24th Jul 2006 07:00
BG GROUP plc24 July 2006 BG GROUP PLC 2006 SECOND QUARTER AND HALF YEAR RESULTS-------------------------------------------------------------------------------- BG Group's Chief Executive, Frank Chapman said: "BG Group has delivered another strong performance. Operating profit for thehalf year is up 75%, driven by outstanding growth in E&P volumes and contractedLNG supply, together with higher realisations. We continued to add to ourexploration portfolio, and made good progress on key projects keeping our growthprogramme on track." HIGHLIGHTS-----------------------------------------------------------------------------------Second Quarter Half Year 2006 2005(i) Business Performance(ii) 2006 2005(i) £m £m £m £m 1 754 1 133 +55% Revenue and other operating 3 726 2 227 +67% income 752 493 +53% Total operating profit including 1 710 978 +75% share of pre-tax operating results from joint ventures and associates 401 275 +46% Earnings for the period 926 544 +70% (76) - - Prior period taxation(iii) (38) - - 325 275 +18% Earnings after prior period 888 544 +63% taxation 9.3p 7.8p +19% Earnings per share 25.3p 15.4p +64% 3.00p 1.91p +57% Interim dividend per share 3.00p 1.91p +57%----------------------------------------------------------------------------------- Total results for the period (including disposals and re-measurements) 1 839 1 013 +82% Revenue and other operating 3 835 2 069 +85% income 773 733 +5% Operating profit before share of 1 685 1 141 +48% results from joint ventures and associates 829 789 +5% Total operating profit including 1 811 1 249 +45% share of pre-tax operating results from joint ventures and associates 435 484 -10% Earnings for the period 973 743 +31% (17) - - Prior period taxation(iv) 23 - - 418 484 -14% Earnings after prior period 996 743 +34% taxation 12.0p 13.7p -12% Earnings per share 28.4p 21.0p +35%----------------------------------------------------------------------------------- For notes i) to iv) see footnotes on page 2 BG Group plc 1 PERFORMANCE HIGHLIGHTS •Total operating profit for the second quarter increased 53% to £752 million. This excludes an additional £30 million operating profit that has been secured by selling forward LNG held in inventory for delivery in the winter. •Operating profit for the half year rose 75%. •At constant US$/UK£ exchange rates and upstream prices, total operating profit for the quarter increased by 14%. •The second quarter included a prior period tax charge of £76 million relating to the increase in North Sea taxation. •Excluding the prior period tax charge, second quarter earnings increased by 46% to £126 million. •The Group has stepped up investment in its exploration programme and this is reflected in the £55 million exploration charge for the quarter. •Dividend increased by 57% to 3p. •Atlantic/Cromarty (UK) and Dolphin Deep (Trinidad) came onstream. •Lake Charles second expansion completed. •In the North Sea, Buzzard platform top sides installed and on schedule to start production in fourth quarter 2006. •In Kazakhstan, progress has been made to sanction both the fourth liquids stabilisation train and the major Phase III development at Karachaganak. •In Egypt, Rosetta Phase III and West Delta Deep Marine Phase IV were sanctioned. •Exploration acreage acquired in Alaska, China, Madagascar and Nigeria. •Further exploration success in Egypt and the UK. i) 2005 comparatives have been restated on the application of IFRIC 4and amendments to IAS 39. See Note 1, page 22. ii) 'Business Performance' excludes disposals and certain re-measurementsas exclusion of these items provides a clear and consistent presentation of theunderlying operating performance of the Group's ongoing business. For furtherexplanation of Business Performance and the presentation of results from jointventures and associates, see Presentation of Non-GAAP measures, page 12 andResults Presentation, page 3. Unless otherwise stated, the results discussed inthis release relate to BG Group's Business Performance. iii) Prior period taxation is as a result of the increase in North Seataxation and includes a £38 million charge to increase the effective tax rate for the first quarter to44%, and an additional charge of £38 million in respect of the restatement ofdeferred tax balances at 1January 2006. iv) In addition to (iii) above, prior period taxation includes a £59million credit relating to the impact of the increase in North Sea taxation onre-measurement balances. BG Group plc 2 RESULTS PRESENTATION The presentation of BG Group's results under IFRS separately identifies theeffect of: • The re-measurement of certain financial instruments. • Profits and losses on the disposal and associated impairment of non-current assets and businesses. These items are excluded from Business Performance in order to provide readerswith a clear and consistent presentation of the underlying operating performanceof the Group's ongoing businesses. Under IFRS the results of joint ventures and associates are presented net offinance costs and tax (see pages 14 and 15). Given the relevance of thesebusinesses within BG Group, the results of joint ventures and associates arepresented both before interest and tax, and after tax. The pre-interest and taxresult is included in Business Performance discussed on pages 4 to 11. The tablebelow sets out the amounts related to joint ventures and associates,re-measurements under IAS 39 and profits on disposal and impairment ofnon-current assets and businesses. --------------------------------------------------------------------------------Second Quarter Business Disposals and Total Performance re-measurements Result (i) 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £mOperating profit 696 437 85 (120) 781 317before disposal ofnon-current assets Profits and losses on - - (8) 416 (8) 416disposal of non-current assets(ii) ----------------------------------------------------Operating profit 696 437 77 296 773 733before shareof results from joint venturesand associates ----------------------------------------------------Pre-tax share of 56 56 - - 56 56operatingresults of joint ventures andassociatesTotal operating profit 752 493 77 296 829 789 Net finance costsFinance income 21 19 4 18 25 37Finance costs (17) (23) (5) (10) (22) (33)Share of joint (18) (9) - - (18) (9)venturesand associates ---------------------------------------------------- (14) (13) (1) 8 (15) (5)TaxationTaxation (392) (182) 17 (90) (375) (272)Share of joint (9) (9) - - (9) (9)venturesand associates ---------------------------------------------------- (401) (191) 17 (90) (384) (281) ----------------------------------------------------Profit for the period 337 289 93 214 430 503(iii) Profit attributableto:Shareholders 325 275 93 209 418 484(earnings)Minority interest 12 14 - 5 12 19 ---------------------------------------------------- 337 289 93 214 430 503 ---------------------------------------------------- i) Re-measurements excluded from Business Performance The IAS 39 re-measurements reflect movements in external market prices andexchange rates. Financial instruments include certain long-term UK gas contractswhich are classified as derivatives under IAS 39 due to the nature of thecontract terms and are therefore required to be marked-to-market. This treatmenthas no impact on the ongoing cashflows of the business and these unrealisedmark-to-market movements are best presented separately from underlying businessperformance. For an explanation of Non-GAAP measures see page 12. ii) 2005 includes £416 million disposal of BG Group's interest in the NorthCaspian Sea PSA. iii) 2006 includes prior period taxation adjustments following the increase inNorth Sea taxation BG Group plc 3 BUSINESS REVIEW The results discussed in this Business Review (pages 4 to 11) relate to BGGroup's performance excluding disposals and re-measurements. For the impact anda description of these items, see the consolidated income statements (pages 14and 15) and Note 2 of the accounts (page 23). Results at constant US$/UK£exchange rates and upstream prices are also quoted. See Presentation of Non-GAAPmeasures (page 12) for an explanation of these metrics. GROUP--------------------------------------------------------------------------------Second Quarter Business Performance Half Year 2006 2005 2006 2005 £m £m £m £m 1 754 1 133 +55% Revenue and other operating 3 726 2 227 +67% income Total operating profit including share of pre-tax results from joint ventures and associates----- ----- ----- ----- 647 407 +59% Exploration and Production 1 373 794 +73% 34 17 +100% Liquefied Natural Gas 172 46 +274% 57 56 +2% Transmission and 122 102 +20% Distribution 23 21 +10% Power Generation 62 57 +9% (9) (8) +13% Other activities (19) (21) -10%----- ----- ----- ----- 752 493 +53% 1 710 978 +75% (14) (13) +8% Net finance costs (13) (34) -62% (325) (191) +70% Taxation for the period (747) (378) +98% 401 275 +46% Earnings