1st Nov 2007 07:02
BG GROUP plc01 November 2007 BG GROUP PLC2007 THIRD QUARTER RESULTS -------------------------------------------------------------------------------- • Total operating profit for the quarter increased 6% to £672m and earnings per share rose 9% • At constant US$/UK£ exchange rates and upstream prices, total operating profit increased 15% • E & P volumes fell 4%, primarily due to CATS disruption. Pipeline service now restored • The expansion of the mid-Tapti field in India came onstream • Elba Island expansion, which will significantly increase capacity, approved by FERC • Strong downstream performance, particularly in LNG where total operating profit increased 129% • Continued exploration success in Brazil with two more discoveries BG Group's Chief Executive, Frank Chapman said: "We have delivered strong earnings and continued progress in our long-termgrowth programme. The quarter was marked by positive developments upstream,including successes in our exploration programme in Brazil, and by goodperformance in our downstream businesses, most notably in LNG." Third Quarter Nine Months 2007 2006 Business Performance(i) 2007 2006 £m £m £m £m 672 633 +6% Total operating profit 2 242 2 343 -4% including share of pre-tax operating results from joint ventures and associates 368 342 +8% Earnings for the period 1 225 1 230 - 10.9p 10.0p +9% Earnings per share 36.1p 35.3p +2% Total results for the period (including disposals, re-measurements and impairments) 587 685 -14% Operating profit before share 2 051 2 370 -13% of results from joint ventures and associates 650 737 -12% Total operating profit 2 232 2 548 -12% including share of pre-tax operating results from joint ventures and associates 357 394 -9% Earnings for the period 1 260 1 390 -9% 10.6p 11.5p -8% Earnings per share 37.2p 39.9p -7% i) 'Business Performance' excludes disposals, certain re-measurementsand impairments as exclusion of these items provides a clear and consistentpresentation of the underlying operating performance of the Group's ongoingbusiness. Re-measurements include certain long-term UK gas contracts which areclassified as derivatives under IAS 39 and are therefore marked-to-market. Thishas no impact on the cashflows of the business. For further explanation of Business Performance and the presentation of resultsfrom joint ventures and associates, see Presentation of Non-GAAP measures, page8, Note 2 to the accounts, page 16, and Results Presentation, page 2. RESULTS PRESENTATION The presentation of BG Group's results under IFRS separately identifies theeffect 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 accounts, page 16, are excludedfrom Business Performance in order to provide readers with a clear andconsistent presentation of the underlying operating performance of the Group'songoing businesses. Under IFRS the results of joint ventures and associates are presented net offinance costs and tax (see pages 10 and 11). Given the relevance of thesebusinesses within BG Group, the results of joint ventures and associates arepresented both before interest and tax, and after tax. The pre-interest and taxresult is disclosed in Business Performance discussed on pages 3 to 7. The tablebelow sets out the amounts related to joint ventures and associates, certainre-measurements under IAS 39 and profits on disposal and impairment ofnon-current assets and businesses. Third Quarter Business Disposals, Total Performance re-measurements and impairments(i) Result 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Operatingprofit beforedisposal ofnon-currentassets andimpairments 609 581 (22) 104 587 685 Profits and losses on disposal of non-currentassets and impairments - - - - - - Operatingprofit beforeshare ofresults fromjoint venturesand associates 609 581 (22) 104 587 685 Pre-tax shareof operatingresults ofjoint venturesand associates 63 52 - - 63 52Totaloperatingprofit 672 633 (22) 104 650 737 Net finance costsFinance income 35 25 5 1 40 26Finance costs (29) (21) (5) (1) (34) (22)Share of jointventures and associates (14) (17) - - (14) (17) (8) (13) - - (8) (13)TaxationTaxation (271) (265) 11 (52) (260) (317)Share of jointventures and associates (10) (1) - - (10) (1) (281) (266) 11 (52) (270) (318) Profit for theperiod 383 354 (11) 52 372 406 Profit attributable to:Shareholders(earnings) 368 342 (11) 52 357 394Minorityinterest 15 12 - - 15 12 383 354 (11) 52 372 406 i) Re-measurements excluded from Business Performance The IAS 39 re-measurements reflect movements in external market prices andexchange rates. Financial instruments include certain long-term UK gas contractswhich are classified as derivatives under IAS 39 due to the nature of thecontract terms and are therefore required to be marked-to-market. This treatmenthas no impact on the cashflows of the business and these unrealisedmark-to-market movements are therefore presented separately from underlyingbusiness performance. For an explanation of Non-GAAP measures see page 8. BUSINESS REVIEW The results discussed in this Business Review (pages 3 to 7) relate to BGGroup's performance excluding disposals, certain re-measurements andimpairments. For the impact and a description of these items, see theconsolidated income statements (pages 10 and 11) and Note 2 of the accounts(page 16). Results at constant US$/UK£ exchange rates and upstream prices arealso quoted. See Presentation of Non-GAAP measures (page 8) for an explanationof these metrics. GROUP Business Performance Third Quarter 2007 2006 £m £m Revenue and other operating income 1 850 1 647 +12% Total operating profit including share of pre-taxresults from joint ventures and associates Exploration and Production 433 509 -15%Liquefied Natural Gas 149 65 +129%Transmission and Distribution 67 56 +20%Power Generation 29 16 +81%Other activities (6) (13) -54% 672 633 +6% Net finance costs (8) (13) -38%Taxation (281) (266) +6%Earnings 368 342 +8%Earnings per share 10.9p 10.0p +9% Capital investment 504 511 -1% Third quarter Revenue and other operating income increased by 12% to £1 850 million,reflecting a 36% increase in LNG managed volumes and the impact of recent powergeneration acquisitions, partially offset by the impact of the Central AreaTransmission System (CATS) pipeline shutdown and the weaker US$/UK£ exchangerate. Total operating profit increased by £39 million to £672 million and cash flowremained strong with cash generated by operations of £773 million. Increasedprofits in the LNG segment due to strong volume growth and higher