Annual Financial Report

BG GROUP PLC PUBLICATION OF DOCUMENTS: 2012 ANNUAL REPORT AND ACCOUNTS AND NOTICE OF ANNUAL GENERAL MEETING TO BE HELD ON 23 MAY 2013

BG Group plc (the Company) has today published its Annual Report and Accounts for the year ended 31 December 2012 incorporating the Notice of the 2013 Annual General Meeting (the 2012 Annual Report and Accounts).

The 2012 Annual Report and Accounts can be viewed at or downloaded from the BG Group website at www.bg-group.com/reports. The Notice of Meeting can be viewed at or downloaded from the BG Group website at www.bg-group.com/Notice

The mailing to shareholders of the 2012 Annual Report and Accounts has commenced and copies of the 2012 Annual Report and Accounts, together with the notice of availability to shareholders receiving web-communications and the form of proxy for the 2013 Annual General Meeting have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.hemscott.com/nsm.do

The Company's 2013 Annual General Meeting will be held at the Hilton Reading Hotel, Drake Way, Reading, RG2 0GQ at 11.30 am on Thursday, 23 May 2013.

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IMPORTANT: EXPLANATORY NOTE AND WARNING

The primary purpose of this announcement is to inform the market about the publication of BG Group plc's Annual Report and Accounts for the year ended 31 December 2012 (the 2012 Annual Report and Accounts).

The information below, which is extracted from the 2012 Annual Report and Accounts, is included solely for the purpose of complying with 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 BG Group plc's Fourth Quarter and Full Year Results Announcement issued on 5 February 2013. 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 2012 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2012 Annual Report and Accounts.

ADDITIONAL INFORMATION REQUIRED BY DISCLOSURE AND TRANSPARENCY RULE 6.3.5

Statement of Directors' Responsibilities for Preparing the Financial Statements

The following statement which was prepared for the purposes of the 2012 Annual Report and Accounts is set out on page 79 of that document. As set out above, this statement is repeated here solely for the purpose of complying with DTR 6.3.5. This statement relates to and is extracted from the 2012 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 5 February 2013.

"Pursuant to Rule 4.1.12 of the Disclosure and Transparency Rules, each of the Directors, the names and functions of whom are set out on pages 44 to 45, confirms that to the best of his or her knowledge:

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

·; the management report represented by the Directors' report on pages 2 to 79 includes a fair review 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 (September 2012). 

By order of the Board

Chris Finlayson

Chief Executive

Den Jones

Interim Chief Financial Officer

20 March 2013" 

Related Party Transactions

The following description of related party transactions is set out on page 122 of the 2012 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:

for the year ended 31 December

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 2012, a debtor balance of $45m (2011: $40m) (see note 15, page 107) and a creditor balance of $88m (2011: $85m) (see note 20, page 117) were outstanding with these parties.

In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2012, loans of $715m (2011: $1 467m) 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 106. Interest of $18m (2011: $23m) was charged on these loans during the year at interest rates of between 1.40% and 4.33% (2011: 0.84% and 6.92%). The maximum debt outstanding during the year was $1 467m (2011: $1 474m).

As at 31 December 2012, loans of $nil (2011: $92m) were due to joint venture companies. Interest on the loan of $1m (2011: $5m) was paid during the year at an interest rate of 5.8% (2011: 5.8%).

BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2012, the obligation was $140m (2011: $144m). Interest of $9m (2011: $9m) was paid during the year in respect of this lease. The lease expires in 2027.

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 2012, a debtor balance of $3 750m (2011: $4 381m) (see note 15, page 107) and a creditor balance of $40m (2011: $50m) (see note 20, page 117) were outstanding between BG Group plc and other Group undertakings. In 2012, BG Group plc received dividends of $nil (2011: $1 258m) from BG Energy Holdings Limited, its subsidiary undertaking.

BG Group plc grants equity instruments to subsidiaries' employees in respect of equity-settled employee share schemes. In 2012, the fair value of equity instruments granted under these schemes and charged to the income statement was $74m (2011: $77m)."

Principal risks and uncertainties

The following description of principal risks and uncertainties is set out on pages 32 to 37 of the 2012 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.