for the period 926 544 +70% (76) - - Prior period taxation (38) - - 325 275 +18% Earnings after prior period 888 544 +63% taxation 9.3p 7.8p +19% Earnings per share 25.3p 15.4p +64% 401 415 -3% Capital investment 787 730 +8%-------------------------------------------------------------------------------- Second quarter Total operating profit increased by 53% to £752 million reflecting the step upin E&P production and contracted LNG supply, and higher realisations, partiallyoffset by an increase in exploration costs. At constant US$/UK£ exchange ratesand upstream prices, total operating profit increased by 14%. The effective tax rate (including BG Group's share of tax attributable to jointventures and associates) has increased to 44% following the recent increase inNorth Sea taxation. This excludes the effect of a prior period charge of £38million to increase the effective tax rate for the first quarter to 44% and theeffect of an additional one-off charge of £38 million to reflect the increasedNorth Sea tax rate on deferred tax balances at 1 January 2006. Excluding the prior period tax charge (£76 million) earnings increased by 46% to£401 million, reflecting the increased E&P production and prices referred toabove. Cash generated by operations increased by £290 million to £839 million primarilydue to higher operating profit. BG Group plc 4 Capital investment in the quarter of £401 million comprised continuinginvestment in Europe and Central Asia (£109 million), Mediterranean Basin andAfrica (£50 million), North America and the Caribbean (£172 million), SouthAmerica (£40 million) and Asia Pacific (£30 million). As at 30 June 2006, the Group had returned £632 million to shareholders as partof the share repurchase programme and net funds were £14 million. Half year Total operating profit increased by 75% to £1 710 million reflecting a 26% risein E&P production, a strong performance in the downstream businesses, and higherrealisations. The effective tax rate (including BG Group's share of tax attributable to jointventures and associates) has increased to 44% following the recent increase inNorth Sea taxation. This excludes the effect of a one-off charge of £38 millionto reflect the increased North Sea tax rate on deferred tax balances at 1January 2006. Cash generated by operations increased by £724 million to £1 826 millionprimarily due to higher operating profit. Capital investment of £787 million comprised continuing investment in Europe andCentral Asia (£213 million), Mediterranean Basin and Africa (£127 million),North America and the Caribbean (£281 million), South America (£113 million) andAsia Pacific (£53 million). BG Group plc 5 EXPLORATION AND PRODUCTION -------------------------------------------------------------------------------- Second Quarter Business Performance Half Year 2006 2005 2006 2005 £m £m £m £m 55.6(i) 44.6 +25% Production volumes (mmboe) 111.4 88.3 +26% (i) 984 658 +50% Revenue and other operating 2 057 1 293 +59% income 647 407 +59% Total operating profit 1 373 794 +73% 229 193 +19% Capital investment 500 438 +14%-------------------------------------------------------------------------------- (i) Includes fuel gas for the quarter of 1.19 mmboe, and 2.22 mmboe for the half year, see page 31. Supplementary operating and financial data is given on page 31. Second quarter E&P total operating profit increased by 59% to £647 million due to highervolumes and prices partially offset by higher exploration costs. Production increased by 25%, driven by West Delta Deep Marine (WDDM) in Egyptand the Dolphin field in Trinidad following the start-up of Egyptian LNG Trains1 and 2 and Atlantic LNG Train 4. The exploration charge of £55 million is £21 million higher than 2005 reflectingthe increased exploration activities across the Group. Unit operating expenditure was broadly in line with 2005 at £2.07 ($3.72) perboe. Capital investment of £229 million included expenditure in the UK (£88 million),Brazil (£14 million) and Egypt (£39 million). Half year E&P total operating profit increased by 73% to £1 373 million due to the 26%increase in production volumes and higher prices, partially offset by a £40million increase in the exploration charge to £99 million. Increased productionprimarily came from WDDM in Egypt, the Dolphin field in Trinidad and theChinguetti field in Mauritania which commenced production in February. The Group's average international gas price was 17.7 pence (2005 14.0 pence) perproduced therm reflecting the benefit of new production into high value marketsand higher international commodity prices. In the UK, where short-term pricesrose, the average realised price per produced therm was 33.0 pence (2005 23.6pence). The exploration charge of £99 million is £40 million higher than 2005 reflectingthe increased exploration activities across the Group. Capital investment of £500 million included expenditure in the UK (£158million), Brazil (£61 million), Egypt (£68 million) and Nigeria (£28 million). BG Group plc 6 Second quarter business highlights During June, first production flowed from the Atlantic/Cromarty fields (BG Group- Atlantic: 75% and operator; Cromarty: 10%) in the Outer Moray Firth. During July, the Dolphin Deep field in the East Coast Marine Area (ECMA) inTrinidad came onstream to supply Atlantic LNG Train 3 and 4. BG Group is theoperator of ECMA with a 50% shareholding. The gas will be delivered via theexisting Dolphin platform and the new Dolphin Beachfield and Cross IslandPipelines. Also in Trinidad, progress has been made on an agreement to increaseDolphin domestic gas sales. At Karachaganak (BG Group 32.5%), Kazakhstan, oil exports via the Atyrau Samarapipeline into the Transneft system began on 19 June. The Fourth Train Project isprogressing on schedule through FEED and project sanction is expected at the endof the year. In addition, good progress has been made on technical andcommercial work which supports the sanction of the major Phase III Project in2007. In June, both the main process deck and the utilities and quarters deck wereinstalled on Buzzard (BG Group 21.73%) in the Outer Moray Firth. Buzzard is onschedule to begin production in the fourth quarter of 2006. During the quarter, BG Group sanctioned a number of major projects in theMediterranean Basin and Africa region. In Egypt, Rosetta Phase III (BG Group80%) and West Delta Deep Marine Phase IV (BG Group 50%) projects weresanctioned. In Tunisia, the six well infill programme on Miskar was sanctioned.The total net capital expenditure for these projects is planned to be £600million. On 19 May, BG Group announced success in the 2006 Nigerian Licensing Round, withthe award of Oil Prospecting Licence (OPL) 286-DO. The block is located in deepwater (200 - 1 000 metres) offshore the western Niger Delta, approximately 250kilometres south-east of the capital, Lagos. In May, BG Group signed an exploration agreement to acquire a 40% equity sharein 208 000 acres of land along Alaska's Eastern North Slope, situated on thecoastal plain near to the Prudhoe Bay field. On 7 June, BG Group entered China with the signature of two Production SharingContracts (PSCs) covering deepwater Blocks 64/11 and 53/16 and a GeophysicalSurvey Agreement for Block 41/06, offshore southern China. The three blockscover an area of approximately 25 800 square kilometres. In June, BG Group announced that it has signed a farm-in agreement to acquire a30% share in the Majunga Offshore Profond exploration block in Madagascar, whichcovers approximately 15 840 square kilometres. During the quarter, BG Group and partners advanced work on two deepwater wellsin Brazil. This is very early days in the exploration of this new province butobservation of hydrocarbons in these two wells is an encouraging indicator. Since the start of the year, BG Group has completed 18 exploration and appraisalwells of which 11 have been successful. Successful wells were drilled in Canada(3), Egypt (2), India (2) and the UK (4). BG Group plc 7 LIQUEFIED NATURAL GAS -------------------------------------------------------------------------------- Second Quarter Business Performance Half Year 2006 2005 2006 2005 £m £m £m £m 548 236 +132% Revenue and other 1 201 456 +163% operating income --------------- Total operating profit ------------------ 29 3 +867% Shipping and marketing 155 20 +675% 24 24 - Liquefaction 54 45 +20% (19) (10) +90% Business development and (37) (19) +95% other costs 34 17 +100% 172 46 +274% --------------- ------------------ 139 183 -24% Capital investment 227 228 --------------------------------------------------------------------------------- Supplementary operating and financial data are given on page 31. Second quarter LNG total operating profit increased by £17 million to £34 million reflectinghigher volumes and realisations in the shipping and marketing business,partially offset by increased business development costs. In shipping and