Annual Financial Report

BG GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2013 AND NOTICE OF ANNUAL GENERAL MEETING 2014

BG Group plc (the Company) has today published its Annual Report and Accounts for the year ended 31 December 2013 incorporating the Notice of the 2014 Annual General Meeting (the 2013 Annual Report and Accounts).

The 2013 Annual Report and Accounts can be viewed at or downloaded from the BG Group website at www.bg-group.com/reports

The mailing to shareholders of the 2013 Annual Report and Accounts has commenced and in accordance with Listing Rule 9.6.1 copies have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.hemscott.com/nsm.do

The Company's 2014 Annual General Meeting will be held at the Hilton Reading Hotel, Drake Way, Reading RG2 0GQ at 11.30 am on Thursday, 15 May 2014.

EXPLANATORY NOTE AND WARNING

The primary purpose of this announcement is to inform the market about the publication of the Company's 2013 Annual Report and Accounts. 

The information below, which is extracted from the 2013 Annual Report and Accounts, is provided in accordance with Disclosure and Transparency Rule (DTR) 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's Fourth Quarter and Full Year Results Announcement issued on 4 February 2014. Together these constitute the material required by DTR 6.3.5 to be communicated to the media in unedited full text through a Regulatory Information Service. This material is not a substitute for reading the full 2013 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2013 Annual Report and Accounts.

INFORMATION REQUIRED BY DTR 6.3.5

Statement of Directors' Responsibilities for Preparing the Financial Statements

The following statement which was prepared for the purposes of the 2013 Annual Report and Accounts is set out on page 83 of that document. As set out above, this statement is repeated here solely for the purposes of complying with DTR 6.3.5. This statement relates to and is extracted from the 2013 Annual Report and Accounts. It is not connected to the extracted and summarised information presented in this announcement and in BG Group plc's Fourth Quarter and Full Year Results Announcement that was published on 4 February 2014.

"Pursuant to Rule 4.1.12 of the DTRs, each of the Directors, the names and functions of whom are set out on pages 48 and 49, confirms that to the best of his or her knowledge:

· the BG Group Financial statements, which have been prepared in accordance with IFRS, as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

· the management report represented by the Directors' report includes a fair view of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that the Group faces.

The Directors have concluded that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess BG Group's performance, business model and strategy in accordance with the UK Corporate Governance Code.

The Strategic report and Directors' report have been approved by the Board and signed on its behalf by the Chief Executive and Chief Financial Officer on 19 March 2014.

By order of the Board

Chris Finlayson

Chief Executive

Simon Lowth

Chief Financial Officer

19 March 2014"

Related Party Transactions

The following description of related party transactions is set out on page 127 of the 2013 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.

"In the normal course of business BG Group provides goods and services to, and receives goods and services from, its joint ventures and associates.

The Group received and incurred the following income and charges from its joint ventures and associates:

BG Group provides certain guarantees in respect of its obligations to its joint ventures and associates, and its share of obligations undertaken by its joint ventures and associates, in the normal course of business.

As at 31 December 2013, a debtor balance of $69m (2012: $45m) (see note 15, page 114) and a creditor balance of $109m (2012: $88m) (see note 19, page 123) were outstanding with these parties.

In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2013, loans of $714m (2012: $715m) were due from joint ventures and associates. These loans are accounted for as part of BG Group's investment in joint ventures and associates and disclosed in note 13, page 113. Interest of $10m (2012: $18m) was charged on these loans during the year at interest rates of between 1.26% and 4.06% (2012: 1.40% and 4.33%). The maximum debt outstanding during the year was $715m (2012: $1 467m).

BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2013, the obligation was $135m (2012: $140m). Interest of $9m (2012: $9m) was paid during the year in respect of this lease. The lease expires in 2027.

BG Group has operating lease arrangements with associate companies in respect of FPSOs. As at 31 December 2013, the obligation was $11 520m (2012: $2 875m). Charges paid during the year in respect of these leases are presented as E&P operating costs in the table above. The last of these leases expires in 2036.

William Backhouse, the son of Peter Backhouse, a Non-Executive Director, is employed by BG International Limited, a wholly owned subsidiary of BG Group plc. Peter Backhouse is regarded as interested in the contract of employment by virtue of his relationship with William Backhouse. The terms and conditions of William Backhouse's employment are consistent with others employed in a similar role.

As at 31 December 2013, a debtor balance of $2 881m (2012: $3 750m) (see note 15, page 114) and a creditor balance of $51m (2012: $40m) (see note 19, page 123) were outstanding between BG Group plc and other Group undertakings.

BG Group plc grants equity instruments to subsidiaries' employees in respect of equity-settled employee share schemes. In 2013, the fair value of equity instruments granted under these schemes and charged to the income statement was $74m (2012: $74m)."