"BG Group's approach to risk management

BG Group operates in an inherently complex, dynamic and risky industry. The Group's businesses around the world are exposed to a number of risks and uncertainties which could, individually or together with others, have a material adverse effect on the Group's strategy, business, performance, results, financial or trading condition and/or reputation. In turn, these may impact shareholder returns, including dividends and/or BG Group's share price.

Effective risk management is central to BG Group's business and underpins delivery of the Group's growth strategy. BG Group's objective in seeking to identify and manage the Group's risks is to deliver and protect shareholder returns over the longer term.

The Board is ultimately responsible for BG Group's risk management and internal control systems. It determines the nature and extent of the significant risks considered appropriate in pursuit of the Group's strategic objectives. Accountability for identifying and managing business risks lies with line management, with Board and GEC oversight.

Enhancing BG Group's Enterprise Risk Management Framework in 2012

The aim of the Group's risk management strategy is to promote enterprise-wide risk management through an integrated framework that considers the impact on the Group's business of strategic, financial and operational risks.

Following the appointment of a Chief Risk Officer in late 2011, the Risk Management Committee was established in 2012, as a sub-committee of the GEC, in order to review and formulate management's recommendations to the Board on risk and risk management.

One of the key components of BG Group's overall Enterprise Risk Management (ERM) Framework is the Business Risk Management Process (BRMP), which is mandatory and operates throughout the Group. The BRMP facilitates the identification, assessment and treatment of project delivery and operational risks within assets and central functions, and enables their communication and analysis within the Group.

Other key components of the ERM Framework are the Cash Flow at Risk (CFaR) and Earnings at Risk (EaR) models, which enable the Group to quantify the probability ranges associated with operational performance, project delivery and market variables. Analysis based upon these results helps to shape BG Group's business decisions, including financing, acquisitions and divestments, portfolio structure, project sanction and hedging. Analysing future cash flow and earnings risk informs the Group's credit and financial risk management decisions and is a key input to the Group's ongoing portfolio and capital optimisation processes.

MANAGING THE GROUP'S PRINCIPAL RISKS

The principal risks on which the Board has focused in 2012 are outlined below.

Project delivery and operational performance

Successful delivery of major projects is material to BG Group's future growth, and substantial delay to, or failure to complete, these projects constitute significant risks to the Group's prospects, reputation and financial position. Delivering major growth projects in Australia and Brazil safely, to schedule and on budget, while optimising operational performance and output from existing producing base assets, remains the critical success factor for the Group.

For 2013, BG Group has provided a production outlook of 630-660 kboed. The Group has set out a number of quarterly milestones that can be used to judge progress against this range. Not all of the milestones are within BG Group's control and actual 2013 production may be affected by other events or factors. Further details are set out on page 21.

Production during 2012 from Egypt was lower than forecast as the Phase 7 compression project was less effective than expected in arresting reservoir decline. The compression project also led to higher water production than expected. BG Group has put in place a four-point recovery plan, including: improved predictability of field performance and reservoir data; a series of workovers to increase production from existing wells; a new phase of development; and further, near-field exploration. Production will decline in Egypt until the new wells in the next phase of development for the West Delta Deep Marine field, Phase 9a, come onstream in 2014. These wells will provide additional information regarding reserves and reservoir performance.

In Brazil's Santos Basin, the Group continued to make good cost and schedule progress in 2012. Further details can be found on page 22. BG Group continues to work with the operator, Petrobras, to ensure safe and successful delivery of the project. The development of the Santos Basin resources is a highly complex project and significant technical, operational, financial and commercial challenges will remain as the various discoveries are brought onstream and matured.

In Australia, substantial progress was made during the year on the QCLNG project, with the completion of a number of important milestones that provide the Group with confidence that the project remains on budget and on schedule to deliver first LNG in 2014. While the estimated underlying capital expenditure (capex) for this project for the period 2011-2014 rose 19% to $20.4 billion, the fact that 94% of this revised budget is now covered by contracts and other agreements provides a greater degree of certainty on costs for the remainder of the project. Notwithstanding this progress in 2012, a number of cost, schedule and commercial risks remain due to the overall project's inherent scale and complexity, involving the integration of three major projects in themselves: upstream development (drilling, compression facilities and water treatment plants); the export pipeline from the coal seam gas fields to the Queensland coast; and the construction and commissioning of the LNG plant on Curtis Island.