marketing, total operating profit increased by £26 million to£29 million, primarily due to an increase in volumes. In addition, this businesssecured a further £30 million operating profit by selling forward LNG held ininventory. This profit will be recognised when the gas is delivered during thewinter. BG Group's share of operating profit from liquefaction activities was in linewith 2005 at £24 million. Increased business development and other costs reflect higher activity acrossthe segment including progressing opportunities in Nigeria and elsewhere. Capital investment includes £134 million in relation to LNG ships underconstruction and due for delivery in 2006 and 2007. Half year LNG total operating profit increased by £126 million reflecting increasedvolumes and diversion income which captured strong seasonal prices in Japan andEurope during the first quarter. In addition, BG Group's share of operatingprofit from liquefaction activities increased by £9 million principally due tothe start-up of Egyptian LNG Trains 1 and 2. Capital investment includes £190 million in relation to LNG ships underconstruction. BG Group plc 8 Second quarter business highlights On 8 July, the second expansion of regasification capacity at Lake Charles wascompleted. The average daily capacity is now 1.8 bcfd with peaking capacity of2.1 bcfd. Two of BG Group's 145 000 cubic metre new-build LNG carriers were deliveredduring the quarter (Methane Rita Andrea and the Methane Jane Elizabeth). Alsoduring the quarter, repairs were completed on the Methane Kari Elin. All threeships will initially be deployed on BG Group's LNG trades out of Egypt. On 15 June, FERC approval was received for the Cypress Pipeline project whichwill connect the regasification terminal at Elba Island, Savannah toJacksonville, Florida. BG Group has long-term transportation capacity in thepipeline which is planned to be operational from May 2007. During the second quarter the FEED contract for the Quintero LNG regasificationterminal in Chile was awarded. BG Group plc 9 TRANSMISSION AND DISTRIBUTION ------------------------------------------------------------------------------- Second Quarter Business Performance Half Year 2006 2005 2006 2005 £m £m £m £m Revenue and other operating ------ ------ income ----- ------- 191 126 +52% Comgas 359 233 +54% - 45 - MetroGAS - 79 - 33 25 +32% Other 68 53 +28% ------ ------ ----- ------- 224 196 +14% 427 365 +17% ------ ------ Total operating profit ----- ------- 48 38 +26% Comgas 98 67 +46% - 10 - MetroGAS - 14 - 9 8 +13% Other 24 21 +14% ------ ------ ----- ------- 57 56 +2% 122 102 +20% 28 33 -15% Capital investment 53 50 +6%------------------------------------------------------------------------------- Second quarter T&D total operating profit increased by £1 million to £57 million. At Comgas, in Brazil, operating profit increased by £10 million to £48 million,primarily due to a 9% increase in volumes and a favourable Brazilian Real (BRL)exchange rate. As anticipated, following a regulatory review of tariffs duringthe quarter, operating profit includes the net cost (£8 million) of passing backto customers the reduced gas costs experienced in earlier periods. A further £14million is expected to be passed back in future periods. Capital investment mainly represents the development of the Comgas pipelinenetwork. Following the de-consolidation of MetroGAS and GASA in December 2005, thesecompanies made no contribution to the results of BG Group in 2006. Half year T&D total operating profit rose by £20 million to £122 million. At Comgas, a £31million increase in operating profit reflected a 10% increase in volumes, thestronger BRL and the net cost (£3 million) of passing back reduced gas costs tocustomers. BG Group plc 10 POWER GENERATION -------------------------------------------------------------------------------- Second Quarter Business Performance Half Year 2006 2005 2006 2005 £m £m £m £m 50 46 +9% Revenue and other operating 142 121 +17% income 23 21 +10% Total operating profit 62 57 +9% 2 3 -33% Capital investment 3 3 - ------------------------------------------------------------------------------- Second quarter and half year The increase in revenue is primarily due to pass through of gas costs. Total operating profit in the quarter reflects the phasing of income at PremierPower whilst the half year also includes the one-off contribution of insuranceproceeds and phasing of income at Seabank Power. BG Group plc 11 Presentation of Non-GAAP measures Business Performance 'Business Performance' excludes certain disposals and re-measurements (seebelow) as exclusion of these items provides a clear and consistent presentationof the underlying operating performance of the Group's ongoing business. BG Group uses commodity instruments to manage price exposures associated withits marketing and optimisation activity in the UK and US. This activity enablesthe Group to take advantage of commodity price movements. It is considered moreappropriate to include both unrealised and realised gains and losses arisingfrom the mark-to-market of derivatives associated with this activity in'Business Performance'. Disposals and re-measurements BG Group's commercial arrangements for marketing gas include the use oflong-term gas sales contracts. Whilst the activity surrounding these contractsinvolves the physical delivery of gas, certain UK gas sales contracts areclassified as derivatives under the rules of IAS 39 and are required to bemeasured at fair value at the balance sheet date. Unrealised gains and losses onthese contracts reflect the comparison between current market gas prices and theactual prices to be realised under the gas sales contract. BG Group also uses commodity instruments to manage certain price exposures inrespect of optimising the timing of its gas sales associated with contracted UKstorage and pipeline capacity. These instruments are also required to bemeasured at fair value at the balance sheet date under IAS 39. However, IAS 39does not allow the matching of these fair values to the economically hedgedvalue of the related gas in storage (taking account of gas prices based on theforward curve or expected delivery destination and the associated storage andcapacity costs). BG Group also uses financial instruments, including derivatives, to manageforeign exchange and interest rate exposure. These instruments are required tobe recognised at fair value or amortised cost on the balance sheet in accordancewith IAS 39. Most of these instruments have been designated either as hedges offoreign exchange movements associated with the Group's net investments inforeign operations, or as hedges of interest rate risk. Where these instrumentscannot be designated as hedges under IAS 39, unrealised movements in fair valueare recorded in the income statement. Unrealised gains and losses in respect of long-term gas sales contracts andderivatives associated with gas in UK storage and pipeline facilities andinterest rate and foreign exchange exposure in respect of financial instrumentswhich cannot be designated as hedges under IAS 39 are disclosed separately as'disposals and re-measurements'. Realised gains and losses relating to theseinstruments are included in Business Performance. This presentation bestreflects the underlying performance of the business since it distinguishesbetween the temporary timing differences associated with re-measurements underIAS 39 rules and actual realised gains and losses. BG Group has also separately identified profits and losses associated with thedisposal of non-current assets as they are items which require separatedisclosure in order to provide a clearer understanding of the results for theperiod. For a reconciliation between the overall results and Business Performance anddetails of disposals and re-measurements, see the consolidated income statement,page 14 and 15 and note 2 to the accounts, page 23. Joint ventures and associates Under IFRS the results from jointly controlled entities (joint ventures) andassociates, accounted for under the equity method, are required to be presentednet of finance costs and tax on the face of the income statement. Given therelevance of these businesses within BG Group, the results of joint ventures andassociates are presented before interest and tax, and after tax. This approachprovides additional information on the source of BG Group's operating profits.For a reconciliation between operating profit and earnings including andexcluding the results of joint ventures and associates, see Note 3 to theaccounts, page 24. Exchange rates and prices BG Group also discloses certain information, as indicated, at constant US$/UK£exchange rates and upstream prices. The presentation of results in this manneris intended to provide additional information to explain further the underlyingtrends in the business. Net borrowings/funds BG Group provides a reconciliation of net borrowings/funds