Annual Financial Report

BG GROUP PLC PUBLICATION OF DOCUMENTS: 2011 ANNUAL REPORT AND ACCOUNTS AND NOTICE OF ANNUAL GENERAL MEETING TO BE HELD ON 16 MAY 2012

BG Group plc (the Company) has today published its Annual Report and Accounts for the year ended 31 December 2011 incorporating the Notice of the 2012 Annual General Meeting (the 2011 Annual Report and Accounts).

The 2011 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 2011 Annual Report and Accounts has commenced and copies of the 2011 Annual Report and Accounts, together with the notice of availability to shareholders receiving web-communications and the form of proxy for the 2012 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 2012 Annual General Meeting will be held at the Royal Berkshire Conference Centre, Madejski Stadium, Reading RG2 0FL at 11.30 am on Wednesday, 16 May 2012.

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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 2011 (the 2011 Annual Report and Accounts).

The information below, which is extracted from the 2011 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 9 February 2012. 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 2011 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2011 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 2011 Annual Report and Accounts is set out on page 85 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 2011 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 9 February 2012.

"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 54 to 55, confirms that to the best of his or her knowledge:

·; the 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 85 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.

By Order of the Board

Sir Frank Chapman

Chief Executive

Fabio Barbosa

Chief Financial Officer

15 March 2012

Related Party Transactions

The following description of related party transactions is set out on page 129 of the 2011 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.

In the year ended 31 December 2011, the Group received and incurred the following income and charges from these 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 2011, a debtor balance of $40m (2010 $37m) (see note 15, page 115) and a creditor balance of $85m (2010 $169m) (see note 20, page 124) were outstanding with these parties.

In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2011, loans of $1 467m (2010 $1 294m) 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 12, page 113. Interest of $23m (2010 $24m) was charged on these loans during the year at interest rates of between 0.84% and 6.92% (2010 0.95% and 9.95%). The maximum debt outstanding during the year was $1 474m (2010 $1 461m).

A joint venture company provided BG Group with a financing arrangement during the year. As at 31 December 2011, a loan of $92m was due to the joint venture (2010 $97m). The borrowing is classified as a liability held for sale (see note 17, page 116). Interest on the loan of $5m (2010 $6m) was payable during the year at an interest rate of 5.8% (2010 5.8%).

BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2011, the obligation was $144m (2010 $149m) (see note 18, page 116). Interest of $9m (2010 $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 2011, a debtor balance of $4 381m (2010 $3 883m) (see note 15, page 115) and a creditor balance of $50m (2010 $66m) (see note 20, page 124) were outstanding between BG Group plc and other Group undertakings. In 2011, BG Group plc received dividends of $1 258m (2010 $nil) 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 2011, the fair value of equity instruments granted under these schemes and charged to the income statement was $77m (2010 $52m).

Principal risks and uncertainties

The following description of principal risks and uncertainties is set out on pages 46 to 51 of the 2011 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 businesses around the world are exposed to a number of risks and uncertainties, which could, either on their own or in combination with others, potentially 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.

BG Group's current view on the principal risks and uncertainties facing the business is set out on pages 47 to 51.

A summary of the Group's approach to risk management, together with the particular risks on which the Board has focused during 2011, is set out below.

Risk management - balancing risk and reward

Risks and uncertainties are inherent in BG Group's business. The Group recognises that integrated risk analysis and management are crucial to enhancing its performance and competitive advantage. BG Group's approach is aimed at early identification and analysis of potential risks, mitigating identified risks wherever possible, and responding quickly and effectively where risks materialise.

BG Group's approach to risk management

BG Group is committed to an effective risk management approach that protects the Group's business, people and reputation while enhancing shareholder value. One of the key components of the Group's overall Enterprise Risk Management (ERM) Framework is the Business Risk Management Process (BRMP), which is mandatory and operates throughout the Group. Accountability for identifying and managing business risk lies with line management, with overall BG Group Board and Group Executive Committee (GEC) oversight. In 2011, the Group appointed a Chief Risk Officer to lead the ongoing development of the Group's ERM Framework.