Credit

BG Group is exposed to political and economic risk events that may cause the non-payment of receivables.

Following an agreement signed with Egypt General Petroleum Corporation (EGPC) in 2011, the repayment of the Group's receivable balance in respect of Egyptian domestic gas sales is partly linked to production levels, in particular the volume of gas allocated for export as LNG. As at 31 December 2012, this receivable balance was $1.3 billion, of which $0.6 billion was overdue. Under repayment terms recently negotiated with EGPC, and based upon post-investment forecast production levels, the existing $1.3 billion receivable balance is expected to be fully recovered by the end of 2015, and all future receivables would be current by 2017. However, the recoverability of the receivable balances within these timeframes, and the full realisation of the carrying value of the Group's significant Egyptian operations, depend on the business environment in Egypt, together with the outcome of negotiations with EGPC, reservoir performance, the Group's continued investment plans and the successful operational delivery of those plans.

Capital investment programmes

BG Group's growth plans are based on successful execution of its programme of major capital projects which will require significant and continued capital investment during the period. Related to this, the Group's expected capital spend for 2013, on a cash basis, is estimated at some $12 billion. As such, the execution of the Group's ongoing funding strategy will remain a continued area of focus for the Board as BG Group continues to progress through the heaviest investment programme in its history.

Funding for the Group's major capital projects will need to be underpinned by strong cash flows from operating assets, as well as access to traditional and alternative sources of funding (such as debt capital markets, export credit agencies, development banks, project finance and others), as required. To this end, BG Group took appropriate measures in 2012 to strengthen its balance sheet, including financing activities, and an ongoing portfolio rationalisation programme that included the signing of a Heads of Agreement (HoA) for the partial sell down of QCLNG. As at 31 December 2012, agreements had been signed or concluded that are expected to release $8.1 billion of total capital (net sales proceeds, removal of net borrowings and capital reimbursement and avoidance) by the end of 2013. Anticipated proceeds of sale upon completion of the fully termed transaction agreements expected under the HoA for the partial sell down of QCLNG represent a material contribution to this $8.1 billion total capital release and therefore constitute a key sensitivity for the Group's capital requirements and gearing. Further details of the HoA are set out in the Financial review on page 27.

While portfolio rationalisation activity has helped to de-risk BG Group's ability to fund its major capital investment programme, there is a consequent increase in portfolio concentration which further emphasises the critical role of assets in Australia and Brazil in shaping the Group's future prospects, performance and value.

In 2012, the Group's credit rating was put on a negative credit outlook by Standard & Poor's and Moody's Investors Service Limited and on negative credit watch by Fitch Ratings Limited. A downgrade in the long-term credit rating of the Group could adversely affect the Group's ability to access finance on attractive terms.

Global economy

2012 saw prolonged uncertainty in the global economy. The crisis in the eurozone continued to dominate the economic landscape, with the result that growth and trade were negatively affected. The USA and China both felt the effects of the slowdown, recording lower growth than expected in the first half of the year. Commodity prices were also affected by the uncertainty, with benchmark oil prices moving within a 25% band over the year. Henry Hub (a benchmark natural gas price) fell below $2 per million British thermal units (mmbtu) before recovering somewhat, reaching nearly $4/mmbtu. Although the prospects for stronger economic growth in the USA and China now appear more positive and an agreement has been reached in the USA that at least defers the impact of the so-called 'fiscal cliff', uncertainty as to how US fiscal policy will evolve in the medium term, as well as the eurozone sovereign debt crisis, means that the period of increased global economic uncertainty is set to continue in 2013.

In reaction to economic and commodity market changes, BG Group has continued to optimise its portfolio. This included scaling back onshore drilling activity in the USA in response to lower natural gas prices which led to a non-cash, post-tax impairment of $1.3 billion in the second quarter of 2012. In addition, the Group continued to focus LNG sales and marketing efforts on the more resilient markets of Asia and Latin America. More than 85% of BG Group's LNG volumes were sold into these markets in 2012 and a HoA for long-term LNG sales was signed with CNOOC this year.

