Annual Financial Report

BG GROUP PLC

ANNUAL REPORT AND ACCOUNTS 2014 AND NOTICE OF ANNUAL GENERAL MEETING 2015

BG Group plc (the Company) has today published its Annual Report and Accounts for the year ended 31 December 2014 incorporating the Notice of the 2015 Annual General Meeting (the 2014 Annual Report and Accounts).

The 2014 Annual Report and Accounts can be viewed at or downloaded from the BG Group website at www.bg-group.com/reports

The mailing to shareholders of the 2014 Annual Report and Accounts has commenced and in accordance with Listing Rule 9.6.1 copies have been submitted to the UK Listing Authority and will shortly be available for inspection from the National Storage Mechanism, which can be accessed at www.morningstar.co.uk/uk/NSM

The Company's 2015 Annual General Meeting will be held at the Hilton Reading Hotel, Drake Way, Reading RG2 0GQ at 11.00 am on Tuesday, 5 May 2015.

EXPLANATORY NOTE AND WARNING

The primary purpose of this announcement is to inform the market about the publication of the Company's 2014 Annual Report and Accounts. 

The information below, which is extracted from the 2014 Annual Report and Accounts, is provided in accordance with Disclosure and Transparency Rule (DTR) 6.3.5 and the requirements it imposes on issuers as to how to make public annual financial reports. It should be read in conjunction with the Company's Fourth Quarter and Full Year Results Announcement issued on 3 February 2015. 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 2014 Annual Report and Accounts. Page numbers and cross-references in the extracted information below refer to page numbers and cross-references in the 2014 Annual Report and Accounts.

INFORMATION REQUIRED BY DTR 6.3.5

Statement of Directors' Responsibilities for Preparing the Financial Statements

The following statement which was prepared for the purposes of the 2014 Annual Report and Accounts is set out on page 81 of that document. As set out above, this statement is repeated here solely for the purposes of complying with DTR 6.3.5. This statement relates to and is extracted from the 2014 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 3 February 2015.

"Pursuant to Rule 4.1.12 of the DTRs, each of the Directors, the names and functions of whom are set out on pages 46 and 47, confirms that to the best of his or her knowledge:

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

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

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

The Strategic report and Directors' report have been approved by the Board and signed on its behalf by the Chief Executive and Chief Financial Officer on 18 March 2015.

By order of the Board

Helge Lund

Chief Executive

Simon Lowth

Chief Financial Officer

18 March 2015"

Related Party Transactions

The following description of related party transactions is set out on page 126 of the 2014 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:

(a) On the adoption of IFRS 11 'Joint Arrangements', the Group has reclassified the comparative disclosures given in 2013 to exclude relationships that are now deemed to be 'Joint Operations' and fall outside of the scope of IAS24 'Related Party Disclosures'. The impact of excluding these items were as follows: LNG cargo purchases, and other related costs from $717m to $601m, Shipping, transportation and other related income from $90m to $5m and Shipping, transaction costs and other related costs from $113m to $47m.

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 2014, a debtor balance of $42m (2013: $69m) (see note 15, page 114) and a creditor balance of $258m (2013: $109m) (see note 19, 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 2014, loans of $353m (2013: $714m) were due from joint ventures and associates. These loans are accounted for as part of BG Group's investment in joint ventures and associates and disclosed in note 13, page 113. Interest of $9m (2013: $10m) was charged on these loans during the year at interest rates of between 1.25% and 3.99% (2013: 1.26% and 4.06%). The maximum debt outstanding during the year was $714m (2013: $715m).

BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2014, the obligation was $130m (2013: $135m). Interest of $7m (2013: $9m) was paid during the year in respect of this lease. The lease expires in 2027.

BG Group has operating lease arrangements with associate companies in respect of FPSOs. As at 31 December 2014, the obligation was $3 846m (2013 restated: $2 649m). Charges paid during the year in respect of these leases are presented as E&P operating costs in the table. The last of these leases expires in 2029 (2013: 2029).

William Backhouse, the son of Peter Backhouse, a former Non-Executive Director who resigned during 2014, was 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 2014, a debtor balance of $1 786m (2013: $2 881m) (see note 15, page 114) and a creditor balance of $23m (2013: $28m) (see note 19, page 124) were outstanding between BG Group plc and other Group undertakings.

BG Group plc grants equity instruments to subsidiaries' employees in respect of equity-settled employee share schemes. In 2014, the fair value of equity instruments charged to the income statement was $70m (2013: $74m)."