Principal risks and uncertainties

The following description of principal risks and uncertainties is set out on pages 38 to 43 of the 2013 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.

"Effective assessment and management of the Group's principal risks, and monitoring of associated controls and sources of assurance, is integral to the Group's management and governance processes.

BG Group's approach to risk management and internal control is articulated and managed through the Group's Enterprise Risk Management (ERM) Framework.

The ERM Framework is the process by which:

· the nature and extent of the Group's principal risks are identified and assessed;

· the Board and management determine which of those risks the Group is willing to accept and manage in the pursuit of its strategic, financial and business objectives;

· the Group evaluates the risks it faces in the short and longer term;

· the Group puts in place appropriate management systems to mitigate those risks;

· the management and mitigation of risks (via associated internal controls) are monitored and assured through ongoing Board and management oversight processes;

· the effect of uncertainty on the Group's cash flow and earnings profiles is modelled and used as an input to decision making; and

· the Group seeks to optimise its capital structure and allocation, and its portfolio, on a risk adjusted basis.

One of the key components of the Group's overall ERM Framework is the Business Risk Management Process (BRMP). The BRMP is a bottom-up process that facilitates the identification, assessment and management of project delivery, operational and financial risks within the assets and central functions. The Group's Risk Management Committee, a sub-Committee of the Group Executive Committee (GEC), receives quarterly updates on these bottom-up risks, how they are being managed and, where appropriate, mitigated, as reported through the BRMP.

The BRMP risks, taken together with the top-down risks to achieving our strategic goals identified at a corporate level, presents the overall view of risk within the Group, and forms the basis of the principal risks and uncertainties discussed in this report. The GEC and Board receive updates on the principal risks and how they are being managed and mitigated.

MANAGING THE GROUP'S PRINCIPAL RISKS

The Board's risk priorities in 2013

The Board considers the full range of principal risks facing BG Group. However, during 2013, certain issues have received additional prominence in Board discussions. The principal risks upon which the Board has been most focused in 2013 include:

PROJECT AND MILESTONE DELIVERY

Successful delivery of the Group's major growth projects safely, to schedule and on budget, while optimising operational and cost performance in existing producing assets, and in line with the expectations of the market, remains a critical success factor of the Group.

Each year, the Group provides quarterly milestones for the year ahead that underpin the Group's longer-term expectations for: (i) progress against its strategic objectives; and (ii) production, unit cost and capital expenditure levels. In formulating these milestones, and longer-term financial and operational metrics, the Group undertakes a detailed forecasting and planning process, with oversight and assurance from central Group functions, the GEC and the Board. During 2013, a rigorous challenge and assurance process was undertaken to validate the Group's business plan assumptions. Building on this process, the Group's business plan and forecasting processes will remain subject to regular review and assurance in 2014, with any further recommendations for improvement being considered by management and the Board.

The Group's businesses around the world are, however, exposed to a number of risks and uncertainties that could, individually or taken together with others, have a material adverse effect on project delivery for 2014, other guidance provided by the Group to the market (including in relation to production, cash flows, operating profit and operating and capital expenditure) and, in turn, shareholder returns, including dividends and BG Group's share price. Some of these risks involve factors outside the Group's control (for example, the operations of non-controlled joint ventures, weather, contractor performance, unplanned outages or political events).

Australia

In Australia, substantial progress on delivering the QCLNG project was made during the year, and the Board visited QGC in November 2013 to review progress and meet with the management team charged with delivery of the project. A number of important milestones were reached, providing the Group with confidence that the project remains on budget and on schedule to deliver first LNG in the fourth quarter of 2014.

Notwithstanding this progress in 2013, and the consequent project de-risking that has occurred, a number of cost, schedule and commercial risks remain, owing to the overall project's inherent scale and complexity, involving the integration of three major projects in themselves: upstream coal seam gas (CSG) development (drilling, compression facilities, and water treatment plants); the export pipeline from the CSG fields to the Queensland coast; and the commissioning and start-up of the LNG plant on Curtis Island.

Key risks to Phase 1 of the project include sub-surface uncertainty, construction workforce productivity, industrial relations, the commissioning and start-up of upstream facilities and the LNG plant, the impact of possible adverse weather events, management of ramp gas during LNG plant commissioning, contractor performance during the remainder of the project, residual land access issues and environmental permitting. In particular, as the Group continues to undertake commissioning work for installed infrastructure, there may be unforeseen difficulties constraining the Group's ability to be flexible on the sequencing of such work, which could introduce further cost and schedule uncertainty.

Looking forward to the next phase of overall QCLNG development, the Group's ability to optimise value from the project is dependent on there being a sufficient supply of gas to the plant, combined with optimising future capital expenditure and schedule. To mitigate well performance and sub-surface uncertainty, the Group continues to update the priority of wells within our drilling programme to reflect developing knowledge of the sub-surface, and we are progressing with an exploration and appraisal programme. The Group is also accessing short-term third-party volumes to deliver into QCLNG. To mitigate future capital expenditure and schedule uncertainty, lessons learnt from the first phase of QCLNG are being applied to optimise execution schedules and contracting strategies.