Managing an evolving risk profile

BG Group's risk profile continues to evolve as a result of a dynamic external environment, as well as the growth and changes in the Group's portfolio. The main external and internal developments that have impacted BG Group's risk profile since the last annual report, and the Group's response to these changes, are discussed below.

There is turbulence and a high level of uncertainty in the global economy

The financial crisis in the eurozone, the Japanese tsunami and political upheaval in North Africa and the Middle East all contributed to difficult economic conditions in 2011. Economic uncertainty looks set to continue in 2012, and possibly beyond.

With the prospect of a prolonged period of lower growth, or even a return to recession in some countries, there remains the possibility of reduced demand for gas and oil and weaker hydrocarbon prices which could negatively impact BG Group's strategy and trading and financial performance.

In response to this economic uncertainty, BG Group is increasing its sales and marketing operations to markets in Asia and Latin America that are currently more economically resilient. During 2011, the shipment of BG Group LNG cargoes to Asia increased by around 40%. In addition, the Group also signed long-term LNG supply agreements with India and Japan in 2011.

There is significant social and political change in some of BG Group's key countries

2011 saw significant social and political change in regions where BG Group operates, most notably in North Africa. The Group's emergency response processes worked successfully in Tunisia and in Egypt. Nevertheless, in Egypt there was material disruption to normal patterns of gas demand, with a consequent impact on production volumes. In Tunisia, the re-start of the Hasdrubal plant, following planned maintenance, was delayed.

The potential impacts of such social and political change are broad and, in the worst case, could expose the Group to changes in the nature of upstream licensing arrangements. The impact of any such developments on the Group's current and future revenues could be material. As such, political risk and crisis management remain high on the agenda for the BG Group Board and the GEC.

The regulatory regimes in which BG Group operates continue to evolve

BG Group conducts business world-wide and is subject to a variety of regulatory regimes which continually evolve.

BG Group has made material investments in the unconventional gas resource sector in Australia and the USA. The scale of these new unconventional resources, their onshore location, the rapid expansion of the industry and the hydraulic fracturing technology that is often involved in developing these resources, all inform the evolution of regulation in this area to ensure valuable resources are developed responsibly and to minimise environmental harm. Regulatory changes may require additional investment or limit operations, potentially impacting the Group's strategy and constraining Group financial performance - for example, a move by regulators to restrict or prohibit hydraulic fracturing in a particular area where BG Group operates could have a significant impact upon operations.

 BG Group and its industry partners are working with regulators and industry groups to continue to develop clearer standards and better practices. Developing and maintaining effective working relationships with all stakeholders, including regulators, and contributing to the debate on evolving regulation, remains an ongoing priority for BG Group.

BG Group is delivering and financing the largest capital investment programme in its history

BG Group's growth plans to 2020 are based on the successful execution of the Group's programme of major capital projects. In particular, projects in Brazil and Australia will make major contributions to future growth. In order to increase production from around 650 000 boed today to between 1.2 million and 1.6 million boed by 2020, BG Group will be continuing to invest significantly in the period. Funding these major capital projects will need to be underpinned by strong cash flows from operating assets, as well as access to capital markets, as required. The Group will continue to pursue its portfolio rationalisation programme to realise further value, while prioritising its investment spend and capital allocation on areas that can add most value.

BG Group successfully raised $3 billion, £750 million and €1 billion through bond issuances in 2011, demonstrating the attractiveness of the Group's credit and providing material funding. In 2011, the Group's revolving committed facilities, which are held with a diversified group of major banks, were increased and the expiry dates extended in light of the growing scale of the Group's activities. These facilities totalled $4.5 billion at 31 December 2011, of which $2.32 billion expires in 2013 and $2.18 billion in 2016. There are no restrictions on the application of funds under these facilities, which were undrawn as at 31 December 2011. For further details of the Group's financial outlook, see the Financial review on pages 40 to 44.

The major capital projects in BG Group's investment programme are inherently complex, technically demanding, and require effective management of a wide range of stakeholders. Given their importance, the BG Group Board and the GEC receive regular updates on the management, operational and budgetary progress and financing of these projects. As with all of BG Group's projects, de-risking of the capital programme remains a key focus area for the Board and Executive Management.

Important notes

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

·; Not all of these risks and uncertainties are within BG Group's control.