Principal risks and uncertainties

The following description of principal risks and uncertainties is set out on pages 34 to 41 of the 2014 Annual Report and Accounts. As set out above, this description is repeated here solely for the purpose of complying with DTR 6.3.5.

"Effective identification, assessment and management of BG Group's principal risks and uncertainties, the implementation of associated controls and the monitoring of sources of assurance, is integral to how the Group runs its business.

The Board has considered carefully the nature and extent of the risks and uncertainties it is willing to take in achieving the Group's strategic objectives.

To help stakeholders understand the Group's principal risks and uncertainties, we provide a commentary on why the risk might materialise, what impact the risk might have on the Group should the risk materialise, and how the Group mitigates the risk. This commentary is a summary of the main factors and should not be considered as being exhaustive. Please refer to the Important notes on page 41.

See our Corporate Governance report on page 51 for more information. The chart on page 58 describes the Group's Enterprise Risk Management Framework in more detail.

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

The ERM Framework is the process by which we:

· Define risk appetite: the Board and Executive Management Committee (EMC) determine the extent to which the Group is willing to accept and manage those risks and uncertainties in the pursuit of its strategic objectives;

· Identify and assess risks: the nature and extent of the Group's principal risks and uncertainties are identified, analysed and assessed;

· Design and execute controls: the Group puts in place appropriate control systems directed at mitigating those risks and uncertainties;

· Monitor risks and assure controls: the management and mitigation of risks and uncertainties are monitored and associated internal controls are assured in the short and longer term through ongoing Board and management oversight and performance review processes. The effect of uncertainty on the Group's cash flow and earnings profiles is modelled and used as an input to decision-making; and

· Take and track actions: ensure appropriate actions are taken to strengthen controls and reduce risk.

BG Group seeks to embed effective risk management within the Group's management and governance processes through the application of a 'Three Lines of Defence' model to manage and mitigate risk and assure preventative and containment controls.

FIRST LINE OF DEFENCE

Corporate functions set requirements for risk management and internal control through the ERM Framework. These requirements are assured, implemented and operated by management at BG Group assets and functions around the globe, who have primary accountability for the operation of controls to mitigate risk. Each asset identifies the inherent risks to its business, and the potential causes and impact, and then considers the related preventative and containment controls to mitigate the risk to an acceptable residual level.

SECOND LINE OF DEFENCE

Technical and functional experts provide management assurance over aspects of first-line controls, resulting in formal reports and actions that are tracked to closure.

THIRD LINE OF DEFENCE

Independent assessment and reporting on the effectiveness of the Group's risk management and internal control system is provided to the Board or Audit Committee by Group Audit.

This is augmented by independent external oversight provided by Ernst & Young LLP and Miller & Lents Ltd.

The Board, EMC and Audit Committee provide oversight and direction in accordance with their respective responsibilities.

THE RISK MANAGEMENT ENVIRONMENT

The falls in commodity prices seen in the second half of 2014, demonstrate the risks associated with operating in the global energy markets and the benefits of having a robust ERM Framework through which the Group's principal risks and uncertainties are identified and managed. The current lower-price environment puts pressure on the Group's revenues, cash flows and balance sheet and, in mitigation, the Group will be focusing on optimising capital expenditure through capital discipline and rigorous project and investment appraisal at lower commodity price sensitivities. The Group must also retain flexibility to adapt its plans for further cyclical changes in the external environment.

Commodity price risk was identified as one of the principal risks and uncertainties on which the Board focused in 2014. The Group recognises that the low commodity price environment may also increase exposure to a number of other risks, such as our ability to: (i) access capital and liquidity; (ii) add new resources and reserves to the portfolio through existing and new exploration opportunities; (iii) take final investment decisions on major growth projects; and (iv) execute our portfolio management plans. In response, the Group (in close consultation with the Board) has identified, and will seek to manage, mitigations to help to ensure arobust and flexible funding plan for the business. These measures will include a focus on operational delivery, driving efficiencies and cost savings, tight management of capital investment, and ensuring strong liquidity.

