2012 Fourth Quarter & Full Year Results

2012 FOURTH QUARTER & FULL YEAR RESULTS 

Key Points

·; Full year earnings up 3% to $4.4 billion

·; Fourth quarter earnings down 29% to $1.0 billion; 2011 benefited from a $277 million tax credit

·; Full year production up 3%, consistent with third quarter guidance

·; Full year cash flow from operations up 10% to $10.7 billion; gearing at 24%

·; Full year dividend increased by 10% to 26.14 cents per share (16.67 pence per share)

·; In January, first production from 120 000 bopd FPSO on Sapinhoá field; on schedule and budget

·; QCLNG on track for first LNG in 2014; $20.4 billion capex guidance reaffirmed

·; 2013 production outlook of 630 kboed to 660 kboed

·; 2013 profit outlook for new LNG Shipping & Marketing segment slightly ahead of 2012 results, at $2.5 billion to $2.7 billion  

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 10) and notes 1 to 3(pages 18 to 21). Unless otherwise stated, the results discussed in this release relate to BG Group's Business Performance.

b) 2011 results have been restated to reflect the presentation of the majority of the businesses that comprised the Transmission & Distribution segment as discontinued operations (see note 1, page 18).

c) Includes a charge in respect of prior period taxation (Business Performance $195 million, Total results $148 million) arising on the revision of deferred tax balances at1 January 2011 due to changes in UK taxation rates.

d) Includes profit/(loss) on disposal of non-current assets and impairments of $749 million in the quarter (2011 $(41) million) and $1 003 million in the full year(2011 $(45) million). For further information on discontinued operations see Business segment changes (page 4), note 1 (page 18) and note 6 (page 25).

BG Group's Chief Executive, Chris Finlayson said:

"For the full year, BG Group delivered earnings growth of 3%. Cash flow from operations was strong, up 10% to$10.7 billion. Our LNG business performed well with total operating profit up 13%, demonstrating the value of our flexible LNG model, which allowed us to capture increased margins by diverting cargoes to higher value markets.A 3% increase in production was consistent with our third quarter guidance.

"Earnings in the fourth quarter were down 29% to $1.0 billion, primarily as a result of a one-off $277 million tax creditin 2011. Excluding this tax credit, underlying earnings fell by 13%, broadly in line with the 12% decline in total operating profit. In the Upstream segment, total operating profit decreased by 12%, and fewer LNG cargo deliveries combined with lower spot prices resulted in a 16% lower contribution from LNG Shipping & Marketing."

On 2012 accomplishments, Chris continued "we made important progress on our key projects in Brazil and Australia.In January this year, in line with plan, we achieved the start of commercial production on the Sapinhoá field in blockBM-S-9, via our second FPSO, and our third FPSO is also on schedule and on budget for production from the Lula field in block BM-S-11 in the second quarter of this year.

"In Australia, the Queensland Curtis LNG project made good progress towards first LNG in 2014. With 94% of the $20.4 billion budget now covered by contracts and other agreements, we are confident in delivering the first phase of this project on schedule and on budget. In December, we achieved a monthly record of 55 wells drilled. On Curtis Island, construction continues apace with work on the LNG storage tanks and jetties well advanced. We expect to have first gas in the LNG plant to enable commissioning to start around the end of the year. In the USA, we have further reduced our drilling activity to four rigs where lower pricing led to a non-cash post-tax impairment of $1.3 billion, previously reported in the second quarter."

Chris highlighted BG Group's exploration performance in 2012, saying "we continued to deliver excellent performance in exploration and appraisal, with 18 successful wells out of 19 tests in the year, including a further four successes in Tanzania. Elsewhere, our risked exploration resources grew by more than 20% with new licences acquired in Uruguay, Egypt, India and Trinidad and Tobago.

"We made outstanding progress with our portfolio rationalisation programme in 2012. We have now signed agreements expected to release $8.1 billion of capital by the end of 2013, exceeding our target given just 12 months ago. We have made the strategic choice to sell non-core businesses and have now exited our T&D segment, reinforcing our focus on E&P and LNG. Going forward, we will continue to keep our portfolio under active review and management."

Chris said "our funding diversification programme continued to be well received, including three tranches of hybrid bonds, all over subscribed, which raised $2.1 billion from international markets, and we secured a $1.8 billion loan commitment from the Export-Import Bank of the United States."

On outlook Chris said "I believe that 630 000 to 660 000 barrels of oil equivalent per day (boed) is an appropriate range for our 2013 production outlook, given the risks and opportunities we face. Given this starting point in 2013, and adjusting for the CNOOC deal, the Group's previous guidance of more than 1 million boed will not be reached in 2015. Nonetheless, we still expect strong volume and cash flow growth in 2014 and 2015. We expect 2013LNG Shipping & Marketing, on the new segment definition, to generate operating profit of $2.5 billion to $2.7 billion, slightly ahead of 2012 results.

