3rd Quarter Results

BG Group plc

2010 THIRD QUARTER RESULTS

Third Quarter Business Performance(a) Highlights

·; Earnings per share of 28.9 cents, up 27% year-on-year

·; Queensland Curtis LNG project sanctioned following Federal environmental approval

·; Capex guidance for two-year period 2011-12 increased from $16.5 billion to $18.5 billion

·; First production from 100 000 bopd FPSO facility on Tupi field, offshore Brazil

·; Certified gross resources upgrade of 2.7 bboe to Tupi, Iracema and Guará fields, offshore Brazil

·; UK government approves first phase of Jasmine development

BG Group's Chief Executive, Frank Chapman said:

"Alongside a set of good quarterly results, we have made significant progress in the delivery of our growth plans for the decade ahead. In Brazil, we have brought onstream the first Tupi permanent facilities and we have announced a very significant resources upgrade on the Tupi, Iracema and Guará fields. In Australia, we have realised a pivotal strategic objective with the sanction of the Queensland Curtis LNG project. This further globalises our LNG business by establishing a new and material source of equity LNG in the Asia-Pacific arena."

BG Group has today announced a certified upgrade to gross resources on Tupi, Iracema and Guará. This is available online at www.bg-group.com

a) 'Business Performance' excludes discontinued operations and 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 explanation of Business Performance and the presentation of results from joint ventures and associates, see Presentation of Non-GAAP measures (page 7), note 1 (page 14) and note 3 (page 17). For further details of the items included in disposals, re-measurements and impairments, see note 2 (page 16). Unless otherwise stated, the results discussed in this release relate to BG Group's Business Performance.

b) 2009 results have been restated from Pounds Sterling to US Dollars, to reflect the application of IFRIC 12 and the presentation of the majority of the businesses that comprised the Power segment as discontinued operations (see note 1, page 14).

c) For further information on discontinued operations see page 2, note 1 (page 14) and note 6 (page 20).

Business Review - Group

a) See note 1 (page 14).

b) Includes $1 million relating to discontinued operations (2009 $5 million).

Third quarter

Revenue and other operating income increased by 23% to $4 446 million and total operating profit increased by 21% to $1 667 million as a result of increased LNG cargo diversions and higher commodity prices and T&D volumes.

Cash generated by operations was $1 726 million (2009 $1 950 million). Net finance costs of $123 million for the quarter included foreign exchange losses of $58 million (2009 $34 million gain). As at 30 September 2010, net debt was $6 265 million (2009 $4 703 million) and the gearing ratio of the Group was 19% (2009 17%).

The Group's effective tax rate (including BG Group's share of joint venture and associates' tax) was 34% for the quarter and included a credit of $106 million in relation to a favourable settlement in a prior period. Including this credit, the full year effective tax rate is expected to be approximately 39% (2009 42%).

Capital investment of $2 079 million in the quarter comprised investment in E&P ($1 544 million), LNG ($473 million), T&D ($61 million) and discontinued operations ($1 million). Following the sanction of the QCLNG project in Australia, BG Group has increased planned Group capital expenditure for 2011-12 from $16.5 billion to $18.5 billion.

Discontinued operations - Power Generation

Following the disposal of the Group's power stations in the USA and UK earlier in the year, BG Group announced in September 2010 that it had agreed to sell its interests in Santa Rita and San Lorenzo power stations in the Philippines. These power stations represent the majority of the Group's Power 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 operations for the period ended 30 September 2010.

The remaining Power businesses remain with BG Group and have been allocated to other business segments based on their activity and location. Comparative information has also been restated. For further information on discontinued operations, see note 1 (page 14) and note 6 (page 20).

Exploration and Production (E&P)

a) See note 1 (page 14).

Additional operating and financial data is given on page 23.

Third quarter

Revenue and other operating income of $1 946 million was 12% higher, reflecting higher realised oil, liquids and international gas prices.

Total operating profit increased by 7% to $761 million as a result of the increase in revenue and other operating income and a lower exploration charge, partially offset by an adverse production mix in the quarter related to shutdowns at the Karachaganak and Panna/Mukta fields.