·; Some of the major risks involved in BG Group activities cannot, or may not, reasonably and economically be insured.

·; 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 these processes will be successful in managing these risks effectively or at all.

·; 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 150.

Asset integrity, safety, health and security

Principal risks and uncertainties

Oil and gas exploration and production activities carry significant inherent risks, especially deepwater drilling and operations in high pressure/high temperature wells. Major accidents or incidents and/or the failure to manage these risks could result in injury or loss of life, damage to the environment, and/or loss of certain facilities, with an associated loss or deferment of exploration, production and revenues, as well as 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. Any new laws and regulations may result in BG Group having 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 also faces security threats. Acts of terrorism, piracy or civil unrest which may affect BG Group's plants and offices, pipelines, transportation or computer systems could severely disrupt its business and could cause harm to people.

Information security breaches may also result in the loss of BG Group's commercially sensitive data. 

Commentary

Asset integrity and safety are overriding priorities for BG Group. The Group designs and operates management systems and tools to help it manage risks in these areas. The Group's mandatory HSSE and Asset Integrity Standards are regularly reviewed to ensure they are in line with industry best practice and are embedded in the organisation through extensive training backed up by regular audits and assessments. Contractor 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. 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 which identify and describe the hazards associated with that asset and to have measures in place to manage those hazards.

In order to protect its information, BG Group is continually improving the security of its information technology infrastructure, reviewing key business processes in the context of information security and ensuring there is heightened consideration of information

security in business decisions. In addition, a training and awareness programme is ensuring that staff have an increased awareness and understanding of the threat.

Capital requirements, liquidity and interest rates

Principal risks and uncertainties

BG Group has substantial capital expenditure requirements in its business and operations. The Group's capital requirements depend on a broad range of factors (including, for example, commodity prices, currency exchange rates, acquisitions and proceeds realised from disposals), some of which are 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 BG Group's ability to access finance on attractive terms may be limited. 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 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. 

Commentary

BG Group policy requires a specified minimum amount of revolving committed borrowing facilities. These facilities are used as back-up liquidity to fund operating and capital requirements. In 2011, the Group's revolving committed facilities, which are held with a diversified group of major banks, were increased and the expiry dates extended. These facilities totalled $4.5 billion and were undrawn as at 31 December 2011.

The 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 floating rate. Exceptions to this policy require approval from the Group's Finance Committee. During 2011, in the light of the low interest rate environment, the Finance Committee approved the fixing of a substantial proportion of the Group's debt.

Climate change

Principal risks and uncertainties

Policies and initiatives at national and international level to address climate change are likely to 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 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 BG Group's ability to maintain its position in key markets.

Additionally, new regulatory regimes intended to establish emissions trading schemes could alter hydrocarbon production economics. 

Commentary

Public policy responses to climate change continue to evolve, and BG Group closely monitors developments in this area. The Group's strategy is shaped by its belief that the energy industry will necessarily play a role in the solution to climate change and that natural gas has a recognised contribution to make. Many governments are seeking increased natural gas utilisation as a lower-carbon alternative to coal or oil within the context of their broader climate change mitigation strategies.

BG Group actively identifies projects to minimise GHG emissions across its existing operations and in new developments, including applying best available techniques to help meet its target of a one million tonne sustainable reduction in emissions (compared with a no-action base case) between 2007 and 2012. BG Group also participates in applicable carbon emissions trading schemes. See The way we work section on pages 36 to 39. 

Commodity prices

Principal risks and uncertainties

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

BG 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 undertakes commodity hedging and trading activities, including the use of futures contracts, financial and physical forward-based contracts and swap contracts. The stand-alone 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 LNG, both domestic and international, is dependent upon a number of macroeconomic factors, and LNG prices can vary significantly depending upon the supply and demand balance in a market. 

Commentary

BG Group's sensitivity to oil prices is set to increase due to the contribution from significant oil-related revenues, notably from Brazil, and from oil-indexed LNG sales. However, the Group's portfolio also includes a range of long-term gas contracts that are not directly or immediately linked to short-term changes in commodity prices. Additionally, some LNG purchase contracts contain provisions under which the gas suppliers share price risk with BG Group.