Brazil

The development of Brazil's Santos Basin pre-salt fields is one of the largest and most technically and commercially complex oil and gas plays in history. While residual uncertainty remains as to the nature and productivity of the reservoirs, as the appraisal programme matures our understanding and confidence in these world-class resources improve.

Good cost and schedule progress was made in 2013, with two further floating production, storage and offloading (FPSO) units brought online and the next two due to be brought online in 2014. However, any delays in receiving, installing or making critical sub-sea equipment operational, or the non-availability of specialised vessels, could have a material impact on the ability to ramp up operations as planned. The Board and senior management received regular updates during 2013 and were given the opportunity to challenge cost and schedule progress.

BG Group works in partnership with the operator, Petrobras, to optimise field development, but any commercial, technical or schedule misalignment could have a material impact on BG Group's field development plans and expectations. In addition, any eventual constraints on the ability of Petrobras to fund their significant investment programme could also have an impact on joint development plans.

Egypt

During 2013, the Board focused heavily on evaluating the impact of the evolving political, business and economic environment in Egypt and received regular updates from senior management.

Despite the temporary evacuation of non-essential expatriate staff, operations of the Rosetta and WDDM production facilities, along with ongoing drilling activity, continued unaffected. As one element of the recovery plan for reducing production decline in the WDDM concession, BG Group and its partner approved the next phase of development (Phase 9a) for WDDM in February 2013. However, higher than agreed gas volumes were directed to the Egyptian domestic market, impacting volumes available for LNG export and reducing supply options in the Group's LNG shipping and marketing business. This led the Group to issue Force Majeure notices to buyers in January 2014. 2013 results included a non-cash, post-tax impairment of $1.3 billion in Egypt, due to reserves revisions and revised expectations of the value of the Group's Egyptian operations, given continuing uncertainty over the business environment in country. As at 31 December 2013, the Group's receivable balance from Egypt General Petroleum Corporation (EGPC) in respect of domestic gas sales was $1.2 billion, of which $0.5 billion was overdue. The recovery of receivables, further investment and the realisation of the carrying value of the Group's Egyptian operations remain dependent on the business environment in Egypt, which BG Group continues to monitor closely. The Group will continue to negotiate with Egyptian authorities and other stakeholders to seek a long-term solution. Further detail on the role of the Audit Committee in considering this impairment and the recoverability of the EGPC receivables is set out on page 57.

CAPITAL REQUIREMENTS, LIQUIDITY AND INTEREST RATES

BG Group's ability to deliver its strategic growth objectives is dependent on a number of factors, including the ability to fund capital intensive development projects, at present most notably in Australia and Brazil.

The Group's capital requirements depend on a number of factors, including variations in the planned level of capital expenditure, funds from operations, prevailing hydrocarbon prices in core markets, exchange rates, and the results of portfolio rationalisation activities. Some of these factors are outside the Group's control and may cause capital requirements to vary materially from planned levels.

Funding plans are updated throughout the year and are subject to review and challenge by the Finance Committee. Base and downside cases are presented, together with funding proposals for each. Probabilistic outcomes of cash flows are derived using cash flow at risk studies that take account of potential variations in, and correlations between, commodity prices, exchange rates, project delivery and operational performance. Refer to the principal risk disclosure on Commodity Prices and Exchange Rates on page 40 for further detail.

In response to changing requirements, the Group may adjust its portfolio management programme or capital expenditure plans. This may have an impact on planned growth. Increases in the Group's capital requirements could affect adversely the Group's financial and business performance and the Group's ability to access financing on attractive terms. A credit or debt crisis affecting sovereign states, banks, financial markets and/or the economy more generally could affect the Group's ability to raise capital.

BG Group is exposed to liquidity risks, including risks associated with refinancing borrowings as they mature and the risk that financial assets cannot readily be converted to cash without loss of value. The Group invests surplus funds primarily in short-term, liquid investments that are readily convertible to cash, and imposes limits on the amount of borrowings that can mature within any specific period. In addition, the Group maintains access to a minimum level of committed borrowing facilities, to be used as a source of back-up liquidity. These facilities, which are held with a diversified group of major banks, totalled $5.2 billion and were undrawn as at 31 December 2013.

BG Group's financing costs may be adversely affected by interest rate volatility. The Group's interest rate risk management policy requires that substantially all borrowings are floating rate. Exceptions to this policy require approval from the Group's Finance Committee. In light of the current low interest rate environment, a substantial proportion of the Group's debt is currently held under fixed interest rate arrangements.