"We have much to accomplish and clear milestones to deliver in 2013. We have seven projects coming onstream over the year. Our focus is squarely on safety and execution in both our growth projects and base assets. In Egypt,BG Group continues to keep the business environment under careful review. We have sanctioned the next phase of development for the West Delta Deep field, subject to partner approval, which will come onstream in 2014."

Looking further ahead, Chris said "Importantly, we have begun a review of our longer-term strategy, and I look forward to sharing it with the market in May. We are a company with deep commercial and technical expertise alongside ahigh-quality resource base. Our strategy will build on our distinctive strengths, which clearly differentiate us from the majors in the industry: world class exploration, a unique LNG model and our commercial agility."

Business Review - Group

a) See note 1 (page 18).

b) See Business segment changes (page 4).

c) Includes a charge of $195 million in respect of prior period taxation arising on the revision of deferred tax balances at 1 January 2011 due to changes in UK taxation rates.

d) Includes capital investment relating to discontinued operations for the quarter of $35 million (2011 $80 million) and for the full year of $281 million (2011 $317 million).

Fourth quarter

Revenue and other operating income decreased by 5% to $4 753 million, reflecting fewer LNG cargo deliveries and a 2% decrease in production volumes.

Total operating profit decreased by 12% to $1 831 million as a result of the decrease in revenue and other operating income combined with higher operating costs and depreciation, and a higher exploration charge in the Upstream segment.

Net finance costs of $56 million included foreign exchange losses of $20 million (2011 $17 million including foreign exchange gains of $13 million).

Earnings in the quarter were 29% lower, as the tax charge in the fourth quarter of 2011 included a $277 million credit resulting from one-off adjustments in respect of tax positions in a number of jurisdictions.

Cash generated by operations decreased by 15% to $2 248 million reflecting lower operating profits and a higher working capital cash outflow.

As of 31 December 2012, the Group's net debt was $10 624 million and the gearing ratio was 24.2%. The average maturity of the Group's gross borrowings remains at around 17 years. 

Capital investment (excluding acquisitions and on a cash basis) of $2 747 million was predominantly in the Upstream segment ($2 707 million). This investment was focused primarily on the Group's major projects in Australia, Brazil, the UK and Egypt. Further details on key project developments are provided in the fourth quarter business highlights section. 

Full year

Revenue and other operating income increased by 7% to $18 963 million, reflecting the benefit in the E&P business of higher realised gas and liquids prices, a 3% increase in production volumes and favourable changes in the production mix. In addition, the Group's LNG business posted another year of improved profits, up 13%, as a result of increased margins driven by strong demand from high value Asian markets.

Total operating profit increased by 4% to $8 047 million, as the increase in revenue and other operating income was partly offset by higher operating costs and depreciation in the Upstream segment.

Net finance costs of $128 million included interest received on tax refunds of $23 million and foreign exchange losses of $29 million (2011 $141 million including foreign exchange losses of $1 million).

The Group's effective tax rate (including BG Group's share of joint venture and associates' tax) for the full year was 44.5%, marginally higher than the 2011 effective tax rate of 44%.The effective tax rate for 2011 included a $277 million credit in the fourth quarter resulting from one-off adjustments in respect of tax positions in a number of jurisdictions and a $195 million charge in the first quarter which resulted from the increase in UK North Sea taxation.

Cash generated by operations increased by 10% to $10 715 million, reflecting strong business performance and the reversal of prior period margin calls on the Group's hedged LNG contracts as a result of the continued reduction in hedging activities.

Capital investment (excluding acquisitions and on a cash basis) of $10 407 million included investment inUpstream ($10 099 million) and LNG Shipping & Marketing ($18 million).

Taking into account the outlook for earnings growth, cash flow and the balance sheet position, the Board has recommended a final dividend of 14.26 cents per share (9.03 pence per share), bringing the full year dividend to26.14 cents per share (16.67 pence per share), an increase of 10% compared with last year. The final dividend will be paid to shareholders in Pounds Sterling on 31 May 2013.

Business segment changes

In the fourth quarter, the Group completed the sale of its interest in Comgás in Brazil and the disposal ofBG Italia Power (BGIP) and reached agreement to sell its interest in Gujarat Gas Company Limited (GGCL) in India. Together, Comgás, BGIP and GGCL represented the majority of the Group's Transmission & Distribution (T&D) business segment and as a result of these transactions, these businesses, together with certain other assets in the T&D segment, have been treated as discontinued operations for the year ended 31 December 2012. The remaining T&D businesses, primarily Mahanagar Gas in India, have been allocated to the Other segment. Comparative information has also been restated. For further information on discontinued operations, see note 1 (page 18) andnote 6 (page 25).

