BG Group Declares Force Majeure in Egypt

27 January 2014

BG Group - Declares Force Majeure in Egypt; gives 2013 results expectations and 2014 outlook*

BG Group has today issued Force Majeure notices under its LNG agreements in Egypt reflecting the ongoing diversions of gas volumes to the domestic market in excess of the existing pooling arrangements.

The Group will publish its preliminary 2013 fourth quarter and full year results on 4 February 2014. Currently the Group expects to report:

· 2013 production volumes of around 633 thousand barrels of oil equivalent per day (kboed), in line with guidance

· LNG Shipping & Marketing total operating profit of approximately $2.6 billion, in line with guidance

· Business performance** earnings flat at approximately $4.4 billion (around 130 cents per share)

· Non-cash, post-tax impairments of approximately $2.4 billion associated with Egypt (around$1.3 billion) and the US (around $1.1 billion)

· Total results earnings (post impairments) of approximately $2.2 billion (around 65 cents per share)

The Group also today updates on its outlook for 2014:

· 2014 production volumes expected in the range of 590 - 630 kboed

· 2014 E&P unit operating costs expected to be $15.50 - 16.25 per boe

· 2014 E&P unit depreciation costs expected to be $12.25 - 13.00 per boe

· 2014 LNG Shipping & Marketing total operating profit expected in the range of $2.1 - 2.4 billion

For 2015, BG Group expects production volumes to be in the range of 710 - 750 kboed excluding portfolio changes, and continues to expect to be free cash flow positive*** in 2015 at the Group's reference conditions.

Commenting on the update Chris Finlayson, BG Group Chief Executive said:

"Despite the good progress we have made in 2013 we face short term issues which are reflected in our revised 2014 guidance. This is very disappointing. We have elected to issue Force Majeure notices in Egypt reflecting the ongoing diversions of gas volumes to the domestic market. Year on year decline in Egypt and the US are the drivers of volume decline from 2013 to 2014, with the rest of the base portfolio broadly flat overall. The contribution from our key growth projects in Brazil and Australia, which remain on budget and schedule, is increasing, but the growing asset base and higher royalties, combined with the decline in production, are leading to higher unit operating costs in 2014. However, our long-term strategy remains unchanged, our capital expenditure level will decline and we continue to expect to be free cash flow positive in 2015."

2013 results - expectations

For 2013, BG Group expects production and LNG Shipping & Marketing results to be consistent with market guidance. Full year 2013 business performance earnings are expected to be flat at approximately $4.4 billion (around 130 cents per share). The effective tax rate for 2013 is expected to be 41%. Full year 2013 production is expected to be approximately 633 kboed, which includes around 570 kboed from base assets****. LNG Shipping & Marketing total operating profit is expected to be approximately $2.6 billion.

Total results earnings are expected to be down approximately 33 % at around $2.2 billion, or around 65 cents per share, including approximately $2.4 billion of non-cash, post-tax impairments that reflect the difficult operating environment in Egypt and lower forward gas prices in the US, coupled with lower production profiles in both countries.

In Egypt, diversions to the domestic market during the fourth quarter were higher than expected. The revised pooling arrangements put in place for 2013 have not been honoured and domestic diversions are currently at around capacity, close to 1 billion standard cubic feet of gas per day. As a result, BG Group has been unable to meet in full its obligations to deliver gas to Egyptian LNG and given the current levels of domestic diversions and the continued uncertainty around the level of future diversions, BG Group has served Force Majeure notices under its LNG Agreements to buyers and lenders. BG Group remains committed to the Egyptian LNG Project and will continue to negotiate with the Egyptian authorities and other stakeholders to seek a long term solution.

Update on 2014 outlook

In 2014, BG Group's production volumes are expected to be in the range of 590 - 630 kboed with base assets contributing in the range of 480 - 520 kboed, excluding portfolio changes. Brazil and Australia will deliver strong year on year growth. In Brazil, FPSOs 2 and 3 will continue to ramp up, following the delays to the installation of buoyancy supported risers. The operator expects to install FPSOs 4 and 5 in the second half of the year. In Australia, the QCLNG project is on track for first LNG in the fourth quarter, with the second train expected to come onstream around six months later.