and an analysis ofthe amounts included within net borrowings/funds as this is an importantliquidity measure for the Group. BG Group plc 12 LEGAL NOTICE These results include "forward-looking information" within the meaning ofSection 27A of the US Securities Act of 1933, as amended and Section 21E of theUS Securities Exchange Act of 1934, as amended. Certain statements included inthese results, including without limitation, those concerning (i) strategies,outlook and growth opportunities, (ii) positioning to deliver future plans andto realise potential for growth, (iii) delivery of the performance required toachieve the revised 2006 targets and growth programme, (iv) development of newmarkets, (v) the development and commencement of commercial operations of newprojects, (vi) liquidity and capital resources, (vii) plans for capital andinvestment expenditure and (viii) statements preceded by "expected","scheduled", "targeted", "planned", "proposed", "intended" or similarstatements, contain certain forward-looking statements concerning operations,economic performance and financial condition. Although the Company believes thatthe expectations reflected in such forward-looking statements are reasonable, noassurance can be given that such expectations will prove to have been correct.Accordingly, results could differ materially from those set out in theforward-looking statements as a result of, among other factors, (i) changes ineconomic, market and competitive conditions, including oil and gas prices, (ii)success in implementing business and operating initiatives, (iii) changes in theregulatory environment and other government actions, including UK andinternational corporation tax rates, (iv) a major recession or significantupheaval in the major markets in which BG Group operates, (v) the failure toensure the safe operation of assets worldwide, (vi) implementation risk, beingthe challenges associated with delivering capital intensive projects on time andon budget, including the need to retain and motivate staff, (vii) commodityrisk, being the risk of a significant fluctuation in oil and/or gas prices fromthose assumed, (viii) fluctuations in exchange rates, in particular the US$/UK£exchange rate being significantly different to that assumed, (ix) risksencountered in the gas and oil exploration and production sector in general, (x)business risk management and (xi) the Risk Factors included in BG Group's AnnualReport and Accounts 2005. BG Group undertakes no obligation to update anyforward-looking statements. No part of these results constitutes or shall be taken to constitute aninvitation or inducement to invest in BG Group plc or any other entity and mustnot be relied upon in any way in connection with any investment decision. BG Group plc 13 CONSOLIDATED INCOME STATEMENT SECOND QUARTER ----------------------------- ------------------------------------------ 2006 2005 restated(i) Busi- Disposals Total Busi- Disposals and Total ness and Result ness re- Result Perfor- re- Perfor- measure- mance measure- mance ments (ii) ments (ii) (Note 2)(ii) (Note 2) Notes £m £m £m £m £m £m Group revenue 1 753 - 1 753 1 134 - 1 134 Other operating income 2 1 85 86 (1) (120) (121) ------- -------- -------- --- ------- -------- --------Group revenue and other operating income 3 1 754 85 1 839 1 133 (120) 1 013 Operating costs (1 058) - (1 058) (696) - (696) Profits and losses on disposal of non-current assets 2 - (8) (8) - 416 416 ------- -------- -------- ------- -------- --------Operating profit/(loss) before share of results from joint ventures and associates 3 696 77 773 437 296 733 ------- -------- -------- ------- -------- --------Finance income 2, 4 21 4 25 19 18 37 Finance costs 2, 4 (17) (5) (22) (23) (10) (33) Share of post-tax results from joint ventures and associates 3 29 - 29 38 - 38 ------- -------- -------- ------- -------- --------Profit/(loss) before tax 729 76 805 471 304 775 Taxation 2, 5 (392) 17 375) (182) (90) (272) ------- -------- -------- ------- -------- --------Profit for the period 337 93 430 289 214 503 ------- -------- -------- ------- -------- --------Attributable to: ------- -------- -------- ------- -------- --------BG Group shareholders (earnings) 325 93 418 275 209 484 Minority interest 12 - 12 14 5 19 ------- -------- -------- ------- -------- -------- 337 93 430 289 214 503 ------- -------- -------- ------- -------- -------- ------- -------- -------- ------- -------- --------Earnings per share - basic 6 9.3p 2.7p 12.0p 7.8p 5.9p 13.7p Earnings per share - diluted 6 9.2p 2.7p 11.9p 7.7p 5.9p 13.6p ------- -------- -------- ------- -------- -------- ----------------- ------ ------- -------- -------- --- ------- -------- --------Total operating profit including share of pre-tax operating results from joint ventures and associates(iii) 3 752 77 829 493 296 789 ----------------- ------ ------- -------- -------- --- ------- -------- -------- i) 2005 comparatives have been restated on the application of IFRIC 4 andamendments to IAS 39. See Note 1, page 22. ii) See Presentation of Non-GAAP measures, page 12, for an explanation ofresults excluding disposals and re-measurements and presentation of the resultsof joint ventures and associates. iii) This measurement is shown by BG Group as it is used by management as ameans of measuring the underlying performance of the business. BG Group plc 14 CONSOLIDATED INCOME STATEMENT HALF YEAR ---------------------------- ------------------------------------ 2006 2005 restated(i) Busi- Disposals Total Busi- Disposals Total ness and re- Result ness and re- Result Perfor- measure- Perfor- measure- mance ments mance ments (ii) (Note 2) (ii) (Note 2) (ii) (ii) Notes £m £m £m £m £m £m Group revenue 3 684 - 3 684 2 204 - 2 204 Other operating income 2 42 109 151 23 (158) (135) ------- -------- -------- --- ------- -------- --------Group revenue and other operating income 3 3 726 109 3 835 2 227 (158) 2 069 Operating costs (2 142) - (2 142) (1 357) - (1 357) Profits and losses on disposal of non-current assets 2 - (8) (8) - 429 429 ------- -------- -------- ------- -------- --------Operating profit/(loss) before share of results from joint ventures and associates 3 1 584 101 1 685 870 271 1 141 ------- -------- -------- ------- -------- --------Finance income 2, 4 57 7 64 30 29 59 Finance costs 2, 4 (36) (8) (44) (46) (19) (65) Share of post-tax results from joint ventures and associates 3 67 - 67 77 - 77 ------- -------- -------- ------- -------- --------Profit/(loss) before tax 1 672 100 1 772 931 281 1 212 Taxation 2, 5 (760) 7 (753) (365) (74) (439) ------- -------- -------- ------- -------- --------Profit/(loss) for the period 912 107 1 019 566 207 773 ------- -------- -------- ------- -------- --------Attributable to: ------- -------- -------- ------- -------- --------BG Group shareholders (earnings) 888 108 996 544 199 743 Minority interest 24 (1) 23 22 8 30 ------- -------- -------- ------- -------- -------- 912 107 1 019 566 207 773 ------- -------- -------- ------- -------- -------- ------- -------- -------- ------- -------- --------Earnings per share - basic 6 25.3p 3.1p 28.4p 15.4p 5.6p 21.0p Earnings per share - diluted 6 25.1p 3.1p 28.2p 15.3p 5.6p 20.9p ------- -------- -------- ------- -------- -------- ----------------- ------ ------- -------- -------- --- ------- -------- --------Total operating profit including share of pre-tax operating results from joint ventures and associates(iii) 3 1 710 101 1 811 978 271 1 249 ----------------- ------ ------- -------- -------- --- ------- -------- -------- i) 2005 comparatives have been restated on the application of IFRIC 4 andamendments to IAS 39. See Note 1, page 22. ii) See Presentation of Non-GAAP measures, page 12, for an explanation ofresults excluding disposals and re-measurements and presentation of the resultsof joint ventures and associates. iii) This measurement is shown by BG Group as it is used by management as ameans of measuring the underlying performance of the business. BG Group plc 15 CONSOLIDATED BALANCE SHEET HALF YEAR ------------------------------------- ------------------------ As at 30 June 31 Dec 30 Jun 2006 2005 2005 £m restated restated £m £m Assets Non-current assets Goodwill 337 342 320 Other intangible assets 812 682 688 Property, plant and equipment 5 850 5 830 5 217 Investments 1 090 1 129 1 119 Deferred tax assets 102 91 74 Trade and other receivables 47 52 51 Derivative financial instruments 111 84 129 ------------------------------------- ------- -------- ------- 8 349 8 210 7 598 Current assets Inventories 197 185 113 Trade and other receivables 1 588 1 674 1 219 Commodity contracts and other derivative financial instruments 29 10 34 Cash and cash equivalents 1 567 1 516 1 223 ------------------------------------- ------- -------- ------- 3 381 3 385 2 589 Assets classified as held for sale - 10 - ------------------------------------- ------- -------- -------Total