual Report and Accounts. There have been no material changes in these relationships in the period ending 30 June 2011. No related party transactions have taken place in the first six months of the current financial year that have materially affected the financial position or the performance of the Group during that period.

13. Business combinations

On 1 February 2011, the Group exercised pre-emption rights to increase its equity stakes in the Everest and Lomond fields in the UK to 99.13% and 100% respectively and, as a result, obtained control of these fields.

The cash consideration was $56 million. The fair value of the Group's interest in the Everest and Lomond fields before the business combination was $260 million and the $7 million pre-tax loss on re-measuring this pre-existing interest to fair value is included in 'Profits and losses on disposal of non-current assets and impairments' in the 'Disposals, re-measurements and impairments' column in the consolidated income statement.

Goodwill of $24 million arose following the recognition of a deferred tax liability on the assets acquired. None of the goodwill is expected to be deductible for tax purposes. 

Details of the acquisition balance sheet and fair value consideration are as follows:

Since 1 February 2011, revenue of $113 million and an operating profit of $26 million attributable to the Everest and Lomond fields were included in the consolidated income statement. Had the business combination occurred on 1 January 2011, the revenue and operating profit of the Group would not have been materially different. 

Supplementary information: Operating and financial data