The success of our ventures in Brazil and Australia remain key elements to the future growth of the Group. In Australia, we are approaching completion of the initial phases of the capital investment programme for the QCLNG project. In the Santos Basin in Brazil, we now have three FPSOs on plateau production and have started up two more. Both Australia and Brazil have relatively low cash costs of production which helps to underpin cash generation in a relatively low commodity price environment. However, they are large and complex projects (technically and commercially) and their scale produces concentration risk in the Group's overall portfolio. In this context, the Group recognises the need to maintain a sharp focus on areas such as fiscal risk and government take risk and on our partner relationships, especially where we are not operator. In Brazil, we are closely monitoring how the current corruption allegations affecting Petrobras may impact the cost and schedule of the Santos Basin developments because of supply chain disruption and/or capital and liquidity constraints placed on Petrobras.

The nature of these risks, and how the Group seeks to manage and mitigate them, is explained further in this report.

The principal risks and uncertainties upon which the Board and EMC has been focused in 2014, and will continue to spend much of its time in 2015, are described below.

ASSET INTEGRITY, SAFETY, HEALTH AND SECURITY

Risk description

A major accident hazard event in a BG Group venture, including major process safety and asset integrity related events. An occupational safety or health incident in a BG Group venture. A BG Group venture may be subject to violent attack, demonstrations or blockades or may be unable to operate as expected due to major in-country disruption (war, civil disorder, revolution).

Why this risk might materialise

· Action by malicious group or person, including terrorism.

· Operating in countries with inherent health issues.

· Inconsistent application of standards or implementation and operation of management systems.

· Issues with resource competency.

· Failure to maintain assets appropriately.

· Assets operating outside their design envelope.

· Reliance on the operator in non-operated joint ventures.

What impact the materialisation of this risk might have on the Group

· Employee, contractor or civilian fatality.

· Environmental damage.

· Litigation by individuals or action by local authorities or host nation, potentially leading to fines and penalties.

· Damage to Group reputation, potential threat to Licence to Operate.

· Business interruption, lost production and associated lost revenues.

· Cost and/or schedule overruns.

How the Group mitigates this risk

· Development and application of an HSSE Management System Framework and the Safety Case process.

· Contractor selection and management processes, with identification of high HSSE risk contracts for increased focus and assurance.

· Competence Assurance Management System.

· HSSE and Asset Integrity audit processes.

· HSSE risk assessments.

· Emergency response, crisis response and oil spill response plans.

· Engineering solutions, for example fire and gas detection systems, shutdown systems.

COMMODITY PRICE RISK

Risk description

Movements in hydrocarbon prices may have an adverse financial impact.

Why this risk might materialise

· Changes in global supply and demand for hydrocarbons, including those due to technological change.

· Macroeconomic developments.

· Geopolitical developments.

· OPEC policy.

What impact the materialisation of this risk might have on the Group

· Pressure on Group revenues, cash flows and balance sheet.

· Consequent loss of value for our hydrocarbon assets.

· Pressure on, and potential for downgrading of, Group credit ratings.

· Pressure on development project economics and reductions in our capital investment programme.

How the Group mitigates this risk

· Driving efficiencies and cost savings.

· Robust funding plans and adequate committed funding lines based on the Group's view of price uncertainty.

· Flexible investment options which can be exercised or deferred depending on expected future cash flow.

· Investments judged against a range of potential market outcomes, with more rigorous project and investment appraisal in a low commodity price environment.

· Selective use of hedging.

PARTNER RELATIONSHIPS

Risk description

Dependence on, inability to influence, or misalignment with partners. Where we are dependent on our partners, progress with our ventures may be hampered by events impacting our partner but unrelated to the Group. Note that Petrobras is subject to investigations regarding allegations related to several large (mainly construction) contractors forming a cartel and paying bribes in order to secure contracts. BG Group is monitoring the situation, including the potential impact of supply chain disruption and/or capital and liquidity constraints placed on Petrobras.

Why this risk might materialise

· BG Group enters into ventures where it is not the operator or does not have full operational control.

· Limited rights under joint operating agreements (JOAs) as a result of poor negotiation or inherently weak negotiating positions.

· Inadequate due diligence.

What impact the materialisation of this risk might have on the Group

· In general, the Group fails to deliver its business or development plans and stated objectives due to partner misalignment.

· Potential for competing objectives, priorities and decision-drag.

· Potential reputational damage in the event of our partner having a major operational or ethical conduct event in a non-operated joint venture environment.

· There may be cost and schedule overruns because of partners' restricted access to funding and/or the impact of supply chain disruption.

How the Group mitigates this risk

· Decision-making process regarding strategic partner selection and associated due diligence processes.