margins morethan offset lower E&P production volumes, an increased exploration charge andthe weaker US$/UK£ exchange rate. At constant US$/UK£ exchange rates andupstream prices, total operating profit increased by 15%. Earnings per share increased by 9% to 10.9 pence per share. The Group's effective tax rate (including BG Group's share of joint ventures andassociates tax) was 43% for the nine months. Capital investment in the quarter of £504 million comprised continuinginvestment in the Mediterranean Basin and Africa (£181 million), Europe andCentral Asia (£126 million), South America (£95 million), North America and theCaribbean (£73 million) and Asia Pacific (£29 million). At 30 September 2007, the Group had returned £446 million to shareholders underits £750 million share repurchase programme. EXPLORATION AND PRODUCTION Business Performance Third Quarter 2007 2006 £m £m Production volumes (mmboe) 48.7 50.6 -4% Revenue and other operating income 829 870 -5% Total operating profit 433 509 -15% Capital investment 413 297 +39% Additional operating and financial data is given on page 26. Third quarter E&P total operating profit of £433 million was down on 2006 reflecting lowerproduction volumes, higher exploration costs and a weaker US$/UK£ exchange rate. Production volumes were 4% lower, due to the temporary closure of the CATSpipeline, reduced production in Trinidad and Tobago and the effect of disposals(Canada and Mauritania). The CATS pipeline in the North Sea was damaged by athird-party vessel. Lost production was approximately 5.5 mmboe due to thisincident. Production in Trinidad and Tobago was curtailed, by lower domesticdemand and restrictions on supply into Atlantic LNG. The exploration charge of £102 million is £16 million higher than 2006,principally due to the increased exploration activities across the Group. Unit operating expenditure was up 37 pence to £2.73 ($5.50) per boe, reflectingthe impact of the closure of the CATS pipeline and increased royalty costs. For the UK gas year starting 1 October 2007, BG Group expects to realise anaverage contracted price of approximately 34 pence per therm on North Sea gasproduction. Capital investment of £413 million included expenditure in Tunisia (£118million), the UK (£66 million), Egypt (£57 million), Trinidad and Tobago (£46million), Kazakhstan (£40 million), India (£15 million) and Canada (£14million). Third quarter business highlights In Brazil, BG Group announced two additional successes in the Santos Basin,offshore Brazil. The first successful well, known as Carioca, is a new oil fieldwithin the BM-S-9 concession, where BG Group holds a 30% interest. The secondsuccess was the Tupi Sul appraisal well in the BM-S-11 concession. The well,located approximately 9.5 kilometres southwest from the Tupi discovery hasproved the southern extension of that discovery. BG Group holds a 25% interestin the concession. BG Group has now had four successes out of four wells drilledin the frontier Santos Basin pre-salt play. In late August, the next phase of development of the mid-Tapti gas field inIndia (BG Group 30%, joint operator) was completed and first gasproduced. The new facilities will enable the supply of an additional 200 mmscfdof gas to markets in the western region. The West Franklin field (BG Group 14.11%) commenced production in September andwill assist in maintaining plateau production from the Elgin/Franklinfacilities. At Central Block, in Trinidad and Tobago, a new gas plant with a capacity of 65mmscfd was commissioned in September, near the existing production site atCarapal Ridge. This increased capacity will supply up to 45 mmscfd to BG Group'scapacity in Atlantic LNG Train 4. In Thailand, BG Group along with its partners in the Bongkot field (BG Group22.22%), signed two Supplementary Petroleum Concession Agreements coveringBlocks B15, B16 and B17 which renew Bongkot's production period for a furtherten years from the current expiry dates in 2012 and 2013. Four exploration wellshave completed drilling on Bongkot South during the quarter, all of which havebeen successful. In August, BG Group signed a farm-in agreement for Block 5(c), 85 miles off theeast coast of Trinidad. BG Group has taken a 30% working interest in theProduction Sharing Contract. The terms of the agreement are subject toGovernment approval. In August, BG Group signed a farm-in agreement for Oil Prospecting Licence 323,offshore Nigeria. BG Group will acquire a 20% interest in the Production SharingContract, subject to receipt of all necessary consents and approvals. LIQUEFIED NATURAL GAS Business Performance Third Quarter 2007 2006 £m £m Revenue and other operating income 704 566 +24% Total operating profitShipping and marketing 130 58 +124%Liquefaction 33 25 +32%Business development and other (14) (18) -22% 149 65 +129% Capital investment 54 178 -70% Additional operating and financial data is given on page 26. Third quarter LNG total operating profit increased by £84 million to £149 million due tohigher volumes and margins in the shipping and marketing business, partiallyoffset by the weaker US$/UK£ exchange rate. In shipping and marketing, total operating profit increased by £72 million to£130 million, reflecting a 36% increase in managed volumes and higher margins asBG Group redirected its flexible supply portfolio to access strong demand inAsia. BG Group's share of operating profit from liquefaction activities of £33 millionwas up 32%, principally due to an increase in the tariff as Atlantic LNG Train 4entered its commercial phase. Capital investment of £54 million in the quarter includes £42 million onregasification development projects, primarily relating to GBL Quintero SA inChile, and £7 million relating to new LNG ships. Third quarter business highlights In September, approval was received from the Federal Energy RegulatoryCommission for the expansion of the Elba Island LNG import terminal andconstruction of the new Elba Express Pipeline in eastern Georgia. After the ElbaIsland expansion, BG Group will have storage capacity of8.2 billion cubic feet (bcf) and send-out capacity of 1.2 bcf per day (bcfd).The Elba Express Pipeline, an approximately 190 mile pipeline with a capacity of1.2 bcfd, will transport natural gas from Elba Island to markets in thesoutheastern and eastern United States. The facilities will be constructed intwo phases with the initial in-service date expected to be mid-2010. On 15 October, the Italian Government notified BG Group of the suspension of theAuthorisation, granted