Additionally, the Group's remaining business segments have been reviewed. Previously, exploration and production operations have been reported in the E&P segment and liquefaction operations in the LNG segment. The Group's operations are integrated across all parts of the gas chain, particularly in Australia, Egypt and Trinidad and Tobago, which comprise exploration, production and liquefaction operations, and therefore the liquefaction businesses have been combined with the previous E&P segment to form the 'Upstream' segment. The remaining businesses comprising the LNG segment, including the Group's interests in regasification plants, have been renamed 'LNG Shipping & Marketing'.

The impact of these segmental changes and discontinued operations on full year 2012 is set out in the tables below. The new segmental presentation is consistent with the basis used to present information for internal reporting purposes.

Business Performance Operating Profit

Capital investment on a cash basis

Comparative information by quarter for segmental operating profit and capital investment on a cash basis is given in Supplementary information (page 29).

Disposals, re-measurements and impairments - continuing operations

Total results included a post-tax charge of $90 million (2011 $98 million charge) for the fourth quarter in respect of disposals, re-measurements and impairments, and a post-tax charge of $1 086 million for the full year(2011 $155 million charge). The full year charge comprised a non-cash, post-tax charge of $1 295 million as a result of the impairment of certain assets associated with the shale gas business in the USA, recorded in the second quarter following the weaker outlook for US natural gas prices, and a post-tax credit of $209 million in respect of other disposals, re-measurements and impairments. For further information see Presentation of Non-GAAP measures(page 10) and notes 1 to 3 (pages 18 to 21).

2013 outlook

BG Group's production outlook for 2013 is 630 kboed to 660 kboed. Year on year production is expected to be slightly down in the first half; lower in the third quarter, when the Group performs most of its maintenance programme, and then grows strongly in the fourth quarter, driven by the ramp up of two FPSOs in Brazil, and significant volumes from Jasmine and Margarita Phase 2. The timing for Elgin/Franklin resuming production remains a key uncertainty. Given this starting point in 2013, and adjusting for the CNOOC deal, the Group's previous guidance of more than 1 mmboed will not be reached in 2015. The Group still expects strong volume and cash flow growth in 2014 and 2015.

At reference conditions, E&P unit operating costs are expected to be in the range $11.00 to $11.50 per boe. E&P unit depreciation costs are expected to be in the range $10.50 to $11.00 per boe.

The LNG Shipping & Marketing total operating profit, on the new segment definition, is expected to be $2.5 billion to $2.7 billion at current market conditions. The 2013 outlook is slightly ahead of the 2012 results, and is equivalent to $2.9 billion to $3.1 billion under the old LNG segment definition. This assumes supply volumes from long-term contracts of around 11.3 million tonnes of LNG, 0.3 million tonnes lower than 2012, primarily related to lower supply from Egypt. This volume forecast also assumes minimal spot cargoes, given current tight market conditions. In Chile, the pricing has switched to a predominately Henry Hub linked basis. The portfolio is substantially unhedged in 2013.

Planned capital expenditures on a cash basis are some $12 billion: $5.5 billion for Australia; $2.7 billion for Brazil;$3.0 billion for base producing assets; and $0.8 billion for other projects. Exploration and appraisal expenditure is expected to be around $1.6 billion, approximately 50% of which will be expensed.

The Group expects its effective tax rate for 2013 to be around 44%.

BG Group will address longer-term outlook during a strategy presentation on 14 May 2013.

Fourth quarter business highlights

Australia

Significant progress continues to be made at Queensland Curtis LNG (QCLNG) with the completion of a number of important milestones that advance the two-train LNG project. At year end, more than 50% of the first phase scope to the end of 2014 has been completed on a value of work done basis. Additionally, 94% of the $20.4 billion budget is covered by contracts and other agreements, which provides the Group confidence that the project remains on budget and schedule to deliver first LNG in 2014. 

In the upstream, the pace of drilling accelerated again in the fourth quarter, with 148 wells and a record 55 wells in December. This brings the total number of wells to 1 160. In December, the Group added its 11th rig and expects to maintain this level throughout 2013. In addition, progress has been made on the field compression stations with Argyle and Bellevue now operating.

Construction of the pipeline infrastructure progresses with all of the clearing, stringing and mainline welding for the200 kilometre gas collection system having been completed and 75% lowered into the ground. The 340 kilometre export pipeline is 74% mainline welded, with 45% of the pipeline lowered into the ground.