CONCENTRATION RISK

Over the coming decade, BG Group will be increasingly exposed to portfolio concentration risk on both the supply and demand side. In 2013, BG Group produced hydrocarbons in 12 countries, with no more than 18% coming from any one, and sold LNG to companies in 15 countries, with no more than 34% to any one market. As our large growth projects in Brazil and Australia progress, the Group's supply portfolio will become more dependent on these two countries.

In addition, as a substantial portion of the Group's LNG will be destined for China, BG Group's exposure on the demand side will become increasingly weighted towards that country.

Concentration risk was discussed in particular detail at the Board Planning Conference in 2013 and will remain a topic for Board consideration during 2014.

LICENCE TO OPERATE

BG Group works in partnership with governments and national oil companies to secure access to new resources and successfully monetise existing resources. This partnership is most effective when it fully reflects the socio-economic, environmental and political impact of the activities of BG Group and its partners. Increasingly, pressures from populations and advocacy groups have led to unforeseen changes in regulatory or legal conditions. There are political pressures in many countries where BG Group operates. Specifically, socio-political instability in Egypt in 2013 continued to impact the business environment negatively and contributed to higher volumes of production being directed to the domestic market than expected in 2013.

In common with others in the sector, BG Group expects to see this area of risk increase over coming years. This may be exacerbated if BG Group does not recognise, and take account of, the interests and rights of the communities where it operates. The Group must create, maintain and strengthen its licence to operate wherever it does business.

Initiatives that were discussed by the Board in 2013, with the objective of strengthening our licence to operate, included continuing to build relationships with all interested and affected parties in Australia, our social investment programme and engagement on macroeconomic risks in Tanzania, consultation with indigenous peoples in Honduras prior to commencing aerial surveys, and ongoing social and environmental work in western Canada.

CYBER SECURITY RISK

As for many organisations, cyber security risk to BG Group has increased in recent years. Increasingly sophisticated techniques from an ever growing number of sources are being used to target the Group. These may seek to compromise or attack computer networks to obtain information and/or cause harm. The consequences of this activity could include financial loss, information loss, disruption of business operations or the unavailability of systems. The Group is responding by detection, investigation and mitigation measures, including through the use of specialist third-party service providers.

During 2013, the Audit Committee undertook a detailed review of the Group's approach to the mitigation of cyber security risk. This review highlighted the high-level monitoring activity conducted by and on behalf of the Group. The Committee also received the results of an independent maturity assessment completed against the '10 Steps to Cyber Security' guidelines issued by the UK Government Communication Headquarters.

ASSET INTEGRITY, SAFETY, HEALTH AND SECURITY

Oil and gas exploration and production activities carry significant inherent risks relating to asset integrity, major accident hazards (including marine incidents) and well control incidents. Incidents may result in loss of life or injury to members of the public or BG Group employees and contractors, damage to the environment or damage to facilities. There may be associated loss or deferment of production and revenues or delay/cancellation of exploration activities. Other occupational safety risks associated with the Group's activities may be present, including from driving. The Group may also incur costs associated with mitigation, recovery and compensation.

BG Group is exposed to security threats and works closely with governments and industry bodies to identify and manage them. Acts of terrorism, piracy, civil unrest or criminality may affect the Group's employees and contractors, plants and offices, pipelines, transportation or computer systems, and could severely disrupt its business and cause harm to people and the environment. BG Group has a crisis management programme to respond to such events. The programme is based on a three-tier approach of local emergency response, asset-level incident management teams and, for the most serious incidents, a Group-level crisis management team. Response plans and procedures have been developed and are tested regularly, including through simulations of event scenarios. In 2013, the Group activated its crisis plans to deal with the public disorder and political turmoil that affected Egypt and the Board closely followed the safe and successful evacuation of non-essential expatriate employees and their families from Egypt.

The Group seeks constantly to improve controls and barriers designed to prevent incidents occurring or to mitigate their impact, and has developed improved processes for managing HSSE risks during 2013. Contractor safety management is recognised as an essential part of good safety management. The Group seeks to ensure that its worldwide contractor community understands and applies the Group's safety culture and processes. In seeking to reduce to as low as reasonably practicable the risk of asset failure, it is mandatory for every operated asset to have a Safety Case in place that identifies and describes associated hazards, and to have measures in place to manage them.

The Board, through the Sustainability Committee, continues to take an active role in the review and management of safety and asset integrity performance and, during 2013, reviewed and challenged this performance at regular intervals.

BG Group is also subject to various health and safety laws in jurisdictions around the world. Failure to comply with such laws could impact the Group's reputation, could have an adverse effect upon the willingness of stakeholders to work with the Group, or could affect its licence to operate in any particular territory. New laws and regulations may result in BG Group having to introduce operating procedures or curtail or cease certain operations, which could diminish productivity and materially and adversely impact the results of operations.