Production volumes were in line with 2009 as higher production from the USA and the Hasdrubal field in Tunisia was offset by the biennial shutdown for extended maintenance at the Karachaganak field in Kazakhstan and the unplanned shutdown of the Panna/Mukta field in India. BG Group continues to expect slight production growth for the full year.

International gas realisations were 23% higher at 32.45 cents per produced therm, reflecting gas prices linked to higher oil and Henry Hub market prices. The average realised gas price in the UK of 30.43 pence per produced therm was in line with 2009.

For the 2010/11 UK gas year, BG Group expects to sell approximately two-thirds of its North Sea gas production at an average price of around 42 pence per therm.

The exploration charge of $133 million was $66 million lower as a result of lower well write-off.

Unit operating expenditure increased to $7.08 per barrel of oil equivalent, reflecting the impact of higher commodity prices, the phasing of maintenance activity and changes in the production mix.

Capital investment of $1 544 million in the quarter comprised investment in the Americas ($611 million), Africa, Middle East and Asia ($326 million), Australia ($319 million) and Europe and Central Asia ($288 million).

Third quarter business highlights

Brazil

BG Group has announced a 2.7 billion barrels of oil equivalent (boe) upgrade to estimates of gross resources for the Tupi, Iracema, and Guará fields in the Santos Basin, offshore Brazil. BG Group's new aggregate best estimate of economically recoverable gross resources* for these fields amounts to 10.8 billion boe, representing a 34% increase to the 8.1 billion boe mid-point of the Group's previous indicative resource range. As a result of the upgrade, BG Group's aggregate best estimate of its economically recoverable net resources on Tupi, Iracema and Guará now stands at 2.8 billion boe. BG Group engaged the oil and gas consulting firm Miller and Lents, Ltd (MLL) to provide expert independent verification of the estimates of resources on Tupi, Iracema and Guará. MLL were provided with full access to BG Group's data and development models for these fields and have certified their best estimate** for gross resources for these fields to be 10.8 billion boe in aggregate. Further details are available in the separate announcement available online at www.bg-group.com

In October, BG Group and partners completed two new successful appraisal wells known as Iracema Norte and Tupi SW in BM-S-11 (BG Group 25%) in the Santos Basin, offshore Brazil. These are the eighth and ninth consecutive successful wells on the Tupi accumulation and confirm the extended presence of light oil.

In October, BG Group announced that production from the first permanent floating production, storage and offloading (FPSO) vessel on the Tupi field in block BM-S-11 had commenced. The Cidade de Angra dos Reis FPSO, which is initially connected to well RJS-660 (known as Tupi-P1), is expected to produce up to 100 000 barrels of oil per day and up to 177 million standard cubic feet of gas per day.

UK

In October, the Department of Energy and Climate Change (DECC) approved the first phase development of the Jasmine discovery (BG Group 30.5%) in the central North Sea. Jasmine Phase 1 is expected onstream by the end of 2012. Jasmine will benefit from utilising J-Block's existing infrastructure.

Tanzania

In October, BG Group (60%) and partner Ophir Energy plc (40% and operator) announced that the Pweza-1 exploration well, located in Block 4 approximately 85 kilometres offshore southern Tanzania and in a water depth of 1 400 metres, has demonstrated the presence of a working hydrocarbon system with gas-bearing sands.

Pweza-1 is the first of a three-well initial work programme planned for Blocks 1, 3 and 4. The programme also includes the acquisition of 4 000 square kilometres of 3D seismic data. BG Group has the option to assume operatorship of all three blocks upon completion of the initial work programme.

Liquefied Natural Gas (LNG)

a) See note 1 (page 14).

Additional operating and financial data is given on page 23.

Third quarter

LNG total operating profit for the quarter increased by 43% to $725 million.

Shipping and marketing total operating profit of $674 million was 42% higher. Third quarter performance benefited from favourable market conditions and a higher number of diversions. BG Group does not expect the strong performance in the third quarter to continue into the fourth quarter.

BG Group's share of operating profit from liquefaction activities increased by 6% to $76 million.

Capital investment of $473 million in the quarter included $387 million in Australia and $46 million relating to LNG ships.