in January 2003, for the construction and operation ofthe Brindisi LNG import terminal in southern Italy, pending a new requirement tocomplete an Environmental Impact Assessment (EIA). Work on the EIA has commencedand Brindisi LNG expects to file the EIA with the Minister for the Environmentearly in 2008. TRANSMISSION AND DISTRIBUTION Business Performance Third Quarter 2007 2006 £m £m Revenue and other operating incomeComgas 220 193 +14%Other 38 31 +23% 258 224 +15%Total operating profitComgas 59 49 +20%Other 8 7 +14% 67 56 +20% Capital investment 30 32 -6% Third quarter T&D total operating profit for the quarter increased by £11 million to £67million. At Comgas, in Brazil, total operating profit increased by £10 million to £59million, following a 5% increase in volumes and a favourable Brazilian Realexchange rate. The results include the net cost (£5 million) of passing back tocustomers the reduced gas costs experienced in earlier periods. Capital investment mainly represents the development of the Comgas pipelinenetwork. POWER GENERATION Business Performance Third Quarter 2007 2006 £m £m Revenue and other operating income 140 42 +233% Total operating profitPower Generation 33 16 +106%Business Development and Other (4) - - 29 16 +81% Capital investment 3 3 - Third quarter The increase in revenue is due to the consolidation of new subsidiaries. The increase in total operating profit is principally due to the contributionfrom recently acquired assets in the USA and Italy. In addition, total operatingprofit increased due to the phasing of income at Seabank Power. Presentation of Non-GAAP measures Business Performance 'Business Performance' excludes disposals, certain re-measurements and impairments (see below) as exclusion of these items provides a clear and consistent presentation of the underlying operating performance of the Group's ongoing business. BG Group uses commodity instruments to manage price exposures associated with its marketing and optimisation activity in the UK and US. This activity enables the Group to take advantage of commodity price movements. It is considered more appropriate to include both unrealised and realised gains and losses arising from the mark-to-market of derivatives associated with this activity in 'Business Performance'. Disposals, certain re-measurements and impairments BG Group's commercial arrangements for marketing gas include the use of long-term gas sales contracts. Whilst the activity surrounding these contracts involves the physical delivery of gas, certain UK gas sales contracts are classified as derivatives under the rules of IAS 39 and are required to be measured at fair value at the balance sheet date. Unrealised gains and losses on these contracts reflect the comparison between current market gas prices and the actual prices to be realised under the gas sales contract. BG Group also uses commodity instruments to manage certain price exposures in respect of optimising the timing of its gas sales associated with contracted UK storage and pipeline capacity. These instruments are also required to be measured at fair value at the balance sheet date under IAS 39. However, IAS 39 does not allow the matching of these fair values to the economically hedged value of the related gas in storage (taking account of gas prices based on the forward curve or expected delivery destination and the associated storage and capacity costs). BG Group also uses financial instruments, including derivatives, to manage foreign exchange and interest rate exposure. These instruments are required to be recognised at fair value or amortised cost on the balance sheet in accordance with IAS 39. Most of these instruments have been designated either as hedges of foreign exchange movements associated with the Group's net investments in foreign operations, or as hedges of interest rate risk. Where these instruments cannot be designated as hedges under IAS 39, unrealised movements in fair value are recorded in the income statement. Unrealised gains and losses in respect of long-term gas sales contracts and derivatives associated with gas in UK storage and pipeline facilities and interest rate and foreign exchange exposure in respect of financial instruments which cannot be designated as hedges under IAS 39 are disclosed separately as 'disposals, re-measurements and impairments'. Realised gains and losses relating to these instruments are included in Business Performance. This presentation best reflects the underlying performance of the business since it distinguishes between the temporary timing differences associated with re-measurements under IAS 39 rules and actual realised gains and losses. BG Group has also separately identified profits and losses associated with the disposal of non-current assets, closures and impairments, as they are items which require separate disclosure in order to provide a clearer understanding of the results for the period. For a reconciliation between the overall results and Business Performance and details of disposals, re-measurements and impairments, see the consolidated income statements, pages 10 and 11 and note 2 to the accounts, page 16. Joint ventures and associates Under IFRS the results from jointly controlled entities (joint ventures) and associates, accounted for under the equity method, are required to be presented net of finance costs and tax on the face of the income statement. Given the relevance of these businesses within BG Group, the results of joint ventures and associates are presented before interest and tax, and after tax. This approach provides additional information on the source of BG Group's operating profits. For a reconciliation between operating profit and earnings including and excluding the results of joint ventures and associates, see Note 3 to the accounts, page 18. Exchange rates and prices BG Group also discloses certain information, as indicated, at constant US$/UK£ exchange rates and upstream prices. The presentation of results in this manner is intended to provide additional information to explain further the underlying trends in the business. Net borrowings/funds BG Group provides a reconciliation of net borrowings/funds and an analysis of the amounts included within net borrowings/funds as this is an important liquidity measure for the Group. LEGAL NOTICE These results include "forward-looking information" within the meaning ofSection 27A of the US Securities Act of 1933, as amended and Section 21E of theUS Securities Exchange Act of 