30th Mar 2010 07:00
BG GROUP PLC
30 March 2010
BG GROUP PLC PUBLICATION OF DOCUMENTS: 2009 ANNUAL REPORT AND ACCOUNTS AND NOTICE OF ANNUAL GENERAL MEETING ON 12 MAY 2010
In accordance with Listing Rule 9.6.1, BG Group plc (the "Company") has today submitted to the UK Listing Authority two copies of the following document:
- Annual Report and Accounts for the year ended 31 December 2009
The above document incorporates the Notice of Annual General Meeting to be held on 12 May 2010.
The Annual Report and Accounts for the year ended 31 December 2009 are attached to this announcement as a PDF file and are also available on the BG Group website at www.bg-group.com/reports
http://www.rns-pdf.londonstockexchange.com/rns/3673J_1-2010-3-29.pdf
The document will shortly be available for inspection at the UK Listing
Authority's Document Viewing Facility which is situated at: The Financial
Services Authority, 25 The North Colonnade, Canary Wharf, London, E14 5HS.
The Notice of Annual General Meeting for 2010 includes a resolution to amend the Articles of Association with effect from the conclusion of the meeting. Copies of the proposed revised Articles of Association have been forwarded to the Financial Services Authority in accordance with
Disclosure and Transparency Rule 6.1.2 and are available on our website at www.bg-group.com/reports
_______________________________________________________________
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 2009 (the "2009 Annual Report and Accounts").
The information below, which is extracted from the 2009 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 Preliminary Announcement issued on 5 February 2010. 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 2009 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-reference in the 2009 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 2009 Annual Report and Accounts is set out on page 64 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 2009 Annual Report and Accounts. It is not connected to the extracted and summarised information presented in this announcement and in BG Group plc's Preliminary Announcement that was published on 5 February 2010.
"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 38 to 39, confirms that to the best of his or her knowledge:
• the Group Financial Statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union, 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 64 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
Frank Chapman
Chief Executive
Ashley Almanza
Chief Financial Officer
10 March 2010"
Related Party Transactions
The following description of related party transactions is set out on page 106 of the 2009 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 2009, the Group received and incurred the following income and charges from these joint ventures and associates:
|
|
2009 |
2008 |
||
|
|
Income £m |
Charges £m |
Income £ |
Charges £ |
|
LNG |
81 |
(521) |
145 |
(733) |
|
Other |
45 |
(13) |
75 |
(10) |
|
|
126 |
(534) |
220 |
(743) |
As at 31 December 2009, a debtor balance of £22 m (2008 £50 m) (see note 15, page 93) and a creditor balance of £13 m (2008 £38 m) (see note 19, page 102) were outstanding with these parties.
In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2009, loans of £930 m (2008 £934 m) 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 92. Interest of £21 m (2008 £32 m) was charged on these loans during the year at interest rates of between 0% and 9.95% (2008 0% and 9.95%). The maximum debt outstanding during the year was £94.6 m (2008 £934 m). A joint venture company provided BG Group with a financing arrangement during the year. As at 31 December 2009, a loan of £62 m was due to the joint venture (2008 £72 m). The borrowing is disclosed in note 17, page 94. Interest on the loan of £4 m (2008 £0.5 m) was payable during the year at an interest rate of 5.8%.
BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2009, the obligation was £95 m (2008 £110 m) (see note 17, page 94). Interest of £6 m (2008 £5m ) was paid during the year in respect of this lease. The lease expires in 2027. Amounts outstanding between the parent company and subsidiary undertakings as at 31 December 2009 are given in note 15, page 93 and note 19, page 102.
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.
Principal Risks and Uncertainties
The following description of principal risks and uncertainties is set out on pages 30 to 33 of the 2009 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.
This section provides a description of the principal risks and uncertainties that could have
a material adverse effect on BG Group's strategy, performance, results, financial or trading
condition and/or reputation.
BG Group's businesses around the world are exposed to a number of risks and uncertainties, each of which could potentially have a material adverse effect on the Group's strategy, performance, results, financial or trading condition and/or reputation. It is important to note that:
• the summary of principal risks and uncertainties, set out below, 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;
• while the Group has developed processes for identifying and managing risk, it is not possible to be certain that those processes will be successful in fully mitigating all relevant risks. These processes provide reasonable, rather than absolute, assurance and are designed to manage, rather than eliminate, risk; and
• the Group may also be affected adversely by other risks and uncertainties besides the principal risks and uncertainties listed here.
Shareholders should consider the principal risks and uncertainties described in this section in conjunction with the Legal Notice set out on page 130.
The Group's evolving risk profile
In common with all companies, BG Group's risk profile is determined by a combination of the Group's own strategy and actions, together with the effects of changes to the external business environment within which it operates. As explained on page 15, BG Group expects the challenging global market conditions of 2009 to continue through 2010.