· Drafting, reviewing and sign-off of JOAs to preserve BG Group's rights and powers.

· Stakeholder management and influencing through the development of effective working relationships and through the strength of BG Group's technical skills and knowledge.

· Diligent exercise of BG Group's rights under the JOAs and its powers in joint venture governance structures (for example in Operating Committees).

· Close monitoring of partner activities, processes and progress, including through creation of shadow teams in non-operated joint venture environments, where appropriate.

FISCAL RISK AND GOVERNMENT TAKE

Risk description

Governments and their agencies may act in a way that reduces or extracts value from BG Group at a level greater than that assumed in the business plan, including through contract renegotiation, expropriation, increased taxation or other action.

Why this risk might materialise

· Government desire for a greater share of created value.

· Government response to domestic political pressures.

· Misalignment between the Group, governments and their agencies.

· Weak or damaged Licence to Operate.

What impact the materialisation of this risk might have on the Group

· Loss of value through government action which may take the form of: the imposition of new taxes; more aggressive implementation of existing tax regimes; contract renegotiation or reinterpretation; total or creeping expropriation; domestic market obligations; local content requirements; licence and permit fees; local levies; social investment requirements; and/or fines and penalties.

How the Group mitigates this risk

· Creation and maintenance of a strong Licence to Operate.

· Stakeholder management and in-country engagement.

· Social performance programmes.

· BG Group's Political Risk and Government Relations Standard focuses assets and projects on the identification of the major political risks facing them.

· Quarterly due diligence reviews, with monitoring of litigation, contingent liabilities and other exposures.

INSUFFICIENT EXPLORATION SUCCESS

Risk description

Insufficient addition of new resources and reserves to the portfolio to enable future economically viable production and to fuel production growth.

Why this risk might materialise

· Limited and challenging opportunities to obtain new resources economically in a low-price environment.

· Failure to access licences.

· Execution failures, for example drilling or well results.

· Failure to meet licence commitments.

· Insufficient resourcing or capabilities.

What impact the materialisation of this risk might have on the Group

· Lack of reserves replacement, leading to decline in production levels.

· Potential inability to meet contractual supply obligations and the associated costs of making good such shortfalls.

· Reputational damage.

· Reduced future investment options.

· Potential reduced portfolio diversification.

How the Group mitigates this risk

· Robust technical and commercial opportunity screening processes, overseen by our Exploration & Appraisal Committee.

· Global New Ventures team maintains focused approach to acreage acquisition via licence rounds, farm-ins and inorganic growth opportunities.

· Global technology strategy.

· Subsurface assurance programmes.

· Well planning and risk assessment processes.

· Strategic resourcing plan.

PROJECT DECISION AND DELIVERY

Risk description

Poor decision making regarding project selection. Projects may be sanctioned based on incorrect assumptions or inadequate information. Maturation of discovered resources may not optimise value, due to inappropriate concept selection or inadequate appraisal. Capital development projects may be delivered late, over budget or with sub-standard levels of operating reliability.

Why this risk might materialise

· Failure to articulate and apply objective risk and value screening criteria consistently.

· Focus on delivery objectives may limit front-end analysis.

· Insufficient early-stage technical assurance and risk analysis.

· Overly optimistic project sanction case or business plan.

· Poor contract strategy, contractor selection, or poor contractor performance.

· Inadequate resourcing.

· Poor management of change in the construction phase.

· Design issues may cause delay or compromise operating reliability.

· Licence to Operate or social performance issues may impact deliverability.

What impact the materialisation of this risk might have on the Group

· Inability to achieve sustainable growth and reserves replacement.

· Production and associated revenue shortfall.

· Cost overrun.

· Inability to meet contractual supply obligations.

· Opportunity costs as the Group may be unable to pursue more valuable opportunities.

· Long-term value erosion.

· Reputational damage.

How the Group mitigates this risk

· Capital Investment Process and Value Assurance Framework.

· Front-end loading and decision risk management processes.

· Strategic planning, business planning and forecasting processes.

· Aligned investment decision-making authorities and processes.

· Strategic resourcing and strategic alliance programmes.

· Contract evaluation, selection and management processes.

· Asset-specific Licence to Operate strategies and management processes.

RESERVES AND RECOVERABILITY

Risk description

Reservoir potential may not be optimised and/or reservoir performance may fall below planned levels. Adverse outcome on field unitisation decisions where BG Group's fields may extend outside the boundaries of concession or licensing areas.