1934, as amended. Certain statements included inthese results, including without limitation, those concerning (i) strategies,outlook and growth opportunities, (ii) positioning to deliver future plans andto realise potential for growth, (iii) delivery of the performance required toachieve BG Group's growth programme, (iv) development of new markets, (v) thedevelopment and commencement of commercial operations of new projects, (vi)liquidity and capital resources, (vii) plans for capital and investmentexpenditure and (viii) statements preceded by "expected", "scheduled","targeted", "planned", "proposed", "intended" or similar statements, containcertain forward-looking statements concerning operations, economic performanceand financial condition. Although the Company believes that the expectationsreflected in such forward-looking statements are reasonable, no assurance can begiven that such expectations will prove to have been correct. Accordingly,results could differ materially from those set out in the forward-lookingstatements as a result of, among other factors, (i) changes in economic, marketand competitive conditions, including oil and gas prices, (ii) success inimplementing business and operating initiatives, (iii) changes in the regulatoryenvironment and other government actions, including UK and internationalcorporation tax rates, (iv) a major recession or significant upheaval in themajor markets in which BG Group operates, (v) the failure to ensure the safeoperation of assets worldwide, (vi) implementation risk, being the challengesassociated with delivering capital intensive projects on time and on budget,including the need to retain and motivate staff, (vii) commodity risk, being therisk of a significant fluctuation in oil and/or gas prices from those assumed,(viii) fluctuations in exchange rates, in particular the US$/UK£ exchange ratebeing significantly different to that assumed, (ix) risks encountered in the gasand oil exploration and production sector in general, (x) business riskmanagement and (xi) the Risk Factors included in BG Group's Annual Report andAccounts 2006. BG Group undertakes no obligation to update any forward-lookingstatements. No part of these results constitutes or shall be taken to constitute aninvitation or inducement to invest in BG Group plc or any other entity and mustnot be relied upon in any way in connection with any investment decision. CONSOLIDATED INCOME STATEMENT THIRD QUARTER 2007 2006 Business Disposals, Total Business Disposals, Total Perfor-mance re-measure-ments Result Perfor-mance re-measure-ments Result (i) and impairments (i) and impairments (Note 2)(i) (Note 2)(i) Notes £m £m £m £m £m £m Group 1 866 - 1 866 1 621 - 1 621revenueOtheroperatingincome 2 (16) (22) (38) 26 104 130Grouprevenueand otheroperating income 3 1 850 (22) 1 828 1 647 104 1 751Operating costs (1 241) - (1 241) (1 066) - (1 066)Profits andlosses ondisposal ofnon-currentassets andimpairments 2 - - - - - -Operatingprofit/(loss)(ii) 3 609 (22) 587 581 104 685 Finance income 2, 4 35 5 40 25 1 26 Finance costs 2, 4 (29) (5) (34) (21) (1) (22)Share ofpost-taxresults fromjointventures andassociates 3 39 - 39 34 - 34Profit/(loss) before tax 654 (22) 632 619 104 723Taxation 2, 5 (271) 11 (260) (265) (52) (317)Profit/(loss) for theperiod 383 (11) 372 354 52 406 Attributableto:BG Groupshareholders(earnings) 368 (11) 357 342 52 394Minorityinterest 15 - 15 12 - 12 383 (11) 372 354 52 406 Earnings pershare - basic 6 10.9p (0.3p) 10.6p 10.0p 1.5p 11.5pEarnings pershare -diluted 6 10.8p (0.3p) 10.5p 9.8p 1.5p 11.3p Totaloperatingprofitincludingshare ofpre-taxoperatingresults fromjointventuresandassociates (iii) 3 672 (22) 650 633 104 737 i) See Presentation of Non-GAAP measures, page 8, for an explanation of resultsexcluding disposals, certain re-measurements and impairments and presentation ofthe results of joint ventures and associates.ii) Operating profit/(loss) is before share of results from joint ventures andassociates.iii) This measurement is shown by BG Group as it is used as a means of measuringthe underlying performance of the business. CONSOLIDATED INCOME STATEMENT NINE MONTHS 2007 2006 Busi-ness Disposals, Total Busi-ness Disposals, Total Performance re-measure-ments Perfor-mance re-measure-ments Result (i) and impairments (i) and impairments (Note 2)(i) Result (Note 2)(i) Notes £m £m £m £m £m £m Group revenue 5 964 - 5 964 5 305 - 5 305Otheroperatingincome 2 28 (28) - 68 213 281Grouprevenueand otheroperating income 3 5 992 (28) 5 964 5 373 213 5 586Operating costs (3 931) - (3 931) (3 208) - (3 208)Profits andlosses ondisposal ofnon-currentassets andimpairments 2 - 18 18 - (8) (8)Operatingprofit/(loss)(ii) 3 2 061 (10) 2 051 2 165 205 2 370 Finance income 2, 4 102 10 112 82 8 90 Finance costs 2, 4 (84) (11) (95) (57) (9) (66)Share ofpost-taxresults fromjointventures andassociates 3 121 - 121 101 - 101Profit/(loss) before tax 2 200 (11) 2 189 2 291 204 2 495Taxation 2, 5 (935) 46 (889) (1 025) (45) (1 070) Profit forthe period 1 265 35 1 300 1 266 159 1 425 Attributableto:BG Groupshareholders(earnings) 1 225 35 1 260 1 230 160 1 390Minorityinterest 40 - 40 36 (1) 35 1 265 35 1 300 1 266 159 1 425 Earnings pershare - basic 6 36.1p 1.1p 37.2p 35.3p 4.6p 39.9pEarnings pershare -diluted 6 35.8p 1.0p 36.8p 35.1p 4.5p 39.6p Totaloperatingprofitincludingshare ofpre-taxoperatingresults fromjointventuresandassociates 3 2 242 (10) 2 232 2 343 205 2 548(iii) i) See Presentation of Non-GAAP measures, page 8, for an explanation of resultsexcluding disposals, certain re-measurements and impairments and presentation ofthe results of joint ventures and associates.ii) Operating profit/(loss) is before share of results from joint ventures andassociates.iii) This measurement is shown by BG Group as it is used as a means of measuringthe underlying performance of the business. CONSOLIDATED BALANCE SHEET As at 30 Sept 31 Dec 30 Sept 2007 2006(i) 2006 £m £m £mAssetsNon-current assetsGoodwill 366 328 331Other intangible assets 721 694 815Property, plant and equipment 6 968 5 960 5 927Investments 1 116 1 086 1 113Deferred tax assets 75 74 97Trade and other receivables 49 49 44Commodity contracts and other derivativefinancial instruments 338 273 138 9 633 8 464 8 465Current assetsInventories 327 247 206Trade and other receivables 1 854 1 854 1 565Commodity contracts and other derivativefinancial instruments 376 575 81Cash and cash equivalents 1 704 1 463 1 191 4 261 4 139 3 043Assets classified as held for sale - 85 -Total assets 13 