assets 11 730 11 605 10 187 ------------------------------------- ------- -------- ------- Liabilities Current liabilities Borrowings (57) (81) (391) Trade and other payables (1 255) (1 308) (1 021) Current tax liabilities (533) (409) (439) Commodity contracts and other derivative financial instruments (539) (711) (599) ------------------------------------- ------- -------- ------- (2 384) (2 509) (2 450) Non-current liabilities Borrowings (1 579) (1 497) (1 189) Trade and other payables (21) (68) (88) Derivative financial instruments (2) (2) - Deferred income tax liabilities (835) (733) (718) Retirement benefit obligations (166) (154) (143) Provisions for other liabilities and charges (375) (372) (371) ------------------------------------- ------- -------- ------- (2 978) (2 826) (2 509) Liabilities associated with assets classified as held for sale - (3) - ------------------------------------- ------- -------- -------Total liabilities (5 362) (5 338) (4 959) ------------------------------------- ------- -------- ------- ------------------------------------- ------- -------- ------- Net assets 6 368 6 267 5 228 ------------------------------------- ------- -------- ------- Attributable to: BG Group equity shareholders 6 266 6 169 5 185 Minority interest 102 98 43 ------------------------------------- ------- -------- -------Total equity 6 368 6 267 5 228 ------------------------------------- ------- -------- ------- BG Group plc 16 STATEMENT OF CHANGES IN EQUITY Second Quarter Half Year 2006 2005 2006 2005 restated restated £m £m £m £m Equity as at start of period 6 464 4 564 BG Group shareholders' funds 6 182 4 567 113 28 Minority interest 98 20 ------- ---- ------- ----------------------------- ------- --- --------6 577 4 592 Equity as at start of period as reported 6 280 4 587 - - Effect of adoption of IFRIC 4 (see Note (13) (8) 1) - - Effect of adoption of IAS 39(i) - (238) ------- ---- ------- ----------------------------- ------- --- --------6 577 4 592 Equity as at start of period as restated 6 267 4 341 430 503 Profit for the financial period 1 019 773 3 6 Issue of shares 9 14 (452) (2) Purchase of own shares (ii) (592) (2) 2 5 Adjustment in respect of employee share 8 8 schemes 13 - Tax in respect of share schemes 13 - - - Dividends on ordinary shares (144) (74) (17) (14) Dividends paid to minority interest (17) (14) (188) 138 Currency translation and hedge (195) 182 adjustments net of tax ------- ---- ------- ----------------------------- ------- --- -------- (209) 636 Net changes in equity for the financial 101 887 period Equity as at 30 June 6 266 5 185 BG Group shareholders' funds 6 266 5 185 102 43 Minority interest 102 43 ------- ---- ------- ----------------------------- ------- --- --------6 368 5 228 6 368 5 228 ------- ---- ------- ----------------------------- ------- --- -------- BG Group adopted IAS 39 from 1 January 2005. 2006 includes £3 million of transaction costs in the quarter and £3 million inthe half year. BG Group plc 17 CONSOLIDATED CASH FLOW STATEMENT Second Quarter Half Year 2006 2005 2006 2005 restated restated £m £m £m £m Cash flows from operating activities 773 733 Profit from operations 1 685 1 141 149 121 Depreciation of property, plant and 298 238 equipment and amortisation of intangible assets (92) 121 Fair value movements in commodity (133) 158 contracts 8 (416) Profit and losses on disposal of 8 (429) non-current assets and impairments 18 11 Unsuccessful exploration expenditure 29 21 written off 3 5 (Decrease)/increase in provisions 7 13 5 5 Share based payments 11 8 (25) (31) Decrease/(increase) in working (79) (48) capital ------- --- ------- -------------------------- --- ------- --- ------- 839 549 Cash generated by operations 1 826 1 102 (198) (171) Income taxes paid (483) (314) ------- --- ------- -------------------------- --- ------- --- ------- 641 378 Net cash inflow from operating 1 343 788 activities ------- --- ------- -------------------------- --- ------- --- ------- Cash flows from investing activities 82 26 Dividends received from joint 93 38 ventures and associates 1 - Proceeds from disposal of subsidiary 5 26 undertakings and investments - 936 Proceeds from disposal of property, - 936 plant and equipment and intangible assets (250) (238) Purchase of property, plant and (599) (528) equipment and intangible assets 12 (45) Loans (to)/from joint ventures and (4) (54) associates - (12) Purchase of subsidiary undertakings (2) (12) and investments(i) ------- --- ------- -------------------------- --- ------- --- ------- (155) 667 Net cash (outflow)/inflow from (507) 406 investing activities ------- --- ------- -------------------------- --- ------- --- ------- Cash flows from financing activities (6) (7) Net interest paid(ii) 2 (22) (143) (74) Dividends paid (143) (74) (17) (14) Dividends paid to minority (17) (14) 42 89 Net proceeds from issue of new 58 145 borrowings (33) (62) Repayment of borrowings (81) (375) 2 6 Issue of shares 8 14 1 - Issue of shares to minority 1 - shareholder (446) (2) Purchase of own shares (593) (2) ------- --- ------- -------------------------- --- ------- --- ------- (600) (64) Net cash (outflow)/inflow from (765) (328) financing activities ------- --- ------- -------------------------- --- ------- --- ------- (114) 981 Net increase/(decrease) in cash and 71 866 cash equivalents 1 697 245 Cash and cash equivalents at 1 516 340 beginning of period (16) (3) Effect of foreign exchange rate (20) 17 changes ------- --- ------- -------------------------- --- ------- --- ------- 1 567 1 223 Cash and cash equivalents at end of 1 567 1 223 period(iii) ------- --- ------- -------------------------- --- ------- --- ------- Includes cash acquired of nil (2005 £18 million) on the purchase of a subsidiaryundertaking. Includes capitalised interest for the second quarter of £17 million (2005 £7million), and for the half year of £31 million (2005 £10 million). Cash and cash equivalents comprise cash and short-term liquid investments thatare readily convertible to cash. BG Group plc 18 RECONCILIATION OF NET BORROWINGS/FUNDS(i) - HALF YEAR £m Net funds as at 31 December 2005 as reported 253 Adoption of IFRIC 4 (See Note 1) (283) --------------------------------- --------- Net borrowings as at 31 December 2005 restated(i) (30) (ii) Net increase in cash and cash equivalents 71 Cash outflow from changes in gross borrowings 23 Inception of finance leases (122) Foreign exchange and other re-measurements 72 --------------------------------- --------- Net funds as at 30 June 2006(i) (ii) 14 --------------------------------- --------- Net borrowings attributable to Comgas were £212 million (31 December 2005 £189million). As at 30 June 2006, BG Group's share of the net borrowings in joint ventures andassociates amounted to approximately £1.0 billion, including BG Groupshareholder loans of approximately £0.6 billion. These net borrowings areincluded in BG Group's share of the net assets in joint ventures and associateswhich are consolidated in BG Group's accounts. i) Net borrowings/funds are defined on page 33. ii) Net borrowings/funds comprise: As at 30 Jun 30 Jun 2006 2005 £m £m Amounts receivable/(due) within one year Cash and cash equivalents 1 567 1 223 Overdrafts, loans and finance leases (57) (391) Derivative financial instruments(iii) (26) (17) --------------------------------- -------- -------- 1 484 815 Amounts receivable/(due) after more than one year Loans and finance leases (1 579) (1 189) Derivative financial instruments 109 129 --------------------------------- -------- -------- (1 470) (1 060) --------------------------------- -------- -------- Net funds/(borrowings) 14 (245) --------------------------------- -------- -------- iii) These items are included within commodity contracts and other derivativefinancial instrument balances on the balance sheet. BG Group plc 19 RECONCILIATION OF NET BORROWINGS - HALF YEAR (Continued) LIQUIDITY AND CAPITAL RESOURCES All the information below is as at 30 June 2006. The Group's principal borrowing entities are: BG Energy Holdings Limited,including wholly-owned subsidiary undertakings, the majority of whose borrowingsare guaranteed by BG Energy Holdings Limited (collectively BGEH), and Comgas andGujarat Gas, which conduct their borrowing activities on a stand-alone basis. BGEH had a $1.0 billion US Commercial Paper Programme, which was unutilised, anda $1.0 billion Eurocommercial Paper Programme, of which $963.7 million wasunutilised. BGEH also had a $2.0 billion Euro Medium Term Note Programme, ofwhich $1.477 billion was unutilised. BGEH had aggregate committed multicurrency revolving borrowing facilities of$1.105 billion, of which $552 million matures in August 2006 and $553 millionmatures in April 2009. There are no restrictions on the application of fundsunder these facilities, which were undrawn. BGEH is also lessee under a number of LNG ship charters which constitute financeleases. The