Why this risk might materialise

· Inherent reservoir uncertainty in oil and gas developments could lead to detrimental well and reservoir performance outcomes that may impact oil and gas production and ultimate recoverable volumes.

· Failure to consider the full range of potential development options and select the most suitable concept.

· Development plans are often based on limited sampling and testing of only a small fraction of the total reservoir volume.

· Subsurface uncertainty and project uncertainty (related to cost and feasibility) might not be captured or reflected adequately in the development plans used for investment proposals or business plans.

· The cost/benefit value case for doing more appraisal work may not always be clear, creating potential for insufficient field appraisal prior to decisions to commit investment.

What impact the materialisation of this risk might have on the Group

· Sub-optimal field development planning and design of facilities.

· Significant potential for loss in either production volumes compared to business plan or increases in overall capital expenditure and operating costs.

· Value erosion through over or under-design of facilities given field capacity.

· Inability to deliver production and to achieve an adequate reserves replacement ratio.

How the Group mitigates this risk

· Group Standards address subsurface risk by defining consistent subsurface workflows and modelling processes, ensuring reservoir and well surveillance and management processes.

· The Group's Value Assurance Framework ensures a review and challenge via a stage-gated assurance process.

· Decision risk management analysis.

· Field development planning process.

· Independent review through Reserves Committee oversight.

· Flexibility to source alternative third-party hydrocarbons to supplement Group production.

ACCESS TO CAPITAL AND LIQUIDITY

Risk description

Inability to deliver business and growth objectives, or to continue as a long-term viable business, by effectively meeting the Group's funding requirements, and managing liquidity and solvency risks.

Why this risk might materialise

· Business volatility or business performance falls below expectations.

· Change in the macroeconomic environment (for example, commodity prices, exchange rates).

· Change in the Group's capital allocation and distribution policy.

· Variations in planned portfolio rationalisation or acquisition costs.

· Inadequate cash flow forecasting.

· Insufficient flexibility in short-term liquidity.

· A significant deterioration in the Group's credit rating or its ability to access capital.

· Financial assets may not be readily converted to cash without loss of value.

What impact the materialisation of this risk might have on the Group

· Reduced/loss of access to capital.

· Increased Group funding/financing costs and deterioration in terms.

· Increased requirement for cash collateral and guarantees.

· Increases in capital requirements could result in a failure to meet business and financial performance expectations.

· Deterioration in economics and/or forfeiture of value-accretive business opportunities.

· The Group's financing costs may be adversely affected by interest rate volatility.

How the Group mitigates this risk

· Business planning, forecasting, performance management and cash flow forecasting processes.

· Flexible funding plans, including access to a minimum level of committed borrowing facilities, held with a diversified group of financial institutions as back-up liquidity.

· Selective use of hedging.

· Limits placed on the amount of borrowings that mature within any specific period.

· Surplus funds are invested primarily in short-term, highly liquid investments that are readily convertible to cash.

· The Group's Interest Rate Risk Management policy requires that substantially all borrowings are floating rate. Exceptions to this policy require approval from the Finance Committee. To take advantage of the current low interest rate environment, a substantial proportion of the Group's debt is currently held under fixed rate arrangements.

HUMAN RESOURCES CAPACITY AND CAPABILITY

Risk description

BG Group may not have enough people available with the right skills and experience, in the right parts of the organisation at the right time, and with the right culture and behaviours, to enable delivery of business objectives and plans.

Why this risk might materialise

· Failure to attract, recruit, retain, motivate, develop or train employees.

· Misalignment of resource strategies with Group strategy and plans.

What impact the materialisation of this risk might have on the Group

· Compromised ability of the Group to deliver its plans and strategy.

· Limit on the Group's ability to exploit opportunities or realise the value of projects.

· Impairment of the Group's future ability to attract and retain the best talent.

How the Group mitigates this risk

· Business plan process and alignment of resourcing model.

· Strategic alliances.

· Performance management processes.

· Competitive reward and incentivisation packages.

· Graduate Development Programme.

· Talent identification and related management development programmes.

· Succession planning.

· Outsourcing of non-core skills and activities.

PORTFOLIO CONCENTRATION

Risk description

Over-concentration or inappropriate balance of the Group's portfolio such that disruption in one asset or revenue stream in the Group's portfolio may have a disproportionate impact on the Group as a whole.