894 12 688 11 508 LiabilitiesCurrent liabilitiesBorrowings (294) (103) (77)Trade and other payables (1 696) (1 618) (1 283)Current tax liabilities (507) (357) (386)Commodity contracts and other derivativefinancial instruments (565) (741) (453) (3 062) (2 819) (2 199)Non-current liabilitiesBorrowings (1 543) (1 559) (1 592)Trade and other payables (22) (21) (15)Commodity contracts and other derivativefinancial instruments (207) (90) (1)Deferred income tax liabilities (1 228) (1 146) (1 011)Retirement benefit obligations (160) (167) (160)Provisions for other liabilities and charges (579) (387) (357) (3 739) (3 370) (3 136) Liabilities associated with assets classified asheld for sale - (34) - Total liabilities (6 801) (6 223) (5 335) Net assets 7 093 6 465 6 173 Attributable to:BG Group equity shareholders 6 967 6 363 6 063Minority interest 126 102 110Total equity 7 093 6 465 6 173 i) Restated as a result of post balance sheet events as detailed in the 2006Annual Report and Accounts. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Third Quarter Nine Months 2007 2006 2007 2006 £m £m £m £m 372 406 Profit for the period 1 300 1 425 (20) 39 Hedge adjustments net of tax 4 84 (9) (172) Currency translation adjustments (17) (412) (29) (133) Net losses recognised directly in equity (13) (328) 343 273 Total recognised income for the period 1 287 1 097 Attributable to: 18 9 Minority interests 49 29 325 264 Shareholders 1 238 1 068 343 273 1 287 1 097 CONSOLIDATED CASH FLOW STATEMENT Third Quarter Nine Months 2007 2006 2007 2006 £m £m £m £m Cash flows from operating activities 632 723 Profit before tax 2 189 2 495 Share of post-tax results from joint (39) (34) ventures and associates (121) (101) Depreciation of property, plant and equipment and amortisation of intangible 153 150 assets 487 448 Fair value movements in commodity based 11 (93) contracts 56 (226) Profit and losses on disposal of - - non-current assets and impairments (18) 8 Unsuccessful exploration expenditure 37 48 written off 63 77 5 (7) (Decrease)/increase in provisions (18) - (40) (26) Finance income (112) (90) 34 22 Finance costs 95 66 8 7 Share-based payments 22 18 (28) (60) (Increase)/decrease in working capital 45 (139) 773 730 Cash generated by operations 2 688 2 556 (287) (269) Income taxes paid (661) (752) 486 461 Net cash inflow from operating activities 2 027 1 804 Cash flows from investing activities Dividends received from joint ventures and 31 34 associates 68 127 Proceeds from disposal of subsidiary - - undertakings and investments 461 5 Proceeds from disposal of property, plant 1 - and equipment and intangible assets 1 - Purchase of property, plant and equipment (405) (311) and intangible assets (1 185) (910) Loans (to)/from joint ventures and (39) (49) associates (46) (53) (3) (18) Business combinations and investments (486) (20) (415) (344) Net cash outflow from investing activities (1 187) (851) Cash flows from financing activities 5 3 Net interest received/(paid)(i) (4) 5 (119) (100) Dividends paid (260) (243) (12) (1) Dividends paid to minority (25) (18) 37 47 Net proceeds from issue of new borrowings 329 105 (32) (60) Repayment of borrowings (227) (141) 19 5 Issue of shares 34 13 - - Issue of shares to minority shareholder - 1 (236) (365) Purchase of own shares (447) (958) (338) (471) Net cash outflow from financing activities (600) (1 236) (267) (354) Net increase/(decrease) in cash and cash 240 (283) equivalents Cash and cash equivalents at beginning of 1 971 1 567 period 1 463 1 516 - (22) Effect of foreign exchange rate changes 1 (42) Cash and cash equivalents at end of period 1 704 1 191 (ii) 1 704 1 191 i) Includes capitalised interest for the third quarter of £8 million (2006£12 million) and for the nine months of £28 million (2006 £43 million).ii) Cash and cash equivalents comprise cash and short-term liquidinvestments that are readily convertible to cash. RECONCILIATION OF NET BORROWINGS/FUNDS(i) - NINE MONTHS £mNet borrowings as at 31 December 2006(i) (ii) (103) Net increase in cash and cash equivalents 240Cash inflow from changes in borrowings (102)Inception of finance leases (53)Effect of acquisitions (40)Foreign exchange and other re-measurements (2)Net borrowings as at 30 September 2007(i) (ii) (60) Net borrowings attributable to Comgas were £299 million (31 December 2006 £242million). As at 30 September 2007, BG Group's share of the net borrowings in jointventures and associates amounted to approximately £0.9 billion, including BGGroup shareholder loans of approximately £0.6 billion. These net borrowings areincluded in BG Group's share of the net assets in joint ventures and associateswhich are consolidated in BG Group's accounts. i) Net borrowings/funds are defined on page 28.ii) Net borrowings/funds comprise: As at 30 Sept 2007 31 Dec 2006 £m £mAmounts receivable/(due) within one yearCash and cash equivalents 1 704 1 463Overdrafts, loans and finance leases (294) (103)Derivative financial instruments(iii) 43 - 1 453 1 360Amounts receivable/(due) after more than one yearLoans and finance leases (1 543) (1 559)Derivative financial instruments(iii) 30 96 (1 513) (1 463) Net borrowings (60) (103) iii) These items are included within commodity contracts and other derivativefinancial instrument balances on the balance sheet. Notes 1. Basis of preparation These primary statements are the unaudited interim consolidated financialstatements of BG Group plc for the quarter ended and the nine months ended 30September 2007. The financial information does not comprise statutory accountswithin the meaning of Section 240 of the Companies Act 1985, and should be readin conjunction with the Annual Report and Accounts for the year ended 31December 2006, as they provide an update of previously reported information. The preparation of the interim financial statements requires management to makeestimates and assumptions that affect the reported amount of revenues, expenses,assets and liabilities at the date of the interim financial statements. If inthe future such estimates and assumptions, which are based on management's bestjudgment at the date of the interim financial statements, deviate from theactual circumstances, the original estimates and assumptions will be modified asappropriate in the year in which the circumstances change. 