Social and political change in North Africa

2012 saw significant and continued social and political change in some regions where BG Group operates, most notably in North Africa. The potential impacts of such social and political change are broad and, in a worse case, could expose the Group to changes in the nature of upstream licensing arrangements. The impact of any such events on the long-term development of the Group's businesses in North Africa (and Egypt in particular), and on the Group's current and future revenues, could be material. As such, political risk (and crisis management and emergency response plans) remain high on the agenda for the Board and the GEC.

IMPORTANT NOTES

Risk identification and assurance

While the 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 set out on page 145.

Joint ventures

BG Group standards apply across all wholly owned businesses and joint ventures operated solely by the Group. 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 (NCJVs) 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 (where appropriate) to achieve standards, controls and procedures equivalent to the Group's own.

Insurance

Some of the major risks involved in BG Group activities cannot, or may not, reasonably and economically be insured. Risks associated with the energy industry include: exposure to personal injury and loss of life, asset failures, release of hydrocarbons, environmental issues and natural disasters, together with associated consequential losses, any of which may have an adverse effect on business performance. 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 certain 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 certain limits, deductibles and specific terms and conditions. In addition, insurance 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 recovery from insurers.

PRESENTATION

The principal risks and uncertainties set out on the following pages are in alphabetical order and are not presented in order of potential magnitude, materiality or probability of occurrence.

ASSET INTEGRITY, SAFETY, HEALTH AND SECURITY

Oil and gas exploration and production activities carry significant inherent risks. Major accidents or incidents may occur, resulting in: possible loss of life of, or injury to, members of the public, employees of BG Group or the Group's contractors; damage to the environment; and damage and/or loss of certain facilities, with an associated loss or deferment of production and revenues and/or delay or cancellation of exploration activities. The Group may also incur costs associated with mitigation, recovery and compensation.

BG Group is also subject to health and safety laws in numerous jurisdictions around the world. Failure to comply with such laws could significantly impact the Group's reputation, which could have a subsequent effect upon the willingness of stakeholders to work with the Group, or affect its licence to operate in any particular territory. Any new laws and/or regulations may result in BG Group having to introduce new operating procedures or even to curtail or cease certain operations or implement temporary shutdowns of facilities, which could diminish its productivity and materially and adversely impact the results of operations, including the Group's profits.

BG Group is exposed to security threats. Acts of terrorism, piracy or civil unrest, which may affect the Group's employees and contractors, plants and offices, pipelines, transportation or computer systems, could severely disrupt its business and could cause harm to people and the environment. Attacks on the Group's computer networks and breaches of information security may also result in the loss of commercially sensitive data.

In 2012, there were three events of particular note in this risk area. Two contractors working for BG Group died as a result of separate incidents: one in the UK North Sea; and one in the USA (please see page 8). In addition, the Elgin/Franklin asset in the UK North Sea (in which BG Group has an equity stake but which it does not operate) suffered a significant well integrity incident leading to a major release of natural gas. Although there were no significant injuries, the resultant shutdown of the facility for essential repair and maintenance work caused production to cease and BG Group's cash flow and profit were adversely affected in 2012 and will continue to be impacted in 2013.

The Group seeks constantly to improve controls and barriers designed to prevent incidents occurring or to mitigate their impact. Contractor safety management is recognised as an essential part of good safety management, and the Group seeks to ensure that its worldwide contractor community understands and applies the Group's safety culture and processes to their own operations. In seeking to reduce to as low as reasonably practicable the risk of asset failure, it is mandatory for every operated asset to have Safety Cases in place that identify and describe the hazards associated with that asset, and to have measures in place to manage those hazards.

CAPITAL REQUIREMENTS, LIQUIDITY AND INTEREST RATES

BG Group's ability to deliver its business and growth objectives is dependent on its ability to fund capital intensive development projects, at present most notably in Australia and Brazil.

The Group has made, and plans to make, significant capital investments. These are estimated at Reference Conditions to be $12 billion on a cash basis during 2013.