BG Group's US shale gas business is particularly sensitive to US gas price movements. Management considers a further fall in long-term US gas prices could result in a review of the carrying value of its US shale gas business and the potential recognition of an impairment in future periods. BG Group's exposure is mitigated by both price hedges that have been put in place as well as its ability to modify exploration and field development activities.

Projects and investments are screened against a wide range of external sensitivities, including benchmark commodity prices.

Credit

Principal risks and uncertainties

The challenging credit environment witnessed during the past four years has highlighted the importance of managing credit risk. 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. These risks may arise in all forms of commercial agreements and in certain agreements relating to amounts owed for physical product sales, the use of derivative instruments, and the investment of surplus cash balances. The Group is also exposed to political and economic risk events that 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. The impact of credit issues could also lead to the failure of companies in the sector, potentially including partners, contractors and suppliers. Further information can be found in the Financial statements, see note 19, page 118. 

Commentary

Credit exposure risk, including concentration risk and the appropriateness of limits, is monitored centrally for individual transactions. BG Group considers the financial and credit condition of counterparties (including sovereign entities) prior to entering into commercial contracts, trading sales agreements, swaps, futures and options contracts.

BG Group may also seek contractual or other forms of protection or mitigation, including cash collateral, letters of credit, 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. For physical commodity trading, the Group seeks to put in place bespoke master netting agreements or standard arrangements appropriate to the local market. 

Delivery of projects

Principal risks and uncertainties

Successful delivery of major projects is material to BG Group's future growth and substantial delays to, or failure to complete, these projects constitute significant risks to the Group's prospects, reputation and financial position.

Delivery of projects (including in the pre-sanction phase) may be subject to: sub-surface uncertainties; cost and time overruns; HSSE risks; technical (mechanical and engineering), commercial, legal or regulatory compliance failures; equipment shortages; insufficient availability or capability of employees or contractors; unscheduled outages; stakeholder risks; a deterioration of macroeconomic conditions; and transportation pipeline system constraints. Drilling, completing or operating wells is often uncertain and may be subject to delays, curtailment or cancellation due to a variety of factors including: unexpected drilling conditions; pressure or irregularities in geological formations; equipment failures or accidents; adverse weather conditions; and compliance with governmental or regulatory requirements. Those events could result in a failure to deliver sanctioned projects in line with final investment decisions.

Failure to select the most suitable development concept based on a full-lifecycle understanding of the project can expose projects to additional cost and risks, and may contribute to lower than estimated production in future.

In some cases, the cause of delay or cost over-run in project implementation can be the misalignment of partner objectives. BG Group has a number of partner-operated joint ventures in which it participates. The Group's ability to influence the operations of those joint ventures may be limited. The Group faces the risk that actions or omissions on the part of the operators of those joint ventures expose the Group to reputational or legal risk, as well as liabilities.

Political factors can often be a significant risk to project delivery. Unconventional gas, operating in deepwater carbonate reservoirs, and the inherent complexity of some projects given their scale and the number and range of stakeholders, all present further challenges to successful project delivery. 

Commentary

Project delivery is subject to BG Group's internal assurance processes to optimise designs and minimise risk. Due diligence prior to the final investment decision includes: scrutiny of feasibility studies; concept selection and definition; project planning; commercialisation options; and project economics. Projects are screened against a wide range of external sensitivities, including commodity prices and input costs.

BG Group has an ongoing programme focused on ensuring optimal project management, clear accountabilities for delivery and the best possible deployment of project management capability across the portfolio. Performance is assured against Group-wide mandatory technical Standards and strict capital and cost discipline is applied to protect value. The Group seeks to ensure that effective stakeholder alignment enables an adequate degree of control during project construction and operation. 

Environment

Principal risks and uncertainties

BG Group's activities may affect the environment. The potential environmental consequences of the Group's activities include the impact of wells, pipelines and other infrastructure on onshore or marine ecological habitats, with a resulting effect on biodiversity. Measures undertaken 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 biologically sensitive.

Following BG Group's investments in Australia and the USA, water-related issues are more prominent for the Group. In particular, the Group is required to manage numerous issues related to both the disposal of water produced from CSG production and securing and disposing of water related to the hydraulic fracturing process required in the extraction of shale gas.