2. Disposals, re-measurements and impairments Third Quarter Nine Months 2007 2006 2007 2006 £m £m £m £m Revenue and other operating income - (22) 104 re-measurements of commodity based contracts (28) 213 Profits and losses on disposal of non-current - - assets 18 (8) Net finance income/(costs) - re-measurements of - - financial instruments (1) (1) 11 (52) Taxation 46 (45) - - Minority interest - 1 (11) 52 Impact on earnings 35 160 Third quarter and nine months: Revenue and other operating income Re-measurements included within revenue and other operating income amount to acharge of £22 million for the quarter (2006 £104 million credit), of which a £23million charge (2006 £98 million credit) represents non-cash mark-to-marketmovements on certain long-term UK gas contracts. For the nine months a charge of£28 million in respect of re-measurements is included within revenue and otheroperating income (2006 £213 million credit), included in which is a £5 millioncharge representing non-cash mark-to-market movements on certain long-term UKgas contracts (2006 £199 million credit). Whilst the activity surrounding thesecontracts involves the physical delivery of gas, the contracts fall within thescope of IAS 39 and meet the definition of a derivative instrument. Net finance costs Re-measurements presented in net finance costs relate primarily to certainderivatives used to hedge foreign exchange and interest rate risk which have notbeen designated as hedges under IAS 39, partly offset by foreign exchangemovements on certain borrowings. 2007 nine months: Disposal of non-current assets During the second quarter, BG Group sold its 25% equity interest inInterconnector (UK) Limited whilst retaining throughput capacity contracts withthis company. The net proceeds of the equity disposal were £165 million,resulting in a pre- and post-tax gain of £157 million. No tax arises on the gainon this disposal. As part of this transaction, the Group has reviewed theretained capacity contracts in the Interconnector pipeline and has concludedthat the obligations associated with these contracts now exceed the benefitexpected to be received from the Interconnector interest. Accordingly, a pre-taxprovision of £156 million (post-tax £124 million) has been made to reflect thepresent obligation under these contracts. The overall transaction has generateda pre-tax gain on disposal of £1 million (post-tax £33 million). During the second quarter, BG Group disposed of selected Canadian explorationand production assets. This resulted in a gain on disposal of £18 million. Notax arose on the disposal. During the first quarter, BG Group disposed of its Mauritanian interests. Thisresulted in a loss on disposal of £1 million. No tax arose on the disposal. 2006 nine months: Disposal of non-current assets During the second quarter, BG Group disposed of its telecoms businesses. Thisresulted in a loss on disposal of £8 million. No tax arose on the disposal. 3. Segmental analysis Group Busi- Disposals, Total Busi-ness Disposals, Totalrevenue and ness re-measure-ments Result Perfor-mance re-measure-ments Resultother Perfor- and impairments and impairmentsoperating manceincome Third 2007 2007 2007 2006 2006 2006Quarter £m £m £m £m £m £m Explorationand Production 829 (22) 807 870 104 974LiquefiedNatural Gas 704 - 704 566 - 566TransmissionandDistribution 258 - 258 224 - 224PowerGeneration 140 - 140 42 - 42Otheractivities 2 - 2 2 - 2Less:intra-groupsales (83) - (83) (57) - (57) 1 850 (22) 1 828 1 647 104 1 751 Group Busi- Disposals, Total Busi-ness Disposals, Totalrevenue and ness re-measure-ments Result Perfor-mance re-measure-ments Resultother Perfor- and impairments and impairmentsoperating manceincome Nine Months 2007 2007 2007 2006 2006 2006 £m £m £m £m £m £m Explorationand Production 2 798 (28) 2 770 2 927 213 3 140LiquefiedNatural Gas 2 311 - 2 311 1 767 - 1 767TransmissionandDistribution 712 - 712 651 - 651PowerGeneration 378 - 378 184 - 184Otheractivities 5 - 5 7 - 7Less:intra-groupsales (212) - (212) (163) - (163) 5 992 (28) 5 964 5 373 213 5 586 3. Segmental analysis (continued) Business Disposals, Total Result Performance(i) re-measurements and impairments(i)Third Quarter 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mTotal operating profitbefore share of resultsfrom joint ventures andassociates Explorationand Production 433 509 (22) 104 411 613LiquefiedNatural Gas 116 40 - - 116 40TransmissionandDistribution 61 46 - - 61 46PowerGeneration 5 (1) - - 5 (1)Otheractivities (6) (13) - - (6) (13) 609 581 (22) 104 587 685Pre-tax share of operatingresults of joint venturesand associates(ii) LiquefiedNatural Gas 33 25 - - 33 25TransmissionandDistribution 6 10 - - 6 10PowerGeneration 24 17 - - 24 17 63 52 - - 63 52Total operating profitincluding share of resultsfrom joint ventures andassociates Explorationand Production 433 509 (22) 104 411 613LiquefiedNatural Gas 149 65 - - 149 65TransmissionandDistribution 67 56 - - 67 56PowerGeneration 29 16 - - 29 16Otheractivities (6) (13) - - (6) (13) 672 633 (22) 104 650 737 For notes i) to ii) see footnotes on page 20 3. Segmental analysis (continued) Business Disposals, Total Result Performance(i) re-measurements and impairments(i)Nine Months 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mTotal operating profitbefore share of resultsfrom joint ventures andassociates Explorationand Production 1 624 1 882 (11) 213 1 613 2 095LiquefiedNatural Gas 269 158 - - 269 158TransmissionandDistribution 160 146 1 - 161 146PowerGeneration 33 11 - - 33 11Otheractivities (25) (32) - (8) (25) (40) 2 061 2 165 (10) 205 2 051 2 370Pre-tax share of operatingresults of joint venturesand associates(ii) LiquefiedNatural Gas 89 79 - - 89 79TransmissionandDistribution 27 32 - - 27 32PowerGeneration 65 67 - - 65 67 181 178 - - 181 178Total operating profitincluding share of resultsfrom joint ventures andassociates Explorationand Production 1 624 1 882 (11) 213 1 613 2 095LiquefiedNatural Gas 358 237 - - 358 237TransmissionandDistribution 187 178 1 - 188 178PowerGeneration 98 78 - - 98 78Otheractivities (25) (32) - (8) (25) (40) 2 242 2 343 (10) 205 2 232 2 548 i) Business Performance excludes disposals, certain re-measurementsand impairments. See Note 2, page 16 and Presentation of Non-GAAP measures, page8.ii) Share of results in joint ventures and associates in the tableabove is before finance costs and taxation. The share of results after financecosts and taxation for the quarter is £39 million (2006 £34 million), and forthe nine months is £121 million (2006 £101 million). 