Although some countries are demonstrating a return to economic growth, there remains the risk of a 'double dip' global recession which could cause a prolonged period of reduced demand for gas and oil in some key markets and an associated period of depressed commodity prices. Delivery of the growth potential from the portfolio outlined on page 15 will depend to a significant extent upon the successful discovery, appraisal and development of reserves and resources, together with the successful planning, execution and operation of various development and expansion projects. Project delivery also depends on BG Group aligning its objectives with those of host governments, joint venture partners and other key stakeholders to minimise the potential for political and partner risk to undermine business plans. In that regard, it is relevant that the Group's overall geopolitical risk exposure has improved in recent years as a consequence of portfolio restructuring, particularly the rapid growth of the Group's material business interests in Australia, Brazil and the USA.
These and other principal risks and uncertainties are discussed in more detail on pages 31 to 33.
Risk management
BG Group's ability to protect and grow shareholder value depends on the successful delivery of the Group's business objectives. In turn, this depends on the extent to which the Group is effective in identifying, assessing and managing risk across the business. BG Group has established a formal Group-wide Business Risk Management Process (BRMP) which is designed to ensure that the Group actively considers and manages internal and external risks in all locations and at all levels of the organisation.
The BRMP is designed to facilitate the systematic and continuous identification, analysis, mitigation, monitoring and communication of those risks which could threaten the Group's ability to deliver its objectives. The BRMP is a mandatory internal control across BG Group. Further details of the Group's Internal Control Framework, and the assurance processes that have been designed to ensure the Group operates within an effective control environment, can be found on page 48.
The Audit Committee oversees the Group's risk management framework and the Governance Committee assesses the effectiveness of the risk processes that operate within it. The Group Executive Committee (GEC) allocates accountability between its members for the identification and management of risks across the Group.
The management of specific risks is a line responsibility, however, risks are monitored at a Group level by the relevant Group technical and professional functions and by the Group's executive sub-committees such as the Group Performance Committee and the Energy Trading and Credit Risk Committee.
The upheaval in global markets since 2008 has underlined the importance of ensuring that business strategy takes appropriate account of macro-economic risks as well as operational risks. The GEC undertakes a review of strategic risks on an annual basis, and this forms a key part of the Board's annual strategy review. Further detail on the Board's review of BG Group's strategy can be found on page 43. Risk information is shared across the organisation to ensure that the Group's business units are aware of the wider risk environment when assessing the challenges, risks and uncertainties in their own areas of responsibility. Further details of the Board's assessment of the effectiveness of BG Group's internal control environment, including the controls which contribute to the identification or mitigation of risk, can be found on page 49
Commodity prices
Principal risks and uncertainties
BG Group's cash flows and profitability are sensitive to natural gas, crude oil and liquefied natural gas (LNG) prices (and related price spreads)which are dependent on a number of factors that have an impact on world supply and demand. The Group's exposure to commodity prices also varies according to a number of other factors, including the mix of production and sales. The Group estimates that, other factors being constant, a $1.00 rise (or fall) in oil prices would increase (or decrease) operating profit in the Group's Exploration and Production (E&P) business in 2010 by approximately $90 million to $110 million. Rapid movement in commodity prices has led to sales prices becoming disconnected from costs in recent years, especially as falls in industry costs (for materials, goods and services from industry suppliers and manufacturers) can lag behind falls in commodity prices. This puts pressure on investment and project economics that depend in part upon the degree and timing of commitments to particular cost structures.
Commentary
The Group's sensitivity to oil prices is set to increase due to the contribution of significant amounts of oil-related revenue, notably from Brazil. 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. 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 gas supply portfolio, the Group undertakes commodity hedging and trading activities, including the use of natural gas futures contracts, financial and physical forward-based contracts and swap contracts. Projects are screened against a wide range of external sensitivities, including benchmark commodity prices.
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 health, safety, security and environmental (HSSE) incidents; adverse reserves recovery from the field; the performance of joint venture partners; the performance of our contractors; and exposure to natural hazards, such as extreme weather events.
Commentary
The Group has mandatory policies and standards governing all aspects of operation, including HSSE and asset integrity. These are supported by assurance processes which are supervised by the Group's technical functions and are applied globally.
Reserves development and project delivery
Principal risks and uncertainties
The Group's ability to deliver production growth could be affected by a number of factors, including: reservoir quality and performance; inaccurate interpretation of received data; unexpected drilling conditions or costs; rig availability; or inadequate human or technical resources. During the pre-sanction phase, projects are subject to a number of sub-surface, engineering, stakeholder, financial, macroeconomic, commercial, legal and regulatory risks. Principal risks prior to sanction include failure to fully appreciate sub-surface, project schedule and cost uncertainties. Failure to select the most suitable development concept, based on a full lifecycle understanding of the project, can expose projects to additional risk and cost. Subsequent delivery of projects may be subject to cost and time overruns; HSSE risks; technical, commercial, legal or regulatory compliance failures; equipment shortages; the availability, competence and capability of human resources and contractors; unscheduled outages; mechanical and technical difficulties; and gas pipeline system constraints. In many cases, the cause of delay or cost overrun in project implementation can be the misalignment of partner objectives. Political factors can also often be a significant risk to project delivery. The Group's move into unconventional gas (such as shale and coal seam 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
Development planning and project delivery are subject to 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 stakeholder issues (such as issues relating to partner alignment), commodity prices and input costs. The 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.