OTHER PRINCIPAL RISKS TO BG GROUP (IN ALPHABETICAL ORDER)

COMMODITY PRICES AND EXCHANGE RATES

BG Group's cash flows and profitability are sensitive to commodity prices for crude oil, natural gas, LNG and other hydrocarbons.

The Group's exposure to commodity prices varies according to a number of factors, including the mix of production and sales. Oil prices are one of the most significant drivers of BG Group's profitability. BG Group's sensitivity to commodity prices arises from the purchase of third-party supply, the direct sale of commodities into spot markets and the indexation terms in longer-term sales contracts. The Group's portfolio also includes a range of long-term gas contracts that are not directly linked to short-term changes in commodity prices.

While industry costs tend to rise or fall with commodity prices in the long term, there is no guarantee that movements in sales prices and costs will align in any year. This can put pressure on investment and project economics which depend in part upon the degree and timing of commitments in line with particular cost structures.

The Group does not hedge all commodity prices as a matter of course, but may hedge certain expected commodity sales, LNG contracts and other revenue streams from time to time. In marketing its energy portfolio, BG Group may undertake commodity hedging and trading activities, including the use of option contracts, futures contracts (financial and physical), forward-based contracts and swap contracts.

The standalone value of hedges can move significantly, potentially increasing the volatility of cash required for margin calls and the accounting profit recognised within a particular quarter.

Group capital expenditure in US Dollars depends on prevailing exchange rates, particularly for the Australian Dollar, the Brazilian Real and Pound Sterling. The Group does not apply any minimum hedging levels as a matter of course but instead takes into account factors such as the volatility of cash flows and the correlation between exchange rates and commodity prices in determining whether, and to what extent, it will hedge hydrocarbon price or exchange rate exposures.

Potential variations in commodity prices and exchange rates, along with other major risk factors, are considered as part of corporate funding and strategic decisions. Projects and investments are screened against a wide range of external sensitivities, including benchmark commodity prices. Insights into the impact of changes in commodity price risks and foreign exchange rates are enhanced through Cash Flow and Earnings at Risk models, which consider the combined effect of a variety of market and operational risks on BG Group's business.

COUNTERPARTY RISK

BG Group's exposure to counterparty credit risk takes the form of a loss that would be recognised if counterparties (including sovereign entities) failed or were unable to meet their payment or performance obligations. These include commodity sales, trading and hedging, treasury derivatives and cash investments, and partnerships and arrangements with contractors and suppliers.

The Group is also exposed to political and economic risk events that may contribute to non-payment of financial obligations to BG Group by governments or government-owned entities, or which may otherwise impact successful project delivery and implementation. As discussed above, we are exposed to significant counterparty credit risk in Egypt.

The financial and credit condition of counterparties is considered prior to entering into commercial contracts, trading sales agreements, swaps, or futures and options contracts. Contractual or other forms of protection or mitigation may be sought, including cash collateral, letters of credit, and security over asset or parent company guarantees. Further information can be found in the Financial statements; see note 22, page 125.

ENVIRONMENT AND CLIMATE CHANGE

Policies and initiatives at national and international level to address climate change may affect business conditions and demand for energy sources. Policy approaches that promote use of alternative energy sources, such as renewables and nuclear power, may affect the Group's ability to maintain its position in key markets. Additionally, regulations intended to establish greenhouse gas (GHG) emissions trading schemes, taxes or performance standards could alter hydrocarbon production economics. In 2013, BG Group was subject to carbon taxes/pricing in Australia, and the European Emissions Trading System in the UK and Norway.

BG Group's activities may adversely affect the environment through the release of hydrocarbons or chemicals, including maritime oil spills, noise pollution, management of produced water, the visual impact of gas and oil infrastructure and the emission of pollutants. Release of hydrocarbons may result in significant fines, liabilities or other losses. Onshore or marine ecological habitats may also be adversely impacted by drilling, well operations, pipelines and other infrastructure. In Brazil, the Group's oil spill exposure continues to grow as more oil is produced in the Santos Basin and shuttle tanker operations increase significantly. Measures to tackle loss of biodiversity, together with policies intended to protect local habitats, may limit access to reserves in areas deemed to be environmentally sensitive. There are a range of stakeholder concerns related to the production of hydrocarbons using hydraulic fracturing techniques. These include the potential for contamination or depletion of local water sources, impact upon the natural environment and the possibility that such operations may cause minor seismic events. In addition, local communities may have concerns about the impact on their land and property rights. As a result, there is a risk that laws or regulations in this area may increase cost, attract adverse publicity or restrict or prohibit the successful delivery of projects.

Our internal management approach aims to reduce impacts and risks related to the natural environment throughout the lifecycle of an asset. BG Group's Business Principles commit us to making a positive contribution to the protection of the environment, to meet internationally accepted best practice and reduce to as low as reasonably practicable the effects of our operations on the environment. We implement these principles through our HSSE Policy and Environmental Standard. All BG Group operated assets have their environmental management system independently certified to ISO 14001. BG Group's Climate Change Public Position commits the Group to reducing GHG emissions intensity and details its approach to managing the risks of climate change.