3. Segmental analysis (continued) Total Result Operating profit before Share of results in Total Result share of results from joint joint ventures and ventures and associates associates Third 2007 2006 2007 2006 2007 2006Quarter £m £m £m £m £m £m Explorationand Production 411 613 - - 411 613LiquefiedNatural Gas 116 40 19 17 135 57TransmissionandDistribution 61 46 5 6 66 52PowerGeneration 5 (1) 15 11 20 10Otheractivities (6) (13) - - (6) (13) 587 685 39 34 626 719 Net financeincome 6 4Taxation (260) (317) Profit forthe period 372 406 Total Result Operating profit before Share of results in Total Result share of results from joint joint ventures and ventures and associates associates Nine Months 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £m Explorationand Production 1 613 2 095 - - 1 613 2 095LiquefiedNatural Gas 269 158 54 39 323 197TransmissionandDistribution 161 146 24 19 185 165PowerGeneration 33 11 43 43 76 54Otheractivities (25) (40) - - (25) (40) 2 051 2 370 121 101 2 172 2 471 Net financeincome 17 24Taxation (889) (1 070) Profit forthe period 1 300 1 425 4. Net finance costs Third Quarter Nine Months 2007 2006 2007 2006 £m £m £m £m (16) (16) Interest payable (55) (47) (14) (13) Interest on obligations under finance leases (40) (43) 8 12 Interest capitalised 28 43 (7) (4) Unwinding of discount on provisions(i) (17) (10) (5) (1) Disposals, re-measurements and impairments (Note 2)(11) (9) (34) (22) Finance costs (95) (66) 35 25 Interest receivable 102 82 5 1 Disposals, re-measurements and impairments (Note 2) 10 8 40 26 Finance income 112 90 6 4 Net finance income/(costs)(ii) 17 24 i) Relates to the unwinding of the discount on provisions and amounts inrespect of pension obligations which represent the unwinding of discount on theplans' liabilities offset by the expected return on the plans' assets.ii) Excludes Group share of net finance costs from joint ventures andassociates for the quarter of £14 million (2006 £17 million), and for the nine months of £41 million (2006 £51 million). 5. Taxation The taxation charge for the quarter before disposals, re-measurements andimpairments was £271 million (2006 £265 million) and the taxation chargeincluding disposals, re-measurements and impairments was £260 million (2006 £317million). For the nine months, the taxation charge before disposals and re-measurementswas £935 million (2006 £1 025 million)(i) and the taxation charge includingdisposals, re-measurements and impairments was £889 million (2006 £1 070 million).(ii) The Group share of taxation from joint ventures and associates for the quarterwas £10 million (2006 £1 million) and for the nine months was £19 million (2006£26 million). i) Includes a prior period taxation charge of £38 million as a resultof the increase in North Sea taxation in respect of the restatement of deferredtax balances at 1 January 2006.ii) In addition to (i) above, includes a £61 million credit relating tothe impact of the increase in North Sea taxation on re-measurement balances. 6. Earnings per ordinary share Third Quarter Nine Months 2007 2006 2007 2006 £m Pence £m Pence £m Pence £m Pence per per per per share share share share 357 10.6 394 11.5 Earnings 1 260 37.2 1 390 39.9 Re-measurements (after tax and 11 0.3 (52) (1.5) minority interest) 15 0.4 (168) (4.8) Profits and losses on disposals (after - - - - tax) (50) (1.5) 8 0.2 Earnings - excluding disposals, re-measurements and 368 10.9 342 10.0 impairments 1 225 36.1 1 230 35.3 Basic earnings per share calculations in 2007 are based on shares in issue of 3373 million for the quarter and 3 391 million for the nine months. The earnings figure used to calculate diluted earnings per ordinary share is thesame as that used to calculate earnings per ordinary share given above, dividedby 3 405 million for the quarter and 3 425 million for the nine months, beingthe weighted average number of ordinary shares in issue during the period asadjusted for share options. 7. Results Presentation Nine Months Business Disposals, Total Performance re-measurements and Result impairments(i) 2007 2006 2007 2006 2007 2006 £m £m £m £m £m £mOperating profitbeforedisposal of non-currentassets 2 061 2 165 (28) 213 2 033 2 378 Profits andlosses ondisposal of non-currentassets - - 18 (8) 18 (8) Operating profitbeforeshare of results from jointventures andassociates 2 061 2 165 (10) 205 2 051 2 370 Pre-tax share ofoperatingresults of joint venturesand associates 181 178 - - 181 178Total operating profit 2 242 2 343 (10) 205 2 232 2 548 Net financecostsFinance income 102 82 10 8 112 90Finance costs (84) (57) (11) (9) (95) (66)Share of joint ventures and associates (41) (51) - - (41) (51) (23) (26) (1) (1) (24) (27)TaxationTaxation (935) (1 025) 46 (45) (889) (1 070)Share of joint ventures and associates (19) (26) - - (19) (26) (954) (1 051) 46 (45) (908) (1 096) Profit for the period(ii) 1 265 1 266 35 159 1 300 1 425 Profitattributable to:Shareholders (earnings) 1 225 1 230 35 160 1 260 1 390Minority interest 40 36 - (1) 40 35 1 265 1 266 35 159 1 300 1 425 i) Re-measurements excluded from Business Performance The IAS 39 re-measurements reflect movements in external market prices andexchange rates. Financial instruments include certain long-term UK gas contractswhich are classified as derivatives under IAS 39 due to the nature of thecontract terms and are therefore required to be marked-to-market. This treatmenthas no impact on the cashflows of the business and these unrealisedmark-to-market movements are therefore presented separately from underlyingbusiness performance. For an explanation of Non-GAAP measures see page 8.ii) 2006 includes prior period taxation adjustments following the increase inNorth Sea taxation. 8. Capital investment: geographical analysis Third Quarter Nine Months 2007 2006 2007 2006 £m £m £m £m 126 157 Europe and Central Asia 538 370 95 40 South America 156 153 29 31 Asia Pacific 98 84 73 198 North America and the Caribbean 660 479 181 85 Mediterranean Basin and Africa 417 212 504 511 1 869 1 298 9. Quarterly information: earnings and earnings per share 2007 2006 2007 2006 £m £m pence penceFirst quarter - including disposals, re-measurements and impairments 432 578 12.7 16.4 - excluding disposals, re-measurements and impairments 448 563 13.1 16.0Second quarter - including disposals, re-measurements and impairments 471 418 13.9 12.0 - excluding disposals, re-measurements and impairments 409 325 12.0 9.3Third quarter - including disposals, re-measurements and impairments 357 394 10.6 11.5 - excluding disposals, re-measurements and impairments 368 342 10.9 10.0Fourth quarter - including disposals, re-measurements and impairments 389(i) 11.4(i) - excluding disposals, re-measurements