Third quarter business highlights

Australia

In October, BG Group announced that it had taken the Final Investment Decision approving implementation of the first phase of the Queensland Curtis Liquefied Natural Gas project (QCLNG) following receipt of Australian Federal and State Government environmental approvals with acceptable conditions. The first phase of QCLNG encompasses the development of a two-train 8.5 million tonnes per annum (mtpa) liquefaction plant together with the associated upstream and pipeline facilities. Over the next four years (2011-2014), BG Group plans to invest approximately US$15 billion in developing the liquefaction plant and related wells, field facilities and pipelines. Final notices to proceed will be issued to the main contractors appointed for the development of the first phase of QCLNG.

First LNG exports are planned to commence from 2014, underpinned by agreements in Chile, China, Japan and Singapore for the purchase of up to 9.5 mtpa of LNG. Total gross discovered coal seam gas reserves and resources presently amount to an estimated 17.3 trillion cubic feet (tcf) - equivalent to more than 2.9 billion barrels of oil equivalent (boe) - with 2P (proved plus probable) reserves now estimated at 7 tcf. From first entry to Queensland to project sanction has taken less than three years, reinforcing BG Group's reputation, previously demonstrated in Trinidad and Tobago and Egypt, for advancing innovative and complex gas chain projects within challenging timeframes.

In October, BG Group announced it had executed a heads of agreement with Chubu Electric Power Co. Inc (Chubu Electric) for the long-term supply of LNG from BG Group's global LNG portfolio, including from the QCLNG project. The heads of agreement sets out the basis for Chubu Electric's purchase of up to 120 cargoes over a 20-year term commencing in 2014. BG Group and Chubu Electric intend to complete negotiations and execute the fully termed agreement in the first half of 2011.

Transmission and Distribution (T&D)

a) See note 1 (page 14).

Third quarter

Revenue and other operating income increased by 17% to $806 million, reflecting higher volumes at Comgás in Brazil and at Gujarat Gas in India.

T&D total operating profit for the quarter of $197 million was 7% higher, reflecting the increase in revenue and other operating income and the timing effect of gas cost recovery at Comgás.

Excluding the timing effect of gas cost recovery, total operating profit at Comgás increased by 10%, reflecting higher volumes and favourable Brazilian Real foreign exchange movements. The net recovery of gas costs at Comgás in the quarter was $67 million compared with $53 million in 2009. At the end of the quarter, $90 million of accrued benefit is due to be passed back to customers through lower prices in future periods.

Power Generation

Following the disposal of the majority of BG Group's power interests, the Group's remaining power assets have been re-allocated to other operating segments based on their activity and location.

Third quarter business highlights

Philippines

In September, BG Group announced that it had signed a Sale and Purchase Agreement for the sale of the Group's 40% interests in both the Santa Rita and San Lorenzo power stations in the Philippines for a net consideration of approximately $400 million. Closing of the transaction is expected in first quarter 2011 and is subject to receiving necessary waivers and consents from non-recourse lenders and First Philippine Holdings Corporation. 

Presentation of Non-GAAP measures

Legal Notice

Consolidated Income Statement

Third Quarter

a) See note 1 (page 14).

b) See Presentation of Non-GAAP measures (page 7) 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) 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

Nine Months

a) See note 1 (page 14).

b) See Presentation of Non-GAAP measures (page 7) 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) 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) See note 1 (page 14).

b) Income tax relating to hedge adjustments is a $126 million credit for the quarter (2009 $3 million charge) and a $176 million credit for the nine months (2009 $190 million credit).

c) Income tax relating to fair value movements on 'available-for-sale' assets is $nil for the quarter (2009 $1 million credit) and a $1 million credit for the nine months (2009 $nil).

Consolidated Balance Sheet

a) See note 1 (page 14).

Consolidated Cash Flow Statement

a) See note 1 (page 14).

b) Includes capitalised interest for the third quarter of $20 million (2009 $16 million) and for the nine months of $48 million (2009 $31 million).

c) Includes net cash flows from discontinued operations for the third quarter of $nil (2009 $nil) and for the nine months an inflow of $14 million (2009 $nil).

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

e) The balance at 30 September 2010 includes cash and cash equivalents of $969 million and cash included within assets held for sale of $15 million.