GEOPOLITICAL AND MACROECONOMIC RISKS

As noted above, BG Group's cash flows and profitability are sensitive to commodity prices for crude oil, natural gas, LNG and other hydrocarbons. A significant slowdown in global demand for oil would impact oil prices and hence revenues. Such an outcome could be driven by a variety of macroeconomic and geopolitical factors outside of BG Group's control.

On the macroeconomic front, for instance, there could be a serious slowdown in China and/or other emerging markets. Another risk is the threat of a US debt default or another government shutdown/budget impasse. Although the eurozone appears to have exited the crisis zone, continued economic weakness in the area remains an ongoing source of uncertainty. Any or all of these issues could have serious consequences for global financial markets and hence global growth and commodity prices.

On the geopolitical front, there remains the potential for instability in the Middle East to affect both the demand and the supply side of global energy markets. Tensions in East Asia between China and Japan, and between North and South Korea, are also notable geopolitical risks.

GOVERNMENT TAKE (CONTRACT RENEGOTIATION, TAXATION, EXPROPRIATION) OR OTHER ACTION

Governments or regulators may act or intervene in a way that diminishes or destroys value for BG Group, through expropriation of assets or property, or by altering fiscal or other commercial terms governing oil, gas and LNG operations for the industry generally or BG Group specifically. These may include the imposition of higher taxes, royalties or local content or domestic market requirements, especially where such government or regulatory bodies face financial pressures. Governments may also act in a way that delays project schedules or increases costs, thus eroding value.

BG Group's risk exposure in this area is continuous and evolving. In 2013, there was an ongoing debate around legislative, regulatory and fiscal frameworks for the oil and gas industry in Tanzania and Kenya; there were federal elections in Australia that featured debate around energy policy; and state elections in British Columbia highlighted LNG projects such as that which BG Group is currently evaluating. Various fiscal-related discussions are also ongoing in Brazil. BG Group works closely with its partner Petrobras and the relevant Brazilian authorities to achieve a balanced outcome on such issues.

HUMAN RESOURCES (CAPACITY/CAPABILITY)

BG Group's performance, operating results and future growth depend on its ability to attract, retain, motivate and organise sufficient people with the appropriate level of expertise and knowledge. Competition for talented, suitably experienced and qualified specialists in upstream exploration and production and other project development and technical areas is intense.

BG Group takes a systematic approach to resourcing to ensure it can meet its long-term human resource needs, operating short and long-term resourcing demand models to predict and manage the people requirements that underpin the Group's business plans. The Group aims to identify the best people through succession planning and talent management, coupled with effective recruitment.

INSUFFICIENT EXPLORATION SUCCESS/RESERVES REPLACEMENT

Sustaining long-term reserves replacement and production growth is a key part of BG Group's strategy. Reserves replacement is affected by the ability to mature resources into reserves in a timely manner. This may occur for many reasons, including successful discovery and development of hydrocarbon resources; the acquisition of sufficient new resource opportunities; sufficient field appraisal; reservoir quality and performance; accurate interpretation of received data; drilling conditions or costs; rig availability; availability of suitable human or technical resources; and regulatory and/or commercial issues.

There may be insufficient addition of new resources and reserves to enable future economically viable production and maintain production growth. Competition for exploration and development rights and access to gas and oil resources is intense and requires continuous innovation. Where such rights are awarded, there is no guarantee that hydrocarbons in commercially viable quantities will be discovered. Maturation of discovered resources may not optimise value. The quantity and quality of geological, technical and economic data may ultimately prove insufficient for estimating resources and reserves. Data may be inaccurate. The Group's ability to interpret data appropriately may be limited. Insufficient pre-sanction field appraisal may lead to sub-optimal project sanction and/or field development plans.

Gas and oil reserves and resources cannot be measured precisely. The estimation process involves subjective judgements. In joint ventures, estimates of total reserves and resources may not align with the estimates of partners (including operators). In addition, actual reservoir performance may be lower than estimated. Estimates of reserves and resources may be subject to revisions. Changing regulations and guidelines may lead to changes in the estimation and classification of reserves. Increased regulation (for example, environmental) may delay, prevent or make more costly the maturation of resources and reserves. Changes to tax rules or a decline in the price of gas or oil may make reserves and/or resources, previously deemed to be recoverable, uneconomic to develop. Changes to gas and oil prices in fields subject to Production Sharing Contracts (PSC) may result in revised entitlements. Changes in perspectives on political risk may also result in reserves and resource changes arising from PSC extension expectations and/or equity reductions.