Progress on the LNG plant continues with 49 of the 80 modules required for the first phase having now left Thailand,24 of which have been delivered to Curtis Island.

BG Group's operations in Queensland were affected by the flooding associated with tropical cyclone Oswald in late January. The Group's preliminary assessment is that its systems have worked well and the impact is limited.

Brazil

In January 2013, first production from the Sapinhoá field commenced with the 120 000 barrels of oil per day (bopd)Cidade de São Paulo (FPSO 2) delivered on schedule and on budget. The first well is producing about 15 000 bopd during the 90-day commissioning of natural gas and reinjection systems, with total productive capacity of more than25 000 bopd thereafter. 

Additionally, FPSO 3 on the Lula field is on schedule and budget for start-up in the second quarter of 2013. Together, these two new units will more than triple gross processing capacity from around 100 000 bopd and 176 million standard cubic feet of gas per day (mmscfd) to 340 000 bopd and 528 mmscfd. Hull conversion is ongoing in China forFPSOs 4 and 5, which are both around 50% complete. Integration activities will take place in Brazil ahead of planned start-up in 2014.

Drilling times (spud to target depth) in the Santos Basin have continued to improve, with the average time to total depth some 25% lower than in 2011. With almost 50% of total costs drilling related, this highlights the continuing potential for further cost reduction in this area. 

Egypt 

Production during 2012 from Egypt was lower than forecast as the Phase 7 compression project was less effective than expected in arresting reservoir decline. Following an agreement signed with Egypt General Petroleum Corporation (EGPC) in 2011, the repayment of the Group's receivable balance in respect of domestic gas sales is partly linked to production levels, in particular the volume of gas allocated for export as LNG. As at 31 December 2012, this receivable balance was $1.3 billion, of which $0.6 billion was overdue. Under repayment terms being negotiated with EGPC, and based upon post-investment forecast production levels, the existing $1.3 billion receivable balance would be fully recovered by the end of 2015, and all future receivables would be current by 2017. However, the recoverability of the receivable balances within these timeframes and the full realisation of the carrying value of the Group's significant Egyptian operations depend on the business environment in Egypt, together with the outcome of current negotiations with EGPC, reservoir performance, the Group's continued investment plans and the successful operational delivery of those plans. BG Group plans to begin the next phase of development for the West Delta Deep Marine field, Phase 9a, this year, subject to partner consent and expects to drill around 12 new development wells in 2013 which will provide additional information regarding reserves and reservoir performance.

Fourth quarter business highlights (continued)

Tanzania

In the quarter, BG Group completed one successful exploration well and a successful appraisal well, plus a sidetrack in the greater Jodari area located in Block 1. These wells confirmed previously disclosed volumes and significantly reduced the Jodari field uncertainty. The Group estimates gross total resources in current discoveries across its Tanzanian interests to be near 10 tcf (BG Group 60% and operator), with extensive further potential to be explored in the remaining exploration prospects. Production tests on Jodari and Mzia are planned in the first half of 2013.

Portfolio rationalisation programme

The Group continued with the successful execution of its portfolio rationalisation programme. The programme is refocusing the Group's portfolio on its core strengths in E&P and LNG, by exiting the T&D sector. BG Group also made the strategic decision to sell down certain interests in QCLNG, signing the heads of agreement in October which deepens the Group's partnership with China National Offshore Oil Corporation (CNOOC). Agreements were also signed for the sale of 5 million tonnes of LNG, which will make BG Group the largest supplier of LNG into the world's fastest growing energy market.

In November, the sale of the Group's entire 60.1% holding in Comgás for Brazilian Reais 3.4 billion (approximately$1.7 billion) in cash, to Cosan S.A. Indústria e Comércio was completed.

During the quarter, the Group also completed the disposal of BG Italia Power and signed agreements to dispose of its interests in MetroGAS S.A. and the Bolivia-to-Brazil pipeline. The sale of the Bolivia-to-Brazil pipeline completed inJanuary 2013.

In total, the Group has agreed disposals that are expected to release $8.1 billion of capital by the end of 2013.

Funding programme

During 2012, BG Group's funding diversification programme raised $2.1 billion from capital markets and secured$2.3 billion of agreements from export credit agencies.

In November, the Group announced a new five-year $3 billion syndicated committed credit facility which replaced$2.3 billion of expiring bilateral committed credit lines. The new facility is in addition to the $2.2 billion of five-year bilateral committed credit lines secured in 2011, taking the total of BG Group's undrawn committed bank borrowing facilities to $5.2 billion.