Why this risk might materialise

· Outcome of Group decision on: mergers, acquisitions and disposals; new country entry; commercial sales long-term contracts; or opportunity selection, project selection and sanction.

· Insufficient exploration success.

· Changes in external environment:

- Political instability;

- Partner instability;

- Demand for Group products;

- Inability to divest or sell down assets at an appropriate value;

- Sudden move by a competitor; or

- Transformative technological breakthrough in the industry.

What impact the materialisation of this risk might have on the Group

· Supply risk, especially from Brazil and Australia.

· Inability to meet supply contracts from Group production, requiring backfill of supply from the open market.

· Decline in demand for our products in key markets exposes us to the risk of unsold product and further downside price risk.

· BG Group fails to deliver its business plan and stated objectives, eroding shareholder value.

How the Group mitigates this risk

· The Group's Value Assurance Framework stage-gate process and Capital Investment Process provide opportunities to identify, discuss and take into consideration, concentration risk.

· Executive management and Board review and approval processes.

· Strategy setting and strategic business planning process, including the Board Planning Conference, provide opportunity to set guidelines around the make-up of the Group portfolio.

· Portfolio management: reduce overexposure by divestment or investment.

REGULATION, LEGISLATION, LITIGATION AND COMPLIANCE

Risk description

Contractual disputes and litigation, or breach of applicable laws and regulations, including those relating to anti-bribery and corruption by an employee, an associated party or someone acting on the Group's behalf.

Why this risk might materialise

· Legal risks not sufficiently identified in business planning or risk processes.

· Failure to anticipate changes in regulation.

· Ambiguity in interpretation of law or regulation.

· Failure to follow legal advice or guidance.

· Instances of fraud and corruption.

· Incomplete, ineffective or unenforceable documentation.

· Failure by partners or the Group to maintain effective anti-bribery and corruption programmes.

What impact the materialisation of this risk might have on the Group

· Investigations, regulatory censure, fines or penalties.

· Litigation from industry partner, contractor or sovereign entity (see note 22 (E) to the Financial statements for details of current, material litigation).

· Reputational damage.

· Loss of Licence to Operate.

· Increased costs.

· Penalties, debarment from award or loss of government contracts or licences, and the curtailment, cessation or delay of projects.

· Decommissioning obligations or liabilities greater than expected.

How the Group mitigates this risk

· Regulatory compliance systems, and legal and regulatory management framework.

· Internal education and training on legal and regulatory matters.

· Anti-bribery and corruption compliance programme, including training, policies and procedures, risk assessments and monitoring activities.

· Independent reporting lines within the Legal function for all Group lawyers.

· Legal Standards adopted across the Group.

· Quarterly due diligence exercise to identify legal issues of concern.

· Legal function participation in Group business planning, forecasting and risk processes.

· Independent Speak Up reporting system for any concerns.

· Advice from external legal counsel, including law firm panel arrangements.

IT, CYBER SECURITY AND RESILIENCE

Risk description

Failure or interruption of business-critical IT systems or digital infrastructure (including failure of systems in the production control environment). Compromise of, or attack on, Group computer networks.

Why this risk might materialise

· State-sponsored industrial espionage.

· Social engineering attacks such as targeted phishing emails.

· Malicious software infections, including computer viruses, Trojans or ransomware.

· Insufficient technical security controls.

· BG Group employees' or third parties' failure to comply with BG Group security rules.

What impact the materialisation of this risk might have on the Group

· Classified data could be unavailable or exposed to unauthorised parties.

· Breach of the Data Protection Act or other regulations, resulting in regulatory censure and penalties.

· Loss of competitive advantage.

· Reputational impact to strategic relationships.

· Non-compliance with legal or contractual requirements.

· Disruption of production or production reporting processes.

How the Group mitigates this risk

· Mandatory information security e-learning and other awareness activities.

· Design and implementation of standards and policies, for example, Information Security Standard, Acceptable Use Standard, Information Management Standard, Data & Control Architecture for Automation (DCAA) Standard.

· Regular system maintenance and monitoring.

· Hard disk encryption and security monitoring.

· Firewalls, virus protection, access control procedures.

· Security risk assessments for IT projects.

· Security incident response procedures.

· Disaster recovery plans.

CREDIT

Risk description

BG Group's counterparties (including sovereign entities and other entities on whom the Group depends directly or indirectly) may be unable to meet their financial or performance obligations.

Why this risk might materialise

· The Group may enter into agreements with third parties who are not creditworthy.