The Group's capital requirements depend on a broad range of factors, including commodity prices, currency exchange rates, revenue from operations, acquisitions and proceeds realised from disposals. Some of these factors are (wholly or partially) outside the Group's control and may cause capital requirements to vary materially from planned levels. Increases in BG Group's capital requirements could adversely affect the Group's business and financial performance, including gearing and funds from operations, and BG Group's ability to access finance on attractive terms may be constrained. A credit or debt crisis affecting sovereign states or unions, banks, financial markets and/or the economy more generally could affect the Group's ability to raise capital.

BG Group is also 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.

BG Group's financing costs may be significantly affected by interest rate volatility.

In the course of 2012, BG Group issued three tranches of hybrid bonds totalling $2.1 billion (equivalent), maturing in 2072, and continued to release capital through the portfolio rationalisation programme. As at 31 December 2012, the Group had cash and cash equivalents of $4.4 billion.

In 2012, the Group's committed bank revolving credit facilities, which are held with a diversified group of major banks, were increased and expiry dates extended. These facilities totalled $5.2 billion, with $2.2 billion expiring in 2016 and $3 billion in 2017, and were undrawn as at 31 December 2012. These facilities are used as back-up liquidity to fund operating and capital requirements.

In addition, in order to diversify and extend its potential sources of funding, the Group obtained $2.3 billion of credit facilities from export credit agencies during 2012, $1.8 billion of which is subject to documentation. These facilities were undrawn as at 31 December 2012.

BG Group invests surplus funds primarily in short-term, highly liquid investments that are readily convertible to cash. The Group imposes limits on the amount of borrowings that mature within any specific period.

BG Group's interest rate risk management policy requires that substantially all borrowings are at a floating rate. Exceptions to this policy require approval from the Group's Finance Committee. In the light of the current low interest rate environment, the Finance Committee has approved the fixing of a substantial proportion of the Group's debt.

CLIMATE CHANGE

Policies and initiatives at national and international level to address climate change may affect business conditions and demand for various energy sources in the medium to long-term. Worldwide policy and regulatory actions are driving targeted reductions in greenhouse gas (GHG) emissions which will in turn influence the future of the global energy industry. Policy approaches that promote the 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, new regulatory regimes intended to establish emissions trading schemes or GHG emissions taxes could alter hydrocarbon production economics.

In 2012, BG Group became subject to carbon taxes/pricing in Australia via the Carbon Pricing Mechanism under the Clean Energy Legislative Package in addition to the existing European Emissions Trading System in the UK.

COMMODITY PRICES

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. Among the commodities, oil prices are by far the dominant driver of BG Group's profitability. 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, as a matter of course, hedge all commodity prices, but may hedge certain 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 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.

Demand for crude oil, natural gas, LNG and other hydrocarbons is dependent upon a number of macroeconomic factors and prices can vary significantly depending upon the supply and demand balance in each market. 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. The Group's long-term contracted LNG supply is predominantly priced on a Henry Hub-linked basis, with value-sharing mechanisms for sales made to premium markets. Additionally, in 2012, BG Group signed a long-term LNG purchase agreement with Sabine Pass Liquefaction LLC, priced at a premium to Henry Hub.

BG Group's LNG position is substantially unhedged and earnings/ profitability of the LNG Shipping & Marketing business segment could be more sensitive to movements in commodity price as a result. The majority of BG Group's long-term contracted LNG sales have been priced on a predominantly oil-linked basis. The remainder of the Group's long-term contracted and short-term LNG sales are priced on a Henry Hub-linked or spot market basis.

Potential variations in commodity prices, 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 commodity price risks are enhanced through cash flow at risk and earnings at risk models, which consider the combined impact of a variety of market and operational risks on BG Group's business.

CREDIT

BG Group's exposure to 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.

Management of credit risk is fundamental not only to BG Group's financial value but also to the Group's ability to deliver its core business. BG Group could experience losses through its various activities with sovereigns, banks and commercial entities. These include: commodities 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 exacerbate country risk and which may cause non-payment of foreign currency obligations to BG Group by governments or government-owned entities, or which may otherwise impact successful project delivery and implementation. In Egypt, as at 31 December 2012, the Group's receivable balance with EGPC was $1.3 billion, of which $0.6 billion was overdue.