In December, BG Group secured agreement for a $1.8 billion loan from the Export-Import Bank of the United States. This agreement, which is subject to documentation, is designed to support the export of US services and equipment for the ongoing delivery of the QCLNG project in Australia.

Board changes

In December, BG Group announced the appointment of Chris Finlayson as Chief Executive from 1 January 2013. Sir Frank Chapman stepped down from the Board and Group Executive Committee on 31 December 2012, and continues to work as an advisor in support of the Chief Executive transition until his retirement in June 2013.

Upstream - New segment basis

a) See note 1 (page 18).

Additional operating and financial data is given on page 29.

Fourth quarter

Revenue and other operating income of $2 928 million was broadly in line with 2011, as a decrease in production volumes was offset by the effect of higher realised prices. Volumes decreased by 2% primarily due to the loss ofnon-operated production resulting from the long-term shutdown at Elgin/Franklin and an extended shutdown at Buzzard.

The Group's average realised gas price increased by 7% to 46.03 cents per therm. International gas price realisations were 12% higher at 42.98 cents per therm, reflecting generally higher market prices and changes in the production mix. The average realised gas price in the UK increased by 7% to 51.37 pence per therm owing to higher market prices.

Total E&P operating profit of $1 077 million was 16% lower as a result of higher operating costs, depreciation and a higher exploration charge. Unit operating expenditure increased by $1.84 per boe to $11.03 per boe, principally reflecting the impact of higher royalty costs arising from changes in the production mix and higher commodity prices. The unit depreciation charge increased by $1.82 per boe to $9.44 per boe due to new developments coming onstream and as a result of changes in the production mix. The exploration charge of $260 million was $44 million higher primarily as a result of higher seismic acquisition costs. Gross exploration expenditure of $386 million included spend in Tanzania ($77 million), Egypt ($70 million), Australia ($68 million), the UK ($43 million) and Brazil ($28 million).BG Group's share of operating profit from liquefaction activities increased by 100% to $92 million, primarily as a result of lower planned maintenance at Atlantic LNG and reduced business development expenditure.

Capital investment on a cash basis of $2 707 million included investment in Australia ($1 330 million),Brazil ($534 million), the UK ($230 million) and Egypt ($186 million). 

Full year

Revenue and other operating income increased by 7% to $11 954 million, reflecting higher realised gas and liquids prices, a 3% increase in production volumes and improved production mix. Total E&P operating profit was in line with 2011 as the increase in revenue and other operating income was offset by higher operating costs and depreciation.

The Group's average realised gas price increased by 8% to 44.84 cents per therm, reflecting generally higher market prices and changes in the production mix. Production volumes increased as a result of new fields coming onstream in Brazil, Bolivia and Thailand. Unit operating expenditure increased by $1.48 per boe to $10.25 per boe, in line with the revised guidance provided in the third quarter. This increase principally reflects the impact of higher royalty costs arising from changes in the production mix and generally higher commodity prices. The unit depreciation charge increased by $1.39 per boe to $9.05 per boe as a combined result of the impact of new fields coming onstream and changes in the production mix. BG Group's share of operating profit from liquefaction activities of $346 million was 19% higher than 2011.

Capital investment on a cash basis of $10 099 million included investment in Australia ($5 043 million),Brazil ($1 553 million), the UK ($1 099 million) and Egypt ($637 million).LNG Shipping & Marketing - New segment basis

a) See note 1 (page 18).

Additional operating and financial data is given on page 29.

Fourth quarter

LNG Shipping & Marketing total operating profit of $658 million was 16% lower than last year as a result of fewer cargo deliveries and lower Asian spot prices.

During the quarter, BG Group delivered 48 LNG cargoes, four fewer than 2011, primarily as a result of fewer spot cargo deliveries. Cargo deliveries comprised 30 to Asia, 13 to South America, 4 to the USA and 1 to Europe (2011 52 cargoes: 33 Asia, 9 South America, 7 USA, 2 Europe and 1 Middle East). 

Full year

LNG Shipping & Marketing total operating profit for the year increased by 13% to $2 577 million despite 11 fewer cargo deliveries, reflecting favourable market conditions and strong demand, particularly from Japan. The tightening of the LNG market, which overall benefits the LNG Shipping & Marketing business, also resulted in a reduction in the number of spot cargoes available for purchase. Spot cargo purchases in the year declined from 22 to 15.

During the year, BG Group delivered 197 LNG cargoes, comprising 122 to Asia, 47 to South America, 19 to the USA,8 to Europe and 1 to the Middle East (2011 208 cargoes: 109 Asia, 44 South America, 29 USA, 23 Europe and3 Middle East). Deliveries to Japan increased from 40 to 67, reflecting record demand as all nuclear units were offline by the end of the second quarter, of which only two were back online at year end.