The contributions from the Group's growth assets are expected to be offset by reductions in Egypt. Additionally, the continued low rig count in the US will result in a volume decline similar to 2013. Overall, volumes from other base assets are expected to be broadly flat. Production will grow in the UK despite a slower ramp up at Jasmine along with a longer planned shutdown at Buzzard, and also in Norway and Bolivia. However, this is expected to be offset by declines to the rest of the base, notably in Trinidad and Tobago where expected PSC production entitlement has reduced due to higher realised prices in 2013.

In 2014, unit operating expenditure is expected to be in the range of $15.50 -16.25 per boe at reference conditions, up from the $12.17 per boe expected to be reported for 2013 full-year Upstream results. This reflects the impact of increasing production from royalty-paying fields in Brazil and Bolivia; declining volumes in Egypt; flotel campaigns in the North Sea to complete the enhanced asset integrity programme; and, the impact of the ramp up and expensing of additional facilities in Australia and Brazil, ahead of achieving plateau production. The unit depreciation charge is also expected to increase, from the expected $11.29 per boe in 2013 to between

$12.25 - 13.00 per boe reflecting the new developments coming onstream.

LNG Shipping & Marketing total operating profit for 2014 is expected to be in the range of

$2.1 - 2.4 billion, reflecting lower supply volumes from Egypt and reference conditions lower than realised prices in 2013. There is considerable uncertainty over the number of LNG cargoes that Egyptian LNG will produce in 2014.

The Group expects its effective tax rate to be around 41%.

Update on 2015 outlook

BG Group currently expects production for 2015 to be in the range of 710 - 750 kboed, excluding portfolio changes. This outlook includes expected PSC production entitlement reductions in Kazakhstan. Expected production growth will be driven primarily by Brazil and Australia.

In 2015, BG Group expects similar dynamics in its LNG Shipping & Marketing business as outlined for 2014, combined with the impact of gas development programmes in Equatorial Guinea which require planned shutdowns at EGLNG. 

At reference conditions, BG Group continues to expect to be free cash flow positive in 2015. 

Notes to Editors:

* Reference Conditions, 2014 and 2015:

o Brent Oil price real (1/1/2014): 2014 and 2015: $100/bbl

o US Henry Hub real (1/1/2014): 2014: $4.0/mmbtu; 2015 $4.25/mmbtu

o US/UK exchange rates of $1.55:£1

o US/AUD exchange rates of $1:$A0.95

o US/BRL exchange rates of $1:BRL2.10

o Prepared under International Financial Reporting Standards

o All production includes fuel gas

** 'Business Performance' excludes disposals, certain re-measurements and impairments as exclusion of these items provides a clear and consistent presentation of the underlying operating performance of the Group's on-going business.

*** 'Free cash flow' defined as before the impact of disposals and dividend payments

**** BG Group 'base assets' are: Bolivia, Egypt, India, Kazakhstan, Norway, Thailand, Trinidad & Tobago, Tunisia, UK and USA

All amounts shown throughout this release are unaudited.

BG Group plc (LSE: BG.L) is a world leader in natural gas, with a broad portfolio of business interests focused on exploration and production and liquefied natural gas. Active in more than 20 countries on five continents, BG Group combines a deep understanding of gas markets with a proven track record in finding and commercialising reserves. For further information visit: www.bg-group.com

Expected E&P production volumes by country

There are matters set out within this announcement that are forward-looking statements. Such statements are only predictions, and actual events or results may differ materially. For a discussion of important factors which could cause actual results to differ from these forward-looking statements, refer toBG Group's Annual Report and Accounts for the year ended 31 December 2012. BG Group does not undertake any obligation to update publicly, or revise, forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

Contact:

Neil Burrows: +44 (0) 118 929 2462 [email protected] 

Mark Todd: +44 (0) 118 929 3110 [email protected]

Kim Blomley: +44 (0) 118 938 6568 [email protected]

Out of Hours Media Mobile: +44 (0) 7917 185 707

Investor Relations: +44 (0) 118 929 3025

 / +65 6304 2028 [email protected]

Social media channels:

Flickr flickr.com/bggroup

Twitter twitter.com/BGGroup

You Tube youtube.com/bggroupofficial