The Group considers its credit portfolio and appropriateness of limits, which are monitored centrally for individual and related concentration risk, and mitigation may be considered, where appropriate, to diversify or reduce risk profile.

The financial and credit condition of counterparties (including sovereign entities) 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. Where multiple transactions are undertaken with a single counterparty or group of related counterparties, the Group may enter into a netting arrangement. To mitigate risk on physical commodity trading, the Group seeks to put in place bespoke master netting agreements or standard arrangements appropriate to the local market. Further information can be found in the Financial statements; see note 19, page 111.

DELIVERY OF PROJECTS

Risks to delivering BG Group's projects safely, within scope, cost and budget, are many and varied. Successful delivery of major projects is material to the Group's future growth and substantial delays to, or failure to complete, these projects constitute significant threats to the Group's prospects, reputation and financial position. Significant risks include adverse or extreme weather conditions, sub-surface uncertainties, inadequate scope definition at sanction, insufficient availability or ineffective deployment of resources, competing demands for contractor resources and services, the performance of BG Group's NCJV partners and/or contractors, the uncertainties arising from the application of new technology, commercial (re-)negotiations, conflicts of objectives and priorities with partners or other stakeholders, environmental factors, permitting, compliance with governmental and regulatory requirements, and a deterioration of macroeconomic conditions. In cases where BG Group is not the operator in a NCJV, delivery of projects may be influenced by, but is not fully under the control of, BG Group.

Well engineering, including the drilling, completing or operating of wells, is often uncertain and may be subject to delays, curtailment or cancellation through a variety of factors including unexpected drilling conditions or irregularities in geological formations (pressure, temperature or structure).

BG Group has well-established business processes and standards designed to optimise design and execution strategies and mitigate project risks. Project delivery is subject to various assurance activities prior to the final investment decision (FID) and includes: feasibility studies; concept assessment and selection; and scrutiny of scope definition, project planning, contractor and contracting strategies, constructability and operability reviews, commercialisation options, and risk management and stress-testing of project economics, including against a range of commodity prices, input costs and schedule assumptions.

BG Group has an ongoing programme focused on delivering optimal project management, clear accountabilities and the most appropriate project management capability across the portfolio. Performance is assured against Group-wide mandatory technical Standards, and capital and cost discipline is applied to protect value. The Group seeks to ensure effective partner and stakeholder engagement and alignment across all stages of project delivery to ensure successful outcomes.

Further detail on the specific project delivery risks facing the Group is provided on page 32.

ENVIRONMENT

BG Group's activities may adversely affect the environment through the release of hydrocarbons or chemicals, 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 be adversely impacted (including loss of licences) by drilling, well operations, pipelines and other infrastructure, with a resulting effect on biodiversity. Regulatory measures to tackle loss of biodiversity, together with policies intended to protect local habitats, may limit access to gas and oil in areas deemed to be environmentally sensitive.

There are a range of stakeholder concerns related to the production of unconventional natural gas using hydraulic fracturing techniques. These include the potential for contamination or depletion of local water sources, the long-term impact upon the natural environment and the possibility that unconventional operations may cause minor seismic events. In addition, local communities may raise concerns in relation to the impact on their land and their property rights. As a result, there is a risk that new laws or regulations in this area may be costly to the business, attract adverse publicity or ultimately restrict or prohibit the successful delivery of projects.

While no major events occurred in 2012, BG Group's ability to deliver its plans in Australia depends upon effective treatment and disposal of the water produced. Similarly, in Brazil, the Group's oil spill exposure grows as more oil is produced in the Santos Basin and shuttle tanker operations increase significantly.

BG Group is focused on developing processes to minimise the impact of its operations on local environments and habitats.

EXCHANGE RATES

BG Group reports its financial results in US Dollars. However, a portion of the Group's operating cash flows, capital expenditure and income taxes accrue in (and asset and liability positions are held in) other currencies, including the Australian Dollar (primarily QCLNG project capital expenditure), Brazilian Real (primarily Santos Basin developments capital expenditure) and Pound Sterling.

BG Group is currently spending a large proportion of QCLNG project expenditure in Australian Dollars. The US Dollar equivalent cash expenditure will be dependent on the US/Australian Dollar exchange rate. A 20% appreciation in the Australian Dollar accounted for approximately half the increase in published capex guidance for the QCLNG project for the period 2011-2014 to $20.4 billion.