There are a range of stakeholder concerns related to the production of unconventional gas. These include the potential for contamination or depletion of local water sources, the long-term impact upon the natural environment, including flora and fauna, 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.

There is a risk that the Group may be subject to new laws or regulations in this area which may be costly to the business, attract adverse publicity and ultimately restrict or prohibit the successful delivery of those projects reliant upon this hydraulic fracturing.

Other potential environmental consequences of BG Group's operations include, for example: the release of hydrocarbons or chemicals onto land or into water; noise pollution; the visual impact of gas and oil infrastructure; and the emission of pollutants that affect air quality.

Commentary

BG Group is focused on developing processes to minimise the impact of its operations on local environments and habitats. The Group's Environmental Management System is designed to go beyond compliance with local regulation to meet internationally accepted best practice.

BG Group recognises that an important aspect of working sustainably is to communicate effectively about how the Group manages the risks in its unconventional gas operations. As a result, BG Group has developed a public statement of the Group's approach, including a range of commitments about the way we work to develop resources of unconventional gas responsibly and with minimal impact on the environment.

A key component of BG Group's risk management approach, which is applicable to the development of both conventional and unconventional projects, is the quality not only of the site and the approach to well design but of BG Group's processes and safe working approach. This approach is detailed in The way we work on pages 36 to 39 and in the Sustainability Report, available online.

Exchange rates

Principal risks and uncertainties

The Group reports its financial results in US Dollars. Although a large percentage of the Group's business activity is conducted in US Dollars, a significant portion of the Group's operating cash flows, capital expenditure and/or income taxes accrue in (and asset and liability positions are held in) other currencies, including the Australian Dollar (QCLNG project capital expenditure), Brazilian Real (Santos Basin developments capital expenditure) and Pound Sterling. Specifically, the Group is entering a phase where an increasing amount of QCLNG project expenditure is being incurred in Australian dollars. Consequently, the Group's results and financial position may be significantly affected by exchange rate fluctuations. 

Commentary

BG Group mitigates its exposure to net asset positions in certain currencies other than the US Dollar (primarily, the Brazilian Real and Pound Sterling) by denominating a portion of its after-swap borrowings in such currencies, with the balance of after-swap borrowings denominated in US Dollars. The Group hedges certain expected cash flows into US Dollars. Currency hedging is also undertaken to mitigate currency exposure in certain cross-border transactions. 

Insurance

Principal risks and uncertainties

Risks associated with the energy industry include: exposure to personal injury and loss of life, asset failures, loss of containment 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. Some of the major risks associated with BG Group's activities cannot or may not be reasonably or economically insured. BG Group may incur significant losses from different types of risks that are not covered by insurance. 

Commentary

BG 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. The insurance programme incorporates a captive insurance vehicle. 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. 

Operational performance

Principal risks and uncertainties

BG Group's production volumes (and therefore revenues) are dependent on the continued operational performance of its producing assets. The Group's producing assets are subject to a number of operational risks including: reduced availability of those assets due to planned activities such as maintenance or shutdowns; unplanned outages which may, for example, be due to equipment or human failure; asset integrity and HSSE incidents; lower than expected recovery rates; the performance of joint venture partners; the performance of the Group's contractors; and exposure to natural hazards, such as extreme weather events.

Each of these factors could adversely affect the Group's ability to deliver its operational business and financial performance. 

Commentary

BG Group has mandatory Policies and Standards governing all aspects of its operations, including HSSE and asset integrity. These are supported by assurance processes which are supervised by the Group's technical functions and are applied globally. These Policies and Standards are designed to manage, rather than eliminate, the impact of those risks. 

Organisational capacity

Principal risks and uncertainties

BG Group's performance, operating results and future growth depend to a large extent on its continued ability to attract, retain, motivate and organise appropriately qualified personnel with the level of expertise and knowledge necessary to conduct BG Group's operations. Competition for talented, suitably experienced and qualified management and employees is intense for specialists in oil and gas. 

Commentary

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. 