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 away which delays project schedules or increases costs, thus destroying value. In addition, BG Group needs to work together with governments and national oil companies in order to secure access to new resources and ensure the successful monetisation of existing resources. In such cases, political considerations can influence decision making. Similarly, BG Group will be exposed to risk if it does not recognise, and take account of, the interests of the communities in the areas where it operates. BG Group's operations will only be sustainable and successful over the long term if its local stakeholders see benefit from them and support the Group's presence.
Commentary
The commitments in BG Group's Business Principles form the basis of the Group's efforts to address these issues and are summarised on pages 34 to 37 and in the Sustainability Report, published at www.bg-group.com/sustainability Under those commitments, BG Group seeks to:
• apply the highest standards of conduct to all of its activities;
• set safety as an overriding priority at all times;
• act as a model employer;
• work closely with local communities; and
• follow international best practice on environmental issues.
From this starting point, BG Group works to ensure that governments and national oil companies see it as a partner of choice. The Group seeks to understand their priorities and interests and seek 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 aims to ensure that its portfolio is appropriately diversified. In that respect, expansion in Australia, Brazil and the USA, has changed positively the overall balance of political risk.
Interest rate and liquidity risk
Principal risks and uncertainties
BG Group's financing costs may be affected by interest rate volatility. The Group is also exposed to liquidity risks, including risks associated with refinancing borrowings as they mature, the risk that borrowing facilities are not available to meet cash requirements and the risk that financial assets cannot readily be converted to cash without loss of value. Failure to manage financing risks could have a material impact on the Group's cash flow, balance sheet and financial position.
Commentary
The Group's interest rate management policy requires that borrowings are substantially floating rate. Exceptions from this policy require approval from the Group's Finance Committee. The Group maintains adequate committed borrowing facilities and holds its financial assets primarily in short-term, highly liquid investments that are readily convertible to known amounts of cash. The Group imposes limits on the amount of borrowings that mature within any specific period.
Exchange rates
Principal risks and uncertainties
BG Group's financial results up to and including the results for the financial year ended 31 December 2009 have been reported in Pounds Sterling. A significant majority of the Group's business activity is conducted in US Dollars, and the Group holds substantial US Dollar denominated assets, as well as other non-Sterling assets and liabilities. Consequently, the Group's results and financial position were affected by exchange rate fluctuations. From 1 January 2010, the Group will report its financial results in US Dollars. As a result of business activities, and asset and liability positions, conducted or held in other currencies, the Group's results and financial position will continue to be affected by exchange rate fluctuations.
Commentary
The Group mitigates its exposure to certain currencies other than the US Dollar (primarily Pounds Sterling, the Brazilian Real and the Australian Dollar) by denominating a portion of its after-swap borrowings in such currencies, with the balance 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.
Credit
Principal risks and uncertainties
The challenging credit environment witnessed during the past two 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, which may cause non-payment of foreign currency obligations to BG Group by governments or government-owned entities, or 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.
Commentary
Credit exposure risk is monitored centrally for individual transactions including concentration risk and the appropriateness of limits. The Group considers each counterparty's (including sovereign entities'), financial and credit condition prior to entering into commercial contracts, trading sales agreements, swaps, futures and options contracts. The Group may also seek contractual or other forms of protection or mitigation, including cash collateral, letters of credit, security over assets 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.
Health, Safety, Security and Environment (HSSE)
Principal risks and uncertainties
Upstream production of hydrocarbons, and the management of them midstream, and downstream, present a number of HSSE risks and the inherent potential for major accidents or incidents. These include: asset integrity failure, leading to a loss of containment of hydrocarbons and other hazardous materials; personal health and safety; natural disasters and pandemics; and breaches of security. The Group often operates in harsh and remote working environments. Major accidents or incidents and/or the failure to manage these risks could result in injury or loss of life, damage to the environment, or loss of certain facilities with an associated loss or deferment of production and revenues. Access to gas and oil resources may be affected by developments in policies intended to protect local habitats.
Commentary
Safety and asset integrity are overriding priorities for the 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 in their own operations. Further details of the Group's approach to HSSE are set out in The way we work section on pages 34 to 37.
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 types of energy 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 energy industry. Policy approaches that promote the usage of alternative energy sources (such as renewables, biofuels, hydro-electric power and nuclear power) may have an impact on 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 the Group closely monitors developments in this area. Group strategy takes account of the fact 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. The Group seeks to leverage its core competence across the gas chain to capitalise on the opportunity gas offers in reducing global GHG emissions. Assessments of physical and economic risks, reviews of scenarios for future uses of energy as well as the current and future policy environment, all play a part in our response to climate change. The Group actively identifies and carries out projects to minimise GHG emissions across its existing operations and in new developments, including applying 'Best Available Techniques' to help meet a Group target of a one million tonne reduction in emissions (compared to a 'no-action' base case) between 2007 and 2012. All new developments take into account national and international initiatives to reduce GHG
emissions, including the opportunity to participate in applicable carbon-emissions trading schemes. Further details of the Group's approach to climate change are set out in the BG Group Sustainability Report, available online at www.bg-group.com/sustainability
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.
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