BG Group also faces risks from unfavourable unitisation decisions wherever the Group holds an interest in a field that may extend outside the boundaries of concession or licensing areas. Unitisation is technically and commercially complex and involves not only a negotiation based on interpretation of data, but also requires in-depth knowledge of local laws. Unitisation decisions could also work in the Group's favour.

The Group Reserves Committee, chaired by the Executive Vice President, BG Advance, provides an independent review of the Group's reserves process and considers any material changes to the reserves and resources estimates. The Reserves Committee reports annually to the Audit Committee the endorsed final reserves and discovered resource estimates, setting out the process used to determine these final estimates.

MERGERS, ACQUISITIONS AND DISPOSALS

The Group's strategy to manage its portfolio more actively depends on targeting new investments and disposals effectively, focusing its portfolio on a limited number of high-quality, valuable assets, and delivering its major growth projects. BG Group may fail to make or successfully integrate acquisitions, or fail to complete divestment agreements. Acquisitions may result in significant unanticipated costs and liabilities, including the cost of effectively integrating acquisitions to realise efficiencies, and impairment or restructuring charges. The Group may be liable for past acts or omissions, and liabilities it has acquired may be unforeseen or greater than anticipated. There may be delays in completing an acquisition. The Group may also retain unforeseen liabilities for divested businesses if the buyer fails to honour its commitments or the Group agrees or is obliged to retain such liabilities.

Board approval is required for material acquisitions and divestments. BG Group undertakes business, legal, tax and financial due diligence prior to acquisition or divestment to seek to identify and evaluate material risks and plan the integration or business separation process. The Group carries out post-investment reviews to assess the integration and performance of material acquisitions.

PARTNER DEPENDENCY

A material portion of BG Group's business is conducted by joint ventures, associates, partners, contractors or sub-contractors. In many cases, BG Group is not the operator or does not have full operational control and, in these instances, BG Group has a dependency on third parties to achieve its strategic and business objectives in a safe manner and on time and budget.

Where the Group works in joint ventures in which it does not exercise sole control, it may have more limited influence over ventures and how they are managed. Management of these non-controlled joint ventures may vary from BG Group's own management and operating standards, controls and procedures (including in relation to health, safety and environmental risks, as well as ethical conduct and technical and operational matters). Nonetheless, BG Group endeavours to influence these ventures to adopt improved standards, controls and procedures if it is felt that current practices do not adequately address significant risks or result in sub-optimal performance.

While the Group strives to be strategically aligned with all partners, in some instances a partner's business interests may not be in alignment with those of BG Group. Where the Group is a non-operator, its partner(s) may determine a field development plan that is not aligned to that of BG Group. Where BG Group is the operator of a joint venture, the partner(s) may be able to veto or block certain decisions and this may be to BG Group's overall detriment.

PROJECT SELECTION AND SANCTION

Selection of capital efficient projects is critical to BG Group's future growth, reputation and financial position.

Significant issues that can impact the selection and sanction of developments include: insufficient understanding of subsurface uncertainties (through ineffective and/or insufficient appraisal and data gathering), well engineering risks (including unexpected drilling conditions or geological irregularities), non-availability of skilled front-end resources, equipment and materials availability and cost, poor contractor performance, environmental factors, permitting, landowner agreements, governmental and regulatory requirements, key stakeholder reactions, and variations in macroeconomic conditions. In cases where BG Group is in a joint venture, development of opportunities, including appraisal, concept selection and pre-sanction engineering, may not fully be under the control of the Group.

BG Group has a common and consistent approach to delivering excellence and managing risk across all principal activities. Furthermore, BG Group has a Value Assurance Framework that delivers rigorous assurance of projects throughout their lifecycle, with independent reviews and decision points at the end of each stage to inform selection on a portfolio basis. All major projects are subject to an independent third-party cost and schedule risk analysis prior to final investment decision.

Recognising the importance of the front-end of project development, a programme was established in 2013 to strengthen existing capabilities. Enhancements are underway in several areas, with emphasis on effective decision making during stages of the project lifecycle, management of risks and subsurface uncertainties, future front-end skills requirements, transition of venture manager accountabilities between stages, and best practices on engaging with external stakeholders and joint venture partners. The Group will continue to focus on these enhancements during 2014.

REGULATION, LEGISLATION AND LITIGATION

The oil, gas and LNG industry is subject to legislation, regulation and intervention by governments worldwide in matters such as financial reporting; the award and governance of exploration and production interests and export licences; the imposition of specific drilling and domestic supply obligations and requirements; access to land and facilities; environmental, ethical conduct and health and safety controls and permits; decommissioning; and regulated commodity trading. Group business activities are conducted in many different countries and are therefore subject to a broad range of such legislation and regulation. The cost and risks of compliance can therefore be significant.