Political context and stakeholder relationships

Principal risks and uncertainties

BG Group faces a range of political risks. For instance, governments may alter fiscal or other terms governing oil and gas industry operations, especially where they face financial pressures, or may act (or fail to act) in a way that delays project schedules or increases costs, thus eroding value. In addition, BG Group needs to work 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 considerations can influence decision making. In recent years, some governments and state-owned enterprises have exercised greater authority over, and imposed more stringent conditions on, companies pursuing exploration and production activities in host countries, thereby increasing the costs and uncertainties of business operations. Previously disenfranchised or disengaged populations have also become more active and are able, using new channels like social media, to mobilise to pressurise governments in a way that was impossible in the past. These developments have increased the possibility of unforeseen regime, as well as legal or regulatory, changes as governments and authorities respond to public pressure. BG Group 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.

Commentary

The commitments in BG Group's Business Principles form the basis of the Group's efforts to address these issues and are summarised in The way we work on pages 36 to 39 and in the Sustainability Report, available online.

BG Group seeks to ensure that governments and national oil companies see it as a partner of choice. The Group aims to understand its stakeholders' priorities and interests and seeks alignment with them wherever possible, while making it clear that contract sanctity and stability are essential to attract and underpin direct foreign investment.

BG Group also endeavours to ensure that its portfolio is appropriately diversified as a mitigant against potential instability within specific countries or regions where the Group has an interest. 

Regulation and legislation

Principal risks and uncertainties

BG Group's business activities are conducted in many different countries and are therefore subject to a broad range of legislation and regulations. Any non-compliance by the Group with applicable laws and/or regulations could lead to legal or regulatory sanctions, as well as reputational damage. The need to comply with any new or revised laws or regulations (or new or changed interpretations or enforcement of existing laws or regulations) may have a material impact on the Group's business and financial position. Compliance with such laws and regulations may impose additional costs on the Group's business and could potentially restrict or prohibit its business operations and/or practices. In addition, in some countries, governments are facing greater pressure on public finances, leading to a risk of increased taxation.

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

Commentary

BG Group's Business Principles require the Group to comply with legal, regulatory and licence requirements in the countries in which it operates. 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.

The company has an anti-corruption compliance programme which seeks to manage corruption risk across BG Group's business activities. The compliance programme includes components which recognise the requirements of the UK Bribery Act 2010 and which focus on training, monitoring, risk management and due diligence. 

Resources discovery, estimation and development

Principal risks and uncertainties

Delivery of production growth depends upon a number of factors, 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; and adequate human or technical resources. Competition for exploration and development rights, and access to gas and oil resources, is intense. A failure to secure appropriate new resources could impact upon the Group's production growth prospects beyond the next decade.

Gas and oil reserves and resources cannot be measured exactly since estimation of reserves and resources* involves subjective judgements, may not align with the estimates of total reserves and resources of BG Group's joint venture partners (including operators), and may be subject to downward revision. Factors that may lead to such revisions include: a decline in the price of oil or gas which may make reserves and/or resources uneconomic to develop; changes in gas and oil prices in fields subject to production sharing contracts which may result in changes to entitlements; the quality and quantity of the Group's geological, technical and economic data may prove to be inaccurate; and the Group's ability to interpret that data appropriately may be limited. In addition, actual production performance may be lower than estimated. Changes in tax rules and other government regulations may also result in reserves or resources becoming uneconomic. 

* For more information see page 136.

Commentary

BG Group operates a ranking process to select prospect resource inventory opportunities for exploration drilling. This process is overseen by the Exploration and Appraisal Committee which reviews these opportunities against a set of multiple risk criteria, including technical, commercial, economic and political factors, to assess their potential for development.

Changes to the Group's reserves or discovered resources figures are overseen by the Corporate Reserves Group (CRG). The CRG is responsible for performing independent reviews of all reserves and discovered resources estimates and supports the Reserves Committee, which reviews and endorses the Group's total resources estimates. The Reserves Committee reports annually to the Audit Committee on the adequacy of the Group's reserves and resources process. For further details of the Reserves Committee, see Corporate governance on page 58."

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 are within the Company's control or can be predicted by the Company. 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. 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. The Company is subject to the regulatory requirements of the Financial Services Authority of the United Kingdom.