BG Group denominates a portion of its after-swap borrowings in Pounds Sterling, with the balance of after-swap borrowings denominated in US Dollars. The Group may hedge certain expected cash flows into US Dollars. Currency hedging may also be undertaken in certain cross-border transactions.

Overall, BG Group manages its cash and profit sensitivity to exchange rates as part of an ERM Framework. Specifically, it is recognised that exchange rates and commodity prices are correlated, such that low oil prices tend to coincide with a lower capital expenditure when expressed in US Dollars, and vice versa. This leads to an expected offset between the cash variations arising from oil price movements and the cash variations arising from exchange rate movements. As such, in general, the Group would not expect to hedge its sensitivity of cash flows to exchange rates.

LICENCE TO OPERATE AND THE POLITICAL CONTEXT

Governments, legislators and/or regulators may act or intervene (or fail to act or intervene) in a way that diminishes or destroys value for BG Group. Governments may expropriate assets or property, or alter fiscal or other terms governing oil and gas industry operations, for example, through the imposition of higher taxes, royalties or increased local content or domestic market requirements, especially where they face financial pressures. Governments may also act (or fail to act) in a way that delays project schedules or increases costs, thus eroding value.

BG Group needs to work in partnership with governments and national oil companies in order to secure access to new resources and to ensure the successful monetisation of existing resources. In such cases, political and socio-political considerations can influence decision making.

Public activism, including among previously disenfranchised or disengaged populations in certain territories, has also become more prevalent and, using new channels like social media, can create significant pressure on governments. These developments have increased the likelihood of unforeseen government, as well as legal or regulatory, changes in response to public pressure.

BG Group, therefore, also faces increased risk if it does not recognise, and take account of, the interests of the communities in the areas where it operates, or if it operates in an unethical manner in its relationships with those communities. Across the full range of political and civil society stakeholders, BG Group needs to create, maintain and strengthen its licence to operate in every country where it does business.

In constantly changing political environments, BG Group's risk exposure in this area is continuous and evolving. In 2012, for example, the political and business environments in parts of North Africa remained unstable, state elections in Queensland included debate around the CSG industry, US energy policy featured in the presidential election campaign, and governments and parliaments in East Africa paid increasing attention to the growth of their hydrocarbons industries.

In common with the rest of the extractive industry sector, BG Group can expect to see this area of risk increase over coming years, putting an ever greater premium on maintaining a strong and broad licence to operate.

OPERATIONAL PERFORMANCE

BG Group's production volumes, and therefore revenues, are dependent on the continued operational performance of its producing assets. Those producing assets may not deliver the volumes assumed in the business plan for a number of reasons, including limiting factors relating to reservoir and well performance, and facility, export and commercial capacity. Unplanned outages may also occur, for example, due to equipment failure or human error, while planned shutdowns may take more time than expected to complete. Other factors affecting operational performance include asset integrity and health, safety, security and environment (HSSE) incidents, exposure to natural hazards such as extreme weather events, and political or security events that disrupt the ability of staff and contractors to work. In cases where BG Group is not the sole operator of an asset, operational performance may be influenced by, but is not fully under the control of, BG Group. Furthermore, performance may be impacted adversely by sub-surface and well conditions that mean production at lower than expected rates.

In 2012, instances where risk materialised for BG Group in this area included the decline in production from WDDM in Egypt due to reservoir and well performance issues, and the Elgin/Franklin shut-in due to well integrity issues.

ORGANISATIONAL CAPACITY

BG Group's performance, operating results and future growth depend on its ability to attract, retain, motivate and organise people with the appropriate level of expertise and knowledge, as BG Group pursues its objectives. Competition for talented, and suitably experienced and qualified, specialists in upstream exploration and production 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.

REGULATION, LEGISLATION AND LITIGATION

The oil and natural gas industry is subject to legislation, regulation and intervention by governments worldwide in matters such as financial reporting; the award of exploration and production interests; the imposition of specific drilling obligations; access to facilities; environmental, ethical conduct and health and safety controls; decommissioning; and regulated commodity trading.