Profits from liquefaction activities of $346 million for the year are now reported within the Upstream segment. The total operating profit for the previously reported LNG segment was $2 923 million, exceeding the upper end of the $2.6 billion to $2.8 billion guidance range for 2012.

Presentation of Non-GAAP measures

Legal Notice

Consolidated Income Statement

Fourth Quarter

a) See note 1 (page 18).

b) See Presentation of Non-GAAP measures (page 10) 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) Includes profit/(loss) on disposal of non-current assets and impairments of $749 million (2011 $(41) million).

e) Comprises earnings from continuing operations of $940 million (2011 $1 358 million) and from discontinued operations of $786 million (2011 $(22) million).

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

Consolidated Income Statement

Full Year

a) See note 1 (page 18).

b) See Presentation of Non-GAAP measures (page 10) 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) Includes profit/(loss) on disposal of non-current assets and impairments of $1 003 million (2011 $(45) million).

e) Comprises earnings from continuing operations of $3 309 million (2011 $4 096 million) and from discontinued operations of $1 210 million (2011 $138 million).

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

Consolidated Statement of Comprehensive Income

a) Income tax relating to hedge adjustments is a $46 million charge for the quarter (2011 $75 million credit) and a $304 million charge for the full year (2011 $80 million credit).

b) Income tax relating to fair value movements on 'available-for-sale' assets is $nil for the quarter (2011 $5 million charge) and a $6 million credit for the full year (2011$6 million charge).

c) In the quarter a $378 million gain and in the full year a $355 million gain was transferred to the income statement as part of the profit on disposal of non-US Dollar denominated operations (2011: $nil for the quarter, $15million loss for the full year).

Consolidated Balance Sheet

a) As at 31 December 2012 assets classified as held for sale include Gujarat Gas Company Limited in India, the Group's remaining equity share of GNL Quintero S.A. in Chile and the Group's equity interest in the Bolivia-Brazil pipeline (2011 included BG Group's equity share of First Gas in the Philippines).

Consolidated Statement of Changes in Equity

Consolidated Cash Flow Statement

a) Includes profit/(loss) before tax from discontinued operations for the quarter of $951 million (2011 $(25) million) and for the full year of $1 562 million (2011 $313 million).

b) Includes profit on disposal of non-current assets and impairments of discontinued operations for the quarter of $879 million (2011 $(67) million) and for the full year of$1 132 million (2011 $(68) million).

c) Includes capitalised interest for continuing and discontinued operations for the quarter of $131 million (2011 $88 million) and for the full year of $467 million(2011 $206 million).

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

e) The balance at 31 December 2012 includes cash and cash equivalents of $4 434 million (31 December 2011 $3 601 million) and cash included within assets held for sale of $86 million (31 December 2011 $nil).

Notes

1. Basis of preparation

These primary statements are the unaudited preliminary consolidated financial statements ('the financial statements')of BG Group plc for the quarter and the full year ended 31 December 2012. 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 2011 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 2011 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 Companies Act 2006. These financial statements have been prepared in accordance with the accounting policies set out in the 2011 Annual Report and Accounts.

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. The assumptions used to assess the recoverability of the Group's Egyptian operations are dependent on the Group's continued investment plans (for further information see page 6). 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.

BG Group announced an agreement to sell the Group's interest in Gujarat Gas Company Limited in India in October 2012, and the completion of the disposal of Comgás in Brazil in November 2012. These operations represent the majority of the Group's Transmission and Distribution business segment and are considered to be a separate major line of business for BG Group. As a result, these operations have been treated as discontinued. In addition, during the fourth quarter of 2012 the Group disposed of BG Italia Power in Italy and agreement was reached to dispose of the Group's interest in the Brazil-Bolivia Pipeline. These activities have also been included within discontinued operations.

The Transmission and Distribution businesses that remain with BG Group, principally Mahanagar Gas in India, have been allocated to the Other business segment.

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.

The Group's remaining business segments have been reviewed. As the Group's operations are integrated across all parts of the gas chain, particularly in Australia, Egypt and Trinidad and Tobago, which comprise exploration, production and liquefaction operations, its liquefaction businesses have been combined with the previous E&P segment to form the 'Upstream' segment, and the remaining businesses comprising the LNG segment have been renamed 'LNG Shipping & Marketing'. The new segmental presentation is consistent with the basis used to present information for internal reporting purposes.

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 and certain other exceptional items.

These items, which are detailed in note 2 to the financial statements (page 19), 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 2012. They have not had a material impact on the Group's financial statements for the quarter ended and year ended31 December 2012.