Notes

1. Basis of preparation

These primary statements are the unaudited interim consolidated financial statements ('the financial statements') of BG Group plc for the quarter ended 30 September 2010. 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 2009 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 2009 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 are Interim Management Statements and have been prepared in accordance with the requirements of the Disclosure and Transparency Rules issued by the Financial Services Authority and the accounting policies set out in the 2009 Annual Report and Accounts (except as disclosed below).

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

With effect from 1 January 2010, BG Group has presented its results in US Dollars. Accordingly, 2009 results have been translated from Pounds Sterling to US Dollars using monthly average rates of exchange. Comparative assets and liabilities have been translated from Pounds Sterling to US Dollars at closing rates of exchange. Further information on the procedures used to restate comparative information into US Dollars can be found on page 114 of the 2009 Annual Report and Accounts.

In September 2010, BG Group announced that it had agreed to sell its interests in Santa Rita and San Lorenzo power stations in the Philippines. Accordingly, as at 30 September 2010, these assets were classified as held for sale at their carrying value. This agreement followed the disposal earlier in the year of power stations in the USA, Premier Power Limited in the UK and the Group's investment in the Seabank power station in the UK. These power stations represent the majority of the Group's Power business segment and are considered to be a separate major line of business for BG Group. As a result of the disposals, these operations have been treated as discontinued operations for the period ended 30 September 2010. The remaining Power businesses remain with BG Group and have been allocated to other business segments based on their activity and location.

A single amount is presented on the income statement for discontinued operations, comprising the post-tax results of these businesses and the post-tax profit or loss recognised on re-measurement to fair value less costs to sell and on disposal of the businesses. Comparative information has also been restated to reflect the presentation of discontinued operations as a separate line item.

Presentation of results

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

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

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

These items, which are detailed in note 2 to the financial statements (page 16) 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.

1. Basis of preparation continued

New accounting standards and interpretations

IFRIC 12 'Service Concession Arrangements' is applicable to BG Group for the period beginning 1 January 2010. This interpretation provides guidance on the accounting by operators for public-to-private service concession arrangements and requires infrastructure considered to be under the control of a regulator rather than an operator to be recognised as an intangible concession asset and amortised over the concession period. Prior to the adoption of IFRIC 12 such infrastructure was recognised as property, plant and equipment of the operator and depreciated over its useful economic life. The interpretation also requires additions to the infrastructure incurred by the operator to be accounted for as a construction contract with the regulator, with revenues and associated costs recognised in the income statement on a percentage of completion basis.

BG Group has concluded that the Comgás concession in Brazil falls within the scope of IFRIC 12 and has applied the interpretation from 1 January 2010, restating comparative information as necessary. On 1 January 2010, infrastructure associated with the transmission and distribution network operated by Comgás of approximately $1.6 billion (30 September 2009 $1.5 billion; 1 January 2009 $1.1 billion) was recognised as intangible assets resulting in a corresponding decrease to property, plant and equipment. The application of IFRIC 12 has resulted in an increase to revenue and operating costs of $97 million in the 9 months to 30 September 2010 (2009 $74 million). There has been no change to total operating profit or earnings for the Group.

A number of other amendments to accounting standards issued by the IASB are applicable from 1 January 2010. They have not had a material impact on the Group's financial statements for the nine months ended 30 September 2010.

2. Disposals, re-measurements and impairments

Third quarter and nine months: Revenue and other operating income

Re-measurements included within revenue and other operating income amount to a credit of $54 million for the quarter (2009 $46 million credit), of which a charge of $4 million (2009 $27 million credit) represents non-cash mark-to-market movements on certain long-term UK gas contracts. For the nine months, a charge of $249 million in respect of re-measurements is included within revenue and other operating income (2009 $110 million credit), of which a charge of $27 million represents non-cash mark-to-market movements on certain long-term UK gas contracts (2009 $90 million credit). Whilst the activity surrounding these contracts involves the physical delivery of gas, the contracts fall within the scope of IAS 39 and meet the definition of a derivative instrument. In addition, re-measurements include a $58 million credit for the quarter (2009 $19 million credit) and a $222 million charge for the nine months (2009 $20 million credit) representing unrealised mark-to-market movements associated with economic hedges.