Any non-compliance with applicable laws and/or regulations (or new or changed interpretations or enforcement of existing laws or regulations) could lead to regulatory investigations, litigation and/or legal or regulatory sanctions (including financial penalties 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 taxation.

BG Group expects to continue to incur capital and operating expenditure to comply with increasingly complex laws and regulations worldwide, particularly in relation to environmental protection and health and safety. BG Group's business activities are conducted in many different countries and are therefore subject to a broad range of such legislation and regulations. The cost and risks of compliance can therefore be significant.

If BG Group employees, or anyone working on its behalf, violate laws and regulations in jurisdictions in which the Group operates (including laws and regulations with extraterritorial application), the Group may face reputational damage and be subject to penalties, including fines or loss of operating licences.

BG Group faces the risk of contractual disputes and litigation in all the countries in which it operates. BG Group continues to manage litigious disputes in many different countries (see note 24(E) to the Financial statements on page 121).

The risk of corruption is heightened within some of the countries in which the oil and gas industry is active. BG Group's future portfolio composition may change such that corruption risk increases over time. BG Group does not tolerate corruption in any form, whether direct or indirect, and is bound by the requirements of the UK Bribery Act 2010, the US Foreign Corruption Practices Act and local legislation relevant to the Group's assets in the territories in which they operate. Corruption risk is managed by BG Group through an anti-corruption compliance programme across all of BG Group's business activities. The ability to implement the anti-corruption compliance programme is subject to BG Group's control and influence over its business activities, which is less in the Group's non-operated and non-controlled joint ventures. The anti-corruption compliance programme includes training, policies and procedures, risk management, due diligence, contract management, and independent monitoring. In addition, BG Group's Speak Up Policy sets out the whistleblowing and investigations framework which is the basis for how allegations of breaches of laws, regulations and the Group's Policies and Business Principles that are reported to BG Group are handled.

BG Group also has a competition law/anti-trust compliance programme which seeks to ensure that anti-competitive conduct is avoided and any suspected anti-competitive conduct is promptly identified and investigated, with appropriate action taken.

RESOURCES DISCOVERY, ESTIMATION AND DEVELOPMENT

There may be insufficient addition of new resources and reserves to enable future economically viable production and to fuel production growth. Competition for exploration and development rights, and access to gas and oil resources, is intense. Where such rights are awarded, there is no guarantee that hydrocarbons in commercially viable quantities will be discovered.

Maturation of any discovered resources also may not optimise value. The quantity and quality of geological, technical and economic data may ultimately prove to be insufficient or inaccurate for estimating resources and reserves, and the ability to interpret that data appropriately may be limited. Insufficient pre-sanction field appraisal may lead to sub-optimal project sanction and/or field development plans.

Exploration and development activity may also be constrained by unexpected drilling conditions, poor availability of suitable rigs and restrictions on the availability of suitable human or technical resources.

Gas and oil reserves and resources cannot be measured precisely, and the estimation process involves subjective judgements. In joint ventures, estimates may not align with the estimates of total reserves and resources of partners (including operators).

Estimates of reserves and resources may be subject to downward revision. A decline in the price of oil or gas may make reserves and/or resources, previously deemed to be recoverable, uneconomic to develop.

Furthermore, changes to gas and oil prices in fields subject to production sharing contracts may result in revised entitlements.

In addition, actual reservoir performance may be lower than estimated. Changes in tax rules and other government regulations may also result in reserves or resources becoming uneconomic.

BG Group also faces risks from unfavourable unitisation decisions wherever the Group holds an interest 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 an in-depth knowledge of relevant local laws and legislations. Unitisation decisions could also work in the Group's favour.

In 2012, risk associated with changes in oil and gas prices materialised in the US asset, where a non-cash post-tax impairment charge of $1.3 billion was recorded in the second quarter as a result of the weaker outlook for US natural gas prices. In accordance with applicable SEC definitions, the prevailing low Henry Hub gas prices during 2012 also led to a reduction of bookable reserves in the Group's US assets."

Legal Notice

This announcement contains forward-looking statements. By their nature, forward-looking statements involve 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 could 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 (formerly the Financial Services Authority) of the United Kingdom.