· Previously suitable counterparties' creditworthiness declines due to changed circumstances, particularly in a low oil price environment.

· Internal non-compliance with required process.

· Macroeconomic developments may reduce counterparties' creditworthiness (contagion and correlation risk, for example, financial crisis).

What impact the materialisation of this risk might have on the Group

· A credit loss may be incurred, possibly in the form of:

- Payment loss;

- Mark-to-market loss; or

- Performance issue: schedule delay and possible increased costs.

· Group liquidity may be impacted, for example if a bank fails.

· Delayed, or only partial recovery of, due receivables - adverse impact on cash flow.

· Potential write-offs and impairment.

How the Group mitigates this risk

· Credit risk framework developed and operational.

· Credit support is considered where appropriate.

· Credit limits are applied to counterparties under relevant credit Policies and Standards.

· Credit due diligence procedures and Standards are in place and operational.

· Monitoring of credit exposures and overdue payments.

MACROECONOMIC AND GEO-POLITICAL DEVELOPMENTS

Risk description

The Group may not foresee or adapt to changes or disruptions in the external environment, including geo-political or macroeconomic developments.

Why this risk might materialise

· Insufficient connections and network connectivity to stay abreast of developments in geo-politics, the macroeconomy, energy markets and industry.

· Lack of business intelligence.

· Not having employees with sufficient skills or insight.

· Failure to act upon known or identified external changes and changes due to internal decision-making processes, communication flows, or mis-interpretation of the information or trends.

· Over-focus on short-term deliverables or internal issues.

What impact the materialisation of this risk might have on the Group

· Failure to meet Group business plans and externally stated expectations.

· Long-term value erosion.

· The Group's fundamental long-term business model may be threatened.

How the Group mitigates this risk

· Business planning and strategic planning processes.

· Quarterly external trends analysis and competitor monitoring.

· Analysis of the macroeconomy and energy markets.

· Analysis of political trends and risks in Licence to Operate strategies.

· Stakeholder engagement and management.

· Membership of industry and professional bodies.

· Building and maintaining a flexible and balanced portfolio.

ENVIRONMENT AND CLIMATE CHANGE

Risk description

Climate change may fundamentally alter business conditions and have a negative effect on demand for hydrocarbons. Release, emission or discharge to the natural environment beyond agreed or acceptable limits.

Why this risk might materialise

· Domestic or international pressure to address climate change.

· Changes to policies and initiatives, including climate change policy, at national and/or international level.

· Major operational incident or accident, or breach of asset or well integrity. Note that in Brazil, the Group's oil spill exposure continues to grow as more oil is produced in the Santos Basin and shuttle tanker operations increase significantly.

What impact the materialisation of this risk might have on the Group

· Lower demand for Group product and lower prices.

· Regulations altering hydrocarbon production economics.

· Increased cost of operations.

· Potential threat to Licence to Operate in event of major environmental incident, with limitations on future access to resources in environmentally sensitive areas. Clean up costs, fines and penalties.

· Damage to Group reputation.

How the Group mitigates this risk

· Participation in industry and government bodies, including collaborative initiatives to influence forward-looking climate change activities and contribute to the climate change debate, in line with the Group's Climate Change Public Position.

· Design of, and compliance with, HSSE policy and environmental standards based on best practice.

· Operation of environmental management systems, independently certified to ISO14001.

· Asset-level energy efficiency programmes and targets.

· Emergency response, crisis response and oil spill response plans.

IMPORTANT NOTES

RISK IDENTIFICATION AND ASSURANCE

While BG Group has developed processes for identifying and managing risk, these processes provide reasonable, rather than absolute, assurance and are designed to help manage, rather than eliminate, risk. It is not possible to be certain that such processes will be successful in managing or mitigating these risks effectively or at all, not least because not all of these risks and uncertainties are within BG Group's control. In particular, BG Group may be limited in its ability to impose risk management systems and processes (and associated controls) in non-operated ventures. Systems of risk management and internal control are therefore no guarantee that all risks have been identified, or will not materialise, or that associated damage or losses will not occur.

In addition to the principal risks and uncertainties listed in this report, the Group may also be affected adversely by other risks as yet unforeseen or currently considered not to be material. Shareholders should consider the principal risks and uncertainties described in this section in conjunction with the Legal notice on the inside front cover.

INSURANCE

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

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

LEGAL NOTICE

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