Third quarter and nine months: Disposals and impairments of non-current assets

During the third quarter, a pre-tax impairment charge of $169 million (post-tax $124 million) was recognised against certain exploration assets in the E&P segment. Other fixed asset disposals resulted in a pre and post-tax charge of $2 million in the quarter.

During the second quarter, BG Group completed the disposal of its Canadian E&P assets. This resulted in a pre-tax profit on disposal of $12 million (post-tax $7 million) in the quarter. Also during the second quarter, a pre-tax impairment charge of $191 million (post-tax charge $138 million) was recognised against certain assets in the E&P segment. Other disposals and impairments resulted in a pre-tax charge to the income statement of $8 million (post-tax $4 million) in the quarter.

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

Third quarter and nine months: Net finance costs

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

3. Segmental analysis

a) Business Performance Other operating income is attributable to segments as follows: E&P $(8) million (2009 $11 million) and LNG $47 million (2009 $(6) million).

3. Segmental analysis continued

a) Business Performance Other operating income is attributable to segments as follows: E&P $20 million (2009 $16 million) and LNG $131 million (2009 $118 million).

3. Segmental analysis continued

4. Net finance costs

a) 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.

b) Includes foreign exchange losses for the third quarter of $58 million (2009 $34 million gains) and foreign exchange gains for the nine months of $64 million(2009 $32 million gains).

c) Excludes Group share of net finance costs from joint ventures and associates for the quarter of $12 million (2009 $10 million) and for the nine months of $35 million (2009 $29 million).

5. Taxation

The taxation charge for the third quarter before disposals, re-measurements and impairments was $488 million (2009 $531 million) and the taxation charge including disposals, re-measurements and impairments was $468 million (2009 $545 million).

For the nine months, the taxation charge before disposals, re-measurements and impairments was $1 868 million (2009 $1 811 million) and the taxation charge including disposals, re-measurements and impairments was $1 692 million (2009 $1 858 million).

The Group share of taxation from joint ventures and associates for the third quarter was $32 million (2009 $20 million) and for the nine months was $82 million (2009 $60 million).

6. Discontinued operations

During the third quarter, BG Group completed the disposal of Premier Power Limited. This resulted in a pre and post-tax loss on disposal of $41 million in the quarter. In September 2010, BG Group signed a Sale and Purchase Agreement for the sale of its interests in both the Santa Rita and San Lorenzo power stations in the Philippines. Accordingly, these assets were reclassified as held for sale at their carrying value.

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

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

Excluding profits and losses on disposals and impairments, the post-tax profit of the businesses comprising discontinued operations for the third quarter was $14 million (2009 $14 million) and for the nine months was $54 million (2009 $63 million).

7. Earnings per ordinary share - continuing operations

Basic earnings per share calculations in 2010 are based on the weighted average number of shares in issue of 3 382 million for the quarter and 3 379 million for the nine months.

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 3 402 million for the quarter and 3 400 million for the nine months, 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) - Nine Months

Net borrowings attributable to Comgás were $793 million (31 December 2009 $829 million).

As at 30 September 2010, BG Group's share of the net borrowings in joint ventures and associates amounted to approximately $1.7 billion, including BG Group shareholder loans of approximately $1.3 billion. These net borrowings are included in BG Group's share of the net assets in joint ventures and associates which are consolidated in BG Group's accounts.

a) Net borrowings/funds are defined on page 25.

b) Net borrowings comprise:

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

d) Includes finance lease receivable of $133 million (2009 $nil) included within non-current assets on the balance sheet.

9. Capital investment: geographical analysis

a) Includes capital investment relating to discontinued operations for the quarter of $1 million (2009 $5 million) and for the nine months of $28 million (2009 $16 million).

10. Quarterly information: earnings and earnings per share

Supplementary information: Operating and financial data

Supplementary information: Operating and financial data continued

BG Group's exposure to the oil price varies according to a number of factors including the mix of production and sales. Management estimates that, other factors being constant and assuming a constant relationship between commodity prices, a $1.00 rise (or fall) in the Brent price would increase (or decrease) E&P business operating profit in 2010 by approximately $90 million to $110 million.

Management estimates that in 2010, other factors being constant, a 10 cent strengthening (or weakening) in the US Dollar would increase (or decrease) operating profit by approximately $10 million to $30 million.

Glossary