Any actual or perceived non-compliance with applicable laws and/or regulations could lead to regulatory investigations, censure, litigation and/or legal or regulatory disputes or sanctions (including financial penalties, debarment from award of government contracts and the curtailment or cessation of operations), as well as reputational damage. In addition, in some countries, governments are facing greater pressure on public finances, leading to a risk of increased government take.

BG Group faces the risk of contractual disputes and litigation in all the countries in which it operates, and the risk of counterparties (including governments) failing to honour contractual commitments. BG Group continues to manage disputes in many different countries (see note 22 (E) to the Financial statements).

Corruption risk is heightened in some countries. When considering entering new countries/territories, BG Group performs cross-functional due diligence to identify corruption and other risks. The Group's future portfolio may change such that corruption risk increases over time. BG Group does not tolerate corruption in any form, whether direct or indirect. The Group is bound by the UK Bribery Act 2010, the US Foreign Corruption Practices Act (in certain subsidiaries) and any local legislation that may apply. Corruption risk is managed through a risk-based anti-bribery and corruption (ABC) compliance programme that includes training, policies and procedures, risk management, due diligence, contract management and independent monitoring. Implementation of the programme is subject to the Group's control and influence over its business activities, which is less in non-operated and non-controlled joint ventures. An independent consultancy is engaged to assess implementation of the Group's ABC Framework in high-risk assets. The Group's Speak Up Policy provides the framework for whistleblowing and investigations and is the basis for how allegations of breaches of laws, regulations, Group Policies and Business Principles are handled.

SUBSURFACE RISK

Inherent uncertainty in the development of oil and gas discoveries could lead to detrimental well and reservoir performance outcomes that may impact both short-term production volumes and ultimate hydrocarbon volume recovery.

Development plans are designed to be robust, given subsurface risks and uncertainties; however, these plans are based upon the limited sampling and testing of only a small fraction of the total reservoir volume through the placement of exploration and appraisal wells supplemented by subsurface imaging techniques. All data is subject to judgemental interpretation.

BG Group actively manages subsurface risk through the adoption of a common and consistent subsurface workflow and modelling processes implemented by subsurface experts and supported by relevant Group Standards and Guidelines. Framing, uncertainty management and decision risk analysis are also some of the techniques used to identify and mitigate risks to ensure that robust and flexible development strategies are designed and executed. All discoveries are subjected to review and challenge via a stage-gated value assurance process.

Ongoing well and reservoir surveillance, reservoir management and modelling is undertaken throughout a discovery's lifecycle to ensure that reservoir performance is understood as new data is acquired. Mitigation and optimisation activities are put in place to both protect and maximise value.

The Group scrutinises and seeks to influence our non-operated and joint venture activities through the execution of parallel work programmes, placement of subsurface experts in joint venture teams and the review of the operator's subsurface processes and modelling work scopes.

IMPORTANT NOTES

Risk identification and assurance

While BG Group has developed processes for identifying and managing risk, these processes provide reasonable, rather than absolute, assurance and are designed to help manage, rather than eliminate, risk. It is not possible to be certain that such processes will be successful in managing these risks effectively or at all, not least because not all of these risks and uncertainties are within BG Group's control. Risk management processes are therefore no guarantee that all risks have been identified, or will not materialise, or that associated losses will not occur. In addition to the principal risks and uncertainties listed here, the Group may also be affected adversely by other risks as yet unforeseen or currently considered not to be material. Shareholders should consider the principal risks and uncertainties described in this section in conjunction with the Legal notice on the inside cover.

Insurance

Some of the major risks involved in BG Group activities cannot reasonably and economically be insured. The transfer of risks to the insurance market may be affected and influenced by constraints on the availability of cover, market appetite and capacity, pricing, and the decisions of regulatory authorities. BG Group may incur significant losses from different types of risks that are not covered by insurance.

The Group maintains an insurance programme to provide some mitigation against significant losses, which, as is consistent with general industry practice, includes limited cover for physical damage, removal of debris, control of wells, re-drill, sudden and accidental pollution, and employer's and third-party liabilities. Policies purchased are subject to limits, deductibles and specific terms and conditions. In addition, premium costs are subject to changes based on a company's loss experience, the overall loss experience of the insurance markets accessed and capacity constraints. Insurance is, by its nature, contingent. As such, any particular insurance claim made might not result in a full recovery from insurers."

LEGAL NOTICE

This announcement contains forward-looking statements which by their nature involve risk and uncertainty because they depend on future circumstances, and relate to events, not all of which can be controlled or predicted. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results may differ materially from those set out in the forward-looking statements. Nothing in this announcement shall be construed as a profit forecast or profit estimate and no part of this announcement constitutes, or shall be taken to constitute, an invitation or inducement to invest in the Company or any other entity, and must not be relied upon in any way in connection with any investment decision. The Company undertakes no obligation to update any forward-looking statements, except to the extent legally required. The Company is subject to the regulatory requirements of the Financial Conduct Authority of the United Kingdom.