2. Disposals, re-measurements and impairments

a) See note 1 (page 18).

Fourth quarter and full year: Revenue and other operating income

Re-measurements included within revenue and other operating income amount to a credit of $89 million for the quarter (2011 $256 million credit), of which a credit of $66 million (2011 $54 million credit) represents non-cash mark-to-market movements on certain long-term gas contracts. For the full year, a credit of $237 million in respect of re-measurements is included within revenue and other operating income (2011 $108 million credit), of which a credit of $140 million represents non-cash mark-to-market movements on certain long-term gas contracts (2011 $55 million credit). Whilst the activity surrounding these contracts involves the physical delivery of gas, the contracts fall within the scope ofIAS 39 and meet the definition of a derivative instrument. In addition, re-measurements include a $23 million credit for the quarter (2011 $202 million credit) and a $97 million credit for the full year (2011 $53 million credit) representing unrealised mark-to-market movements associated with economic hedges.

Fourth quarter and full year: Disposals and impairments of non-current assets

In December 2012 a $154 million pre-tax impairment charge (post-tax $34 million) was recognised against Upstream assets in Norway.

In September 2012, BG Group completed the sale of the initial tranche of 20% equity in the Quintero LNG regasification facility in Chile. This resulted in a pre-tax profit on disposal of $146 million (post-tax $110 million).

The second quarter of 2012 included a pre-tax charge of $1 800 million (post-tax $1 295 million charge) in respect of the impairment of certain assets associated with the shale gas business in the USA, as a result of the weaker outlook for US natural gas prices.

In June 2012, the Group disposed of 10% of its interest in the Karachaganak gas-condensate project for $651 million in cash, additional capacity in the Caspian Pipeline Consortium pipeline, and the final settlement of cost recovery and other claims. This resulted in the recognition of a pre-tax profit on disposal in the quarter of $4 million (post-tax

$4 million) and in the full year of $404 million (post-tax $168 million).

Other disposals, impairments and other items in 2012 resulted in a pre-tax charge to the income statement of$121 million in the fourth quarter (post-tax $93 million charge) and a pre-tax charge of $247 million in the full year(post-tax $159 million charge).

In the fourth quarter of 2011, BG Group reviewed its operations in the Africa, Central and South Asia region and made the decision to cease exploration activity in certain locations. As a result of this review a pre-tax charge of $393 million was recognised in the Upstream segment (post-tax $314 million) comprising impairments and related provisions.

In April 2011, BG Group signed and completed a Sale and Purchase Agreement with its partners in Genting Sanyen Power in Malaysia for the divestment of the Group's 20% interest in the power plant. This resulted in the recognition of a pre and post-tax profit of $28 million in the second quarter of 2011.

Other disposals and impairments in 2011 resulted in a pre-tax charge of $40 million in the fourth quarter (post-tax$25 million) and a pre-tax charge of $49 million in the full year (post-tax $21 million). 

Fourth quarter and full year: Net finance costs/income

Re-measurements presented in net finance costs/income includes foreign exchange movements on certain borrowings and movements on monetary items that form part of the Group's net investment in foreign operations, offset bymark-to-market movements on certain derivatives used to hedge foreign exchange and interest rate risk.

Fourth quarter and full year: Taxation

In 2011, taxation for the full year 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) See note 1 (page 18).

b) Business Performance Other operating income is attributable to segments as follows: Upstream $2 million (2011 $4 million) and LNG Shipping & Marketing $14 million (2011 $58 million).

3. Segmental analysis continued 

a) See note 1 (page 18).

b) External sales are attributable to segments as follows: Upstream $11 161 million (2011 $10 125 million), LNG Shipping & Marketing $7 760 million (2011 $7 523 million) and Other $12 million (2011 $19 million). Intra-group sales are attributable to segments as follows: Upstream $780 million (2011 $1 032 million) and LNG Shipping & Marketing $297 million (2011 $231 million).

c) Business Performance Other operating income is attributable to segments as follows: Upstream $13 million (2011 $(6) million) and LNG Shipping & Marketing $17 million (2011 $80 million).

3. Segmental analysis continued

a) See note 1 (page 18).

4. Net finance (costs)/income

a) See note 1 (page 18).

b) In 2012, interest payable includes foreign exchange losses of $20 million for the quarter and foreign exchange losses for the full year of $29 million. In 2011, interest payable includes foreign exchange gains of $13 million for the quarter and foreign exchange losses for the full year of $1 million.

c) 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.

d) Net finance income/(costs) on disposals, re-measurements and impairments for the quarter of $(14) million (2011 $102 million) and for the full year of $(25) million(2011 $73 million) is included in note 2 (page 19) and principally reflects foreign exchange movements on certain borrowings, partly offset by mark-to-market movements on certain derivatives used to hedge foreign exchange and interest rate risk.

e) Excludes the Group's share of net finance costs from joint ventures and associates for the quarter of $8 million (2011 $16 million) and for the full year of $39 million(2011 $59 million).