and impairments 410 12.0Full year - including disposals, re-measurements and impairments 1 779(i) 51.4(i) - excluding disposals, re-measurements and impairments 1 640 47.4 i) Restated as a result of post balance sheet events as detailed in the 2006Annual Report and Accounts. Supplementary information: Operating and financial data Third Quarter Second Nine Months Quarter 2007 2006 2007 2007 2006 Production volumes (mmboe) 6.6 4.3 7.4 - oil 20.5 15.2 8.2 6.9 9.7 - liquids 26.7 21.9 33.9 39.4 36.6 - gas 113.4 124.9 48.7 50.6 53.7 - total 160.6 162.0 Production volumes (boed in thousands) 72 47 81 - oil 75 56 89 75 107 - liquids 98 80 368 428 402 - gas 415 457 529 550 590 - total 588 593 LNG cargoes 21 14 46 - delivered to Lake Charles 85 38 22 16 17 - delivered to Elba Island 54 39 17 13 8 - re-marketed 44 55 60 43 71 - total 183 132 172.4 126.6 208.8 LNG managed volumes (Tbtu) 526.0 371.9 £37.89 £38.48 £34.81 Average realised oil price per barrel £34.13 £37.54($76.47) ($71.43) ($69.07) ($67.88) ($67.68) £30.35 £31.00 £28.58 Average realised liquids price per barrel £27.33 £30.42($61.26) ($57.56) ($56.72) ($54.34) ($54.84) 29.46p 25.50p 23.88p Average realised UK gas price per produced therm 31.07p 30.91p 14.54p 16.83p 15.11p Average realised International gas price per produced therm 15.35p 17.41p 16.62p 18.52p 17.00p Average realised gas price per produced therm 18.59p 20.47p £1.78 £1.45 £1.74 Lifting costs per boe £1.67 £1.28 ($3.60) ($2.69) ($3.44) ($3.32) ($2.30) £2.73 £2.36 £2.74 Operating expenditure per boe £2.65 £2.20 ($5.50) ($4.39) ($5.41) ($5.26) ($3.97) 310 229 301 Development expenditure (£m) 902 520 Gross exploration expenditure (£m) 83 65 46 - capitalised expenditure 188 267 65 38 56 - other expenditure 167 108 148 103 102 - gross expenditure 355 375 Exploration expenditure charge (£m) 37 48 16 - capitalised expenditure written off 63 77 65 38 56 - other expenditure 167 108 102 86 72 - exploration charge 230 185 Supplementary information: Operating and financial data (continued) BG Group's exposure to the oil price varies according to a number of factorsincluding the mix of production and sales. Management estimates that, otherfactors being constant, a $1.00 rise (or fall) in the Brent price would increase(or decrease) operating profit in 2007 by approximately £40 million to £50 million. BG Group's exposure to the US$/UK£ exchange rate varies according to a number offactors including commodity prices and the timing of US Dollar revenues andcosts including capital expenditure. Management estimates that in 2007, otherfactors being constant, a 10 cent strengthening (or weakening) in the US Dollarwould increase (or decrease) operating profit by approximately £140 million to£160 million. GlossaryIn BG Group's results some or all of the following definitions are used: bcf billion cubic feetbcfd billion cubic feet per daybcmpa billion cubic metres per annumboe barrels of oil equivalentboed barrels of oil equivalent per daybopd barrels of oil per dayCCGT combined cycle gas turbineDCQ daily contracted quantityE&P Exploration and ProductionEPC engineering, procurement and constructionEPIC engineering, procurement, installation and commissioningFEED front end engineering designFERC Federal Energy Regulatory CommissionGearing net borrowings as a percentage of total shareholders' fundsratio (excluding the re-measurement of commodity financial instruments and associated deferred tax) plus net borrowingsGW gigawattIAS 39 International Accounting Standard 39 (Financial Instruments)IFRS International Financial Reporting Standardskboed thousand barrels of oil equivalent per dayLNG Liquefied Natural GasManaged Comprises all LNG volumes contracted for purchase and having relatedvolumes revenue and other operating income recognised in the applicable periodm millionmmboe million barrels of oil equivalentmmbtu million british thermal unitsmmcfd million cubic feet per daymmcmd million cubic metres per daymmscfd million standard cubic feet per daymmscm million standard cubic metresmmscmd million standard cubic metres per dayMoU memorandum of understandingmtpa million tonnes per annumMW megawattNet Comprise cash, current asset investments, finance leases, currencyborrowings/ and interest rate derivative financial instruments and short- andfunds long-term borrowingsNGL natural gas liquidsPSA production sharing agreementT&D Transmission and DistributionTbtu Trillion british thermal unitsTotal Group operating profit plus share of pre-tax operating results ofoperating joint ventures and associatesprofitUKCS United Kingdom Continental ShelfUKCNS United Kingdom central North SeaUnit Production costs and royalties incurred over the period divided byoperating the net production for the period. Production costs and royaltiesexpenditure (other operating costs) for the period are disclosed under "resultsper boe of operations" in the Supplementary information - Oil and Gas disclosures in BG Group's Annual Report & Accounts for the period. This measure does not include the impact of depreciation and amortisation costs and exploration costs as they are not considered to be costs associated with the operation of producing assets.Unit Unit operating expenditure as defined above, excluding royalty,lifting tariff and insurance costs incurred over the period divided by thecosts per net production for the period. Unit lifting costs as used in thisboe ratio do not represent "Production (Lifting) Costs" as defined by FAS 19 and FAS 69. Enquiries Enquiries relating to BG Group's General enquiries about shareholderresults, business and financial position matters should be made to:should be made to: Investor Relations Department EquinitiBG Group plc Aspect HouseThames Valley Park Drive Spencer RoadReading LancingBerkshire West SussexRG6 1PT BN99 6DA Tel: 0118 929 3025 Tel: 0870 600 3951e-mail: [email protected] e-mail: [email protected] BG Group is listed on the USover-the-counter market known asInternational OTCQX. Enquiriesshould be made to: Pink Sheets LLC304 Hudson Street2nd FloorNew York, NY 10013USA e-mail: [email protected] Financial Calendar Announcement of 2007 fourth quarter and 7 February 2008full year results and annual strategy presentation Announcement of 2008 first quarter results 30 April 2008 BG Group plc website: www.bg-group.com Registered office 100 Thames Valley Park Drive, Reading RG6 1PT Registered in England No. 3690065 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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