total unutilised facility under these finance leases amounted to$212.8 million, such amounts being available exclusively to fund theconstruction of certain LNG ships. In addition, BGEH had uncommitted multicurrency borrowing facilities of £616million, all of which was unutilised. Comgas had committed borrowing facilities of BRL 985.1 million, of which BRL145.0 million was unutilised and uncommitted borrowing facilities of BRL 575.7million, of which BRL 428.8 million was unutilised. Gujarat Gas Company Limited had sanctioned borrowing facilities of Indian Rupees(INR) 1 500 million, of which INR 720 million was unutilised. BG Group plc 20 Independent review report to BG Group plc Introduction We have been instructed by the company to review the financial information forthe six months ended 30 June 2006 which comprises the consolidated interimbalance sheet as at 30 June 2006 and the related consolidated interim statementsof income, cash flows and changes in shareholders' equity for the six monthsthen ended and related notes. We have read the other information contained inthe interim report and considered whether it contains any apparent misstatementsor material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The Listing Rulesof the Financial Services Authority require that the accounting policies andpresentation applied to the interim figures should be consistent with thoseapplied in preparing the preceding annual accounts except where any changes, andthe reasons for them, are disclosed. This interim report has been prepared in accordance with the basis set out inNote 1. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom. A reviewconsists principally of making enquiries of group management and applyinganalytical procedures to the financial information and underlying financial dataand, based thereon, assessing whether the disclosed accounting policies havebeen applied. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit and therefore provides a lower level of assurance.Accordingly we do not express an audit opinion on the financial information.This report, including the conclusion, has been prepared for and only for thecompany for the purpose of the Listing Rules of the Financial Services Authorityand for no other purpose. We do not, in producing this report, accept or assumeresponsibility for any other purpose or to any other person to whom this reportis shown or into whose hands it may come save where expressly agreed by ourprior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. PricewaterhouseCoopers LLP Chartered Accountants London 24 July 2006 BG Group plc 21 Notes 1. Basis of preparation These primary statements are the unaudited interim consolidated financialstatements of BG Group plc for both the quarter ended and the half year ended 30June 2006. The financial information does not comprise statutory accounts withinthe meaning of Section 240 of the Companies Act 1985, and should be read inconjunction with the Annual Report and Accounts for the year ended 31 December2005, as they provide an update of previously reported information. Thesefinancial statements have been prepared in accordance with the requirements ofthe UK Listing Rules and the accounting policies set out in the 2005 AnnualReport and Accounts with the exception of the adoption of new accountingstandards as set out below. The preparation of the interim financial statements requires management to makeestimates and assumptions that affect the reported amount of revenues, expenses,assets and liabilities and disclosure of contingent liabilities at the date ofthe interim financial statements. If in the future such estimates andassumptions, which are based on management's best judgment at the date of theinterim financial statements, deviate from the actual circumstances, theoriginal estimates and assumptions will be modified as appropriate in the yearin which the circumstances change. IFRIC Interpretation 4 'Determining whether an Arrangement contains a Lease' IFRIC 4 requires companies to determine whether they have any arrangements whichare or contain leases based on an assessment of whether specific assets arerequired to fulfil each arrangement or whether each arrangement conveys a rightof use of the asset. If an arrangement contains a lease, the requirements ofIAS 17, 'Leases', should be applied to the lease element of the arrangement. BG Group has applied IFRIC 4 from 1 January 2006 and has concluded that thecontract for the provision of capacity at Lake Charles contains a financelease. Comparative information has been amended to reflect this arrangement. As at 1 January 2006, borrowings have been increased by £283 million, property,plant and equipment has increased by £263 million, deferred tax assets haveincreased by £7 million and retained earnings have decreased by £13 million toreflect this arrangement; comparative information has also been restated. Theeffect of this restatement on operating profit is a £2 million increase in thequarter and a £4 million increase in the half year and an increase in financecosts of £3 million in the quarter and £6 million in the half year. The taxeffect was a £1 million decrease in both the quarter and half year, resulting ina nil effect in earnings in the quarter and a £1 million decrease in the halfyear. IAS 39 'Financial Guarantee Contracts and Credit Insurance' In August 2005, the IASB issued an amendment to IAS 39 which covers theaccounting required for financial guarantee contracts that provide payment to bemade if a debtor fails to make a payment when due. These contracts should beinitially measured at fair value and subsequently re-measured using the higherof the provision set out in IAS 37 'Provisions, Contingent Liabilities andContingent Assets' or the initial amount less cumulative amortisation inaccordance with IAS 18, 'Revenue'. This amendment is mandatory for periodsbeginning on or after 1 January 2006 and BG Group has adopted it from that date.As at 1 January 2006, investments have been increased by £5 million andprovisions for other liabilities and charges have been increased by £5 million;comparative information has also been restated. The effect of this restatementon operating profit is nil for both quarter and half year. There is a decreaseof £1 million in finance costs and a £1 million decrease to the pre-tax share ofoperating results of joint ventures and associates in both the quarter and halfyear. BG Group plc 22 2. Disposals and re-measurements Second Quarter Half Year 2006 2005 2006 2005 £m £m £m £m 85 (120) Revenue and other operating income - 109 (158) re-measurements of commodity contracts (8) 416 Profits and losses on disposal of (8) 429 non-current assets (1) 8 Finance costs - re-measurements of (1) 10 financial instruments 17 (90) Taxation 7 (74) - (5) Minority interest 1 (8) -------- -------- ------------------------- -------- --------- 93 209 Impact on earnings 108 199 -------- -------- ------------------------- -------- --------- Second quarter and half year: Revenue and other operating income Re-measurements included within revenue and other operating income amount to acredit of £85 million for the quarter (2005 £120 million charge), of which £82million (2005 £109 million) represents non-cash mark-to-market movements oncertain long-term UK gas contracts. Whilst the activity surrounding thesecontracts involves the physical delivery of gas, the contracts fall within thescope of IAS 39 and meet the definition of a derivative instrument. For thefirst quarter of 2006, re-measurements included within revenue and otheroperating income amounted to a credit of £24 million (2005 £38 million charge). Net finance costs Re-measurements presented in net finance costs relate primarily to certainderivatives used to hedge foreign exchange and interest rate risk which have notbeen designated as hedges under IAS 39, partly offset by foreign exchangemovements on certain borrowings in a subsidiary. In 2005, re-measurementsincluded the retranslation of MetroGAS US Dollar and Euro borrowings which couldnot be designated as hedges under IAS 39. Following the de-consolidation ofMetroGAS and GASA in December 2005, these companies made no contribution to theresults of BG Group in 2006. 2006 second quarter: Disposal of non-current assets During the second quarter, BG Group disposed of its telecoms businesses. Thisresulted in a loss on disposal of £8 million. No tax arose on the disposal. 