5. Taxation

a) See note 1 (page 18).

a) See note 1 (page 18).

b) 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 inMarch 2011.

Business Performance taxation for the full year, excluding prior period taxation but including share of taxation from joint ventures and associates, was $3 524 million (2011 $3 145 million).

6. Discontinued operations

The post-tax profit/(loss) of the businesses comprising discontinued operations for the quarter was $804 million(2011 $(14) million) and for the full year was $1 304 million (2011 $219 million). This includes the profit/(loss) on disposal of non-current assets and impairments of $749 million in the quarter (2011 $(41) million) and $1 003 million in the full year (2011 $(45) million).

In May 2012, the Group disposed of its 40% equity interest in two gas-fired power generation plants in the Philippines to its partner, First Gen Corporation, for net cash proceeds of $360 million. The sale and purchase agreement, completed on signing, covers the 1 000 megawatt Santa Rita power plant and the 500 megawatt San Lorenzo power plant, both on the island of Luzon. This resulted in a pre and post-tax profit of $252 million in the second quarter of 2012.

In November, the Group completed the sale of the Group's entire 60.1% holding in Comgás, originally announced in May, for Brazilian Reais 3.4 billion in cash (approximately $1.7 billion) to Cosan S.A. Indústria e Comércio. This resulted in a pre-tax profit of $1 037 million (post-tax profit of $896 million) in the fourth quarter of 2012.

In October, BG Group announced it had reached agreement to sell its 65.12% interest in Gujarat Gas Company Limited in India for approximately Indian Rupees 24.6 billion ($470 million) to GSPC Distribution Networks Limited,a subsidiary of Gujarat State Petroleum Corporation. This transaction is expected to complete during the first half of 2013.

Other disposals and impairments resulted in a post-tax charge of $147 million in the fourth quarter and a post-tax charge of $145 million in the full year.

Excluding profits and losses on disposals and impairments, the post-tax profit/(loss) of the businesses comprising discontinued operations for the fourth quarter was a $55 million profit (2011 $27 million profit) and for the full year wasa $301 million profit (2011 $264 million profit). 

7. Earnings per ordinary share - continuing operations

Basic earnings per share calculations in 2012 are based on the weighted average number of shares in issue of3 399 million for the quarter and 3 396 million for the full 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 3 418 million for the quarter and 3 415 million for the full 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) - Full Year

As at 31 December 2012, BG Group's share of the net borrowings in joint ventures and associates amounted to approximately $1.3 billion, including BG Group shareholder loans of approximately $0.7 billion. These net borrowings are included in BG Group's share of the net assets in joint ventures and associates which are consolidated inBG Group's accounts.

a) Net borrowings are defined on page 35.

Net borrowings comprise:

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

b) Includes finance lease receivable of $195 million (2011 $193 million) included within non-current assets on the balance sheet.

Liquidity and Capital Resources

All the information below is as at 31 December 2012

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 Gujarat Gas which conducts its borrowing activities on a stand-alone basis.

BGEH had a $4.0 billion US Commercial Paper Programme and a $2.0 billion Eurocommercial Paper Programme, both of which were unutilised. During 2012, BGEH also had a $15.0 billion Euro Medium Term Note Programme, of which $8.37 billion was unutilised. This programme is expected to be renewed in 2013.

BGEH had aggregate undrawn committed revolving bank borrowing facilities of $5.2 billion, of which $2.18 billion expires in 2016 and $3.04 billion expires in 2017. BGEH also secured $2.3 billion of undrawn credit facilities provided by export credit agencies, subject to documentation.

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. 

9. Dividends

The proposed final dividend for the year ended 31 December 2012 of 14.26 cents per share takes the 2012 full year dividend to 26.14 cents per share.

The final dividend of 12.96 cents per ordinary share ($443 million) in respect of the year ended 31 December 2011 was paid on 25 May 2012 to shareholders on the register at the close of business on 13 April 2012. The interim dividend of 11.88 cents per ordinary share ($404 million) in respect of the year ending 31 December 2012 was paid on7 September 2012 to shareholders on the register as at 3 August 2012. The proposed final dividend of 14.26 cents per share ($485 million) in respect of the year ended 31 December 2012 is payable on 31 May 2013 to shareholders on the register at the close of business on 19 April 2013.

10. Quarterly information: earnings and earnings per share

Supplementary information: Operating and financial data