2005 second quarter and half year: Disposal of non-current assets During the first quarter of 2005, BG Group disposed of its 50% interest inPremier Transmission Limited to Premier Transmission Financing Plc for cashproceeds of £26 million. No tax arose on the disposal. During the second quarter of 2005, BG Group completed the sale of its 16.67%interest in the North Caspian Sea PSA and received net pre-tax proceeds ofapproximately $1.8 billion realising a £416 million pre-tax and £279 millionpost-tax profit on the sale. BG Group plc 23 3. Segmental analysis Group revenue and other Busi- Disposals Total Busi- Disposals Total operating income ness and re- ness and re- Perfor- measure- Perfor- measure- mance ments mance ments Second Quarter 2006 2006 2006 2005 2005 2005 £m £m £m £m £m £m Exploration and Production 984 85 1 069 658 (124) 534 Liquefied Natural Gas 548 - 548 236 4 240 Transmission and Distribution 224 - 224 196 - 196 Power Generation 50 - 50 46 - 46 Other activities 2 - 2 4 - 4 Less: intra-group sales (54) - (54) (7) - (7) --------------------- -------- -------- ------ ------- ------- ------ 1 754 85 1 839 1 133 (120) 1 013 --------------------- -------- -------- ------ ------- ------- ------ Group revenue and other Busi- Disposals Total Busi- Disposals Total operating income ness and re- ness and re- Perfor- measure- Perfor- measure- mance ments mance ments Half Year 2006 2006 2006 2005 2005 2005 £m £m £m £m £m £m Exploration and Production 2 057 109 2 166 1 293 (158) 1 135 Liquefied Natural Gas 1 201 - 1 201 456 - 456 Transmission and Distribution 427 - 427 365 - 365 Power Generation 142 - 142 121 - 121 Other activities 5 - 5 6 - 6 Less: intra-group sales (106) - (106) (14) - (14) ---------------------- -------- -------- ------ ------- -------- ------ 3 726 109 3 835 2 227 (158) 2 069 ---------------------- -------- -------- ------ ------- -------- ------ BG Group plc 24 3. Segmental analysis (continued) Total operating Before share Share of Including Disposals and Business profit of results results in share of re-measurements Performance from joint joint results from (ii) (ii) ventures and ventures and joint associates associates(i) ventures and associates Second Quarter 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m Exploration and Production 732 699 - - 732 699 (85) (292) 647 407 Liquefied Natural Gas 10 (3) 24 24 34 21 - (4) 34 17 Transmission and Distribution 46 46 11 10 57 56 - - 57 56 Power Generation 2 (1) 21 22 23 21 - - 23 21 Other activities (17) (8) - - (17) (8) 8 - (9) (8) ---------------- ------ ------ ------ ------ ------ ------ ------- ------ ------ ------- Operating profit 773 733 56 56 829 789 (77) (296) 752 493 ---------------- ------ ------ ------ ------ ------ ------ ------- ------ ------ ------- Total operating Before share Share of Including Disposals and Business profit of results results in share of re-measurements Performance from joint joint results from (ii) (ii) ventures and ventures and joint associates associates(i) ventures and associates Half Year 2006 2005 2006 2005 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m £m £m £m £m Exploration and Production 1 482 1 052 - - 1 482 1 052 (109) (258) 1 373 794 Liquefied Natural Gas 118 1 54 45 172 46 - - 172 46 Transmission and Distribution 100 94 22 21 122 115 - (13) 122 102 Power Generation 12 15 50 42 62 57 - - 62 57 Other activities (27) (21) - - (27) (21) 8 - (19) (21) ---------------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ Operating profit 1 685 1 141 126 108 1 811 1 249 (101) (271) 1 710 978 ---------------- ------ ------ ------ ------ ------ ------- ------ ------ ------ ------ i) Share of results in joint ventures and associates in the table above isbefore finance costs and taxation. The share of results after finance costs andtaxation for the quarter is £29 million (2005 £38 million), and for the halfyear is £67 million (2005 £77 million). ii) Business Performance excludes certain disposals and re-measurements. SeeNote 2, page 23 and Presentation of Non-GAAP measures, page 12. BG Group plc 25 3. Segmental analysis (continued) Total Result Operating Share of Total profit before results in Result share of joint results from ventures and joint associates ventures and associates Second Quarter 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m Exploration and Production 732 699 - - 732 699 Liquefied Natural Gas 10 (3) 10 18 20 15 Transmission and Distribution 46 46 7 6 53 52 Power Generation 2 (1) 12 14 14 13 Other activities (17) (8) - - (17) (8) -------------------- ------ ------ ------ ------ ------ ------ 773 733 29 38 802 771 Net finance income/(costs) 3 4 Taxation (375) (272) -------------------- ------ ------ ------ ------ ------ ----- Profit for the period 430 503 -------------------- ------ ------ ------ ------ ------ ----- Total Result Operating Share of Total profit before results in Result share of joint results from ventures and joint associates ventures and associates Half Year 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m Exploration and Production 1 482 1 052 - - 1 482 1 052 Liquefied Natural Gas 118 1 22 35 140 36 Transmission and Distribution 100 94 13 16 113 110 Power Generation 12 15 32 26 44 41 Other activities (27) (21) - - (27) (21) ---------------------- ------ ------ ------ ------ ------ ------ 1 685 1 141 67 77 1 752 1 218 Net finance income/(costs) 20 (6) Taxation (753) (439) ---------------------- ------ ------ ------ ------ ------ ------Profit for the period 1 019 773 ---------------------- ------ ------ ------ ------ ------ ------ BG Group plc 26 4. Net finance costs Second Quarter Half Year 2006 2005 2006 2005 £m £m £m £m (13) (24) Interest payable (31) (43) (18) (3) Interest on obligations under (30) (7) finance leases 17 7 Interest capitalised 31 10 (3) (3) Unwinding of discount on provisions (6) (6) (i) (5) (10) Disposals and re-measurements (Note 2) (8) (19) --------- --------- ------------------------ --------- --------- (22) (33) Finance costs (44) (65) --------- --------- ------------------------ --------- --------- 21 19 Interest receivable 57 30 4 18 Disposals and re-measurements (Note 2) 7 29 --------- --------- ------------------------ --------- --------- 25 37 Finance income 64 59 --------- --------- ------------------------ --------- --------- 3 4 Net finance income/(costs)(ii) 20 (6) --------- --------- ------------------------ --------- --------- Relates to the unwinding of the discount on provisions in respect ofdecommissioning and pension obligations, included in the income statement as afinancial item within net finance costs. Excludes Group share of net finance costs from joint ventures and associates forthe quarter of £18 million (2005 £9 million), and for the half year of £34million (2005 £18 million). 5. Taxation The taxation charge for the second quarter before disposals and re-measurementswas £392 million (2005 £182 million). This includes a charge of £38 million(2005 nil) to reflect an increase in the rate of North Sea taxation on theresults for the first quarter and a further charge of £38 million (2005 nil) toreflect the increased tax rate on deferred tax balances as at 1 January 2006. The taxation charge for the second quarter including disposals andre-measurements was £375 million (2005 £272 million). This includes a charge of£40 million (2005 nil) to reflect the increased North Sea tax rate on theresults for the first quarter and a credit of £23 million (2005 nil) to reflectthe increased tax rate on deferred tax balances as at 1 January 2006. For the half year, the taxation charge before disposals and re-measurements was£760 million (2005 £365 million). This includes a charge of £38 million (2005nil) to reflect the increased North Sea tax rate on deferred tax balances as at1 January 2006. The taxation charge for the half year including disposals and re-measurementswas £753 million (2005 £439 million), including £384 million (2005 £257 million)in respect of overseas tax. This includes a credit of £23 million (2005 nil) toreflect the increased North Sea tax rate on deferred tax balances as at 1January 2006. The Group share of taxation from joint ventures and associates for the secondquarter was £9 million (2005 £9 million) and for the half year was £25 million(2005 £13 million). BG Group plc 27 6. Earnings per ordinary share Second Quarter Half Year 2006 2005 2006 2005 ----------------------------------------------------------------------------------- £m Pence £m Pence £m Pence £m Pence per per per per share share share share ----------------------------------------------------------------------------------- 418 12.0 484 13.7 Earnings 996 28.4 743 21.0 (101) (2.9) 70 2.0 Re-measurements (116) (3.3) 93 2.6 (after tax and minority interest) 8 0.2 (279) (7.9) Profits and losses 8 0.2 (292) (8.2) on disposals (after tax) ------ ------- ------ ------- -------------- ------ -------- ------ ------- 325 9.3 275 7.8 Earnings - 888 25.3 544 15.4 excluding disposals and re-measurements ------ ------- ------ ------- -------------- ------ -------- ------ ------- Basic earnings per share calculations in 2006 are based on shares in issue of 3493 million for the quarter and 3 510 million for the year to date. The earnings figure used to calculate diluted earnings per ordinary share is thesame as that used to calculate earnings per ordinary share given above, dividedby 3 518 million for the quarter and 3 535 million for the year to date, beingthe weighted average number of ordinary shares in issue during the quarter asadjusted for share options. BG Group plc 28 7. Results Presentation Half Year Business Disposals Total Performance and re- Result measurements (i) 2006 2005 2006 2005 2006 2005 £m £m £m £m £m £m Operating profit before disposal of non-current assets 1 584 870 109 (158) 1 693 712 Profits and losses on disposal of non-current assets(ii) - - (8) 429 (8) 429 ------------------------------------------------ Operating profit before share of results from joint ventures and associates 1 584 870 101 271 1 685 1 141 Pre-tax share of operating results of joint ventures and associates 126 108 - - 126 108 ------------------------------------------------ Total operating profit 1 710 978 101 271 1 811 1 249 Net finance costs Finance income 57 30 7 29 64 59 Finance costs (36) (46) (8) (19) (44) (65) Share of joint ventures and associates (34) (18) - - (34) (18) ------------------------------------------------ (13) (34) (1) 10 (14) (24) Taxation Taxation (760) (365) 7 (74) (753) (439) Share of joint ventures and associates (25) (13) - - (25) (13) ------------------------------------------------ (785) (378) 7 (74) (778) (452) ------------------------------------------------ Profit for the period(iii) 912 566 107 207 1 019 773 ------------------------------------------------ Profit attributable to: Shareholders (earnings) 888 544 108 199 996 743 Minority interest 24 22 (1) 8 23 30 ------------------------------------------------ 912 566 107 207 1 019 773 -------------------------------------------------------------------- i) Re-measurements excluded from Business Performance The IAS 39 re-measurements reflect movements in external market prices andexchange rates. Financial instruments include certain long-term UK gas contractswhich are classified as derivatives under IAS 39 due to the nature of thecontract terms and are therefore required to be marked-to-market. This treatmenthas no impact on the ongoing cashflows of the business and these unrealisedmark-to-market movements are best presented separately from underlying businessperformance. For an explanation of Non-GAAP measures see page 12. ii) 2006 includes £416 million on disposal of BG Group's interest in the NorthCaspian PSA. iii) 2006 includes prior period taxation adjustments following the increase inNorth Sea taxation. BG Group plc 29 8. Capital investment: geographical analysis Second Quarter Half Year 2006 2005 2006 2005 £m £m £m £m 109 109 Europe and Central Asia 213 235 40 33 South America 113 57 30 25 Asia Pacific 53 39 172 101 North America and the 281 165 Caribbean 50 147 Mediterranean Basin and 127 234 Africa -------- ----------- ------------------------ -------- -------- 401 415 787 730 -------- ----------- ------------------------ -------- -------- 9. Quarterly information: earnings and earnings per share 2006 2005 2006 2005 £m £m pence pence First quarter - including disposals and re-measurements 578 259 16.4 7.3 - excluding disposals and re-measurements 563 269 16.0 7.6 Second quarter - including disposals and re-measurements 418 484 12.0 13.7 - excluding disposals and re-measurements 325 275 9.3 7.8 Third quarter - including disposals and re-measurements 320 9.0 - excluding disposals and re-measurements 307 8.7 Fourth quarter - including disposals and re-measurements 462 13.0 - excluding disposals and re-measurements 503 14.2 ------------------------- -------- -------- -------- --------Full year - including disposals and re-measurements 1 525 43.1 - excluding disposals and re-measurements 1 354 38.3 ------------------------- -------- -------- -------- -------- BG Group plc 30 Supplementary information: Operating and financial data Second Quarter First Quarter Half Year 2006 2005 2006 2006 2005 Production volumes (mmboe) 5.3 4.5 5.6 - oil 10.9 9.2 7.6 8.4 7.4 - liquids 15.0 16.1 42.7(i) 31.7 42.8 - gas 85.5(i) 63.0 ------- ------- ---------- ------- ------- 55.6 44.6 55.8 - total 111.4 88.3 ------- ------- ---------- ------- ------- Production volumes (boepd in thousands) 58 50 62 - oil 60 51 84 92 82 - liquids 83 89 468 348 476 - gas 472 348 ------- ------- ---------- ------- ------- 610 490 620 - total 615 488 ------- ------- ---------- ------- ------- LNG cargoes 22 9 2 - delivered to Lake Charles 24 17 14 11 9 - delivered to Elba Island 23 21 13 1 29 - re-marketed 42 11 ------- ------- ---------- ------- ------- 49 21 40 - total 89 49 ------- ------- ---------- ------- ------- £38.71 £28.01 £35.74 Average realised oil price per £37.18 £26.65 barrel ($69.76) ($52.36) ($62.53) ($66.03) ($50.27) £31.51 £21.15 £28.68 Average realised liquids price £30.14 £18.34 per barrel ($56.79) ($39.54) ($50.17) ($53.51) ($34.59) 26.20p 22.98p 38.84p Average realised UK gas price per 32.96p 23.59p produced therm 17.05p 14.16p 18.40p Average realised International 17.71p 14.01p gas price per produced therm 19.09p 16.81p 23.69p Average realised gas price per 21.38p 17.15p produced therm £1.21 £1.13 £1.19 Lifting costs per boe(ii) £1.20 £1.14 ($2.18) ($2.10) ($2.08) ($2.13) ($2.14) £2.07 £2.04 £2.18 Operating expenditure per boe £2.13 £2.06 ($3.72) ($3.82) ($3.82) ($3.77) ($3.89) 160 174 131 Development expenditure (£m) 291 329 Gross exploration expenditure (£m) 66 15 136 - capitalised 202 102 expenditure 37 23 33 - other 70 38 ------- ------- ---------- expenditure ------- ------- 103 38 169 - gross 272 140 ------- ------- ---------- expenditure ------- ------- Includes fuel gas for the second quarter of 1.19 mmboe and 2.22 mmboe for thehalf year. Lifting costs are defined as operating expenditure excluding royalties, tariffsand insurance. BG Group plc 31 Supplementary information: Operating and financial data (continued) BG Group's exposure to the oil price varies according to a number of factorsincluding the mix of production and sales. Management estimates that, otherfactors being constant, a $1.00 rise (or fall) in the Brent price would increase(or decrease) operating profit in 2006 by approximately £40 million to £50million. BG Group's exposure to the US$/UK£ exchange rate varies according to a number offactors including commodity prices and the timing of US Dollar revenues andcosts including capital expenditure. Management estimates that in 2006, otherfactors being constant, a 10 cent strengthening (or weakening) in the US Dollarwould increase (or decrease) operating profit by approximately £120 million to£140 million. BG Group plc 32 Definitions In these results: bcf billion cubic feet bcfd billion cubic feet per day bcmpa billion cubic metres per annum boe barrels of oil equivalent boed barrels of oil equivalent per day bopd barrels of oil per day CCGT combined cycle gas turbine DCQ daily contracted quantity E&P Exploration and Production EPC engineering, procurement and construction EPIC engineering, procurement, installation and commissioning FEED front end engineering design FERC Federal Energy Regulatory Commission GW gigawatt IAS 39 International Accounting Standard 39 (Financial IFRS Instruments) LNG International Financial Reporting Standards m Liquefied Natural Gas mmboe million mmbtu million barrels of oil equivalent mmcfd million british thermal units mmcmd million cubic feet per day mmscfd million cubic metres per day mmscm million standard cubic feet per day mmscmd million standard cubic metres MoU million standard cubic metres per day mtpa Memorandum of understanding MW million tonnes per annum Net borrowings/funds megawatt Comprise cash, current asset investments, finance leases, currency and interest rate derivative financial instruments and short- and long-term borrowings NGL Natural gas liquids PSA production sharing agreement T&D Transmission and Distribution Total operating profit Group operating profit plus share of pre-tax operating results of joint ventures and associates UKCS United Kingdom Continental Shelf UKCNS United Kingdom central North Sea BG Group plc 33 Enquiries Enquiries relating to BG Group's General enquiries about shareholderresults, business and financial position matters should be made to:should be made to: Investor Relations Department Lloyds TSB RegistrarsBG Group plc The CausewayThames Valley Park Drive WorthingReading West SussexBerkshire BN99 6DARG6 1PT Tel: 0118 929 3025 Tel: 0870 600 3951e-mail: [email protected] e-mail: [email protected] Financial Calendar Ex-dividend date for 2006 interim dividend 9 August 2006 Record date for 2006 interim dividend 11 August 2006 Payment of 2006 interim dividend: Shareholders 15 September 2006 American depositary receipt holders 22 September 2006 Announcement of 2006 third quarter results 2 November 2006 BG Group plc website: www.bg-group.com Registered office 100 Thames Valley Park Drive, Reading RG6 1PT Registered in England No. 3690065 BG Group plc 34 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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