BG Group: Annual Strategy Update (UK)

BG Group will today present its Annual Strategy update and Fourth Quarter and Full Year 2010 results.

Key points from the Annual Strategy update presentation

* Exploration and Production (E&P): BG Group reaffirms its E&P long-term average growth range of 6-8% out to 2020, with the 7% mid-point now achievable from existing discoveries alone.

* Santos Basin, Brazil: BG Group raises its estimate of net production by 2020 from 400 000 barrels oil equivalent per day (boed) to more than 550 000 boed.

* US shale gas: BG Group raises its estimate of net production by 2015 from 100 000 boed to 190 000 boed.

* Liquefied Natural Gas (LNG): plans to grow BG Group LNG supply to around 20 million tonnes per annum (mtpa) by 2015 – around 50% above current levels – are reaffirmed, with a potential supply case of 30 mtpa by 2020.

* Australia: construction is now underway on the two-train 8.5 mtpa Queensland Curtis LNG (QCLNG) project, with total gross resources almost quadrupled since venture entry in February 2008 to reach 21 trillion cubic feet (tcf).

* LNG profit guidance: increased to $1.9-$2.2 billion per annum for 2011-12.

* Market outlook: BG Group foresees strong growth in global gas demand through to 2020, with tightening supply.

* Oil indexation: around 70% of BG Group sales (by value) are expected to be oil or oil-related by 2015, up from circa 50% in 2010.

* Exploration prospect inventory: BG Group now has net risked resources of 3.7 billion boe and net unrisked resources of 19 billion boe. In 2011, the Group intends to drill key prospects in Australia, China, Egypt, Norway, Tanzania and the USA.

* Total reserves and resources: In 2010, 1.7 billion boe were added to total reserves and resources to reach 16.2 billion boe, representing 69 years of production at 2010 levels. One-year proved (1P) and proved plus probable (2P) reserves replacement rates were strong at 224% and 349% respectively.

BG Group Chief Executive Frank Chapman said: “2010 was a pivotal year for BG Group as the largest growth opportunities in our history began to crystallise amid a positive outlook for global gas markets. The Group’s excellent 2020 growth programme is well on track.”

Key portfolio developments

Brazil

* During 2010, BG Group published a certified resources upgrade for the Lula, Cernambi and Guará fields, together with guidance indicating low unit technical costs for the first three Floating Production, Storage and Offloading (FPSO) modules on Lula and Guará. Estimated capex is approximately $5/boe and opex $9/boe, with transportation costs to access Brent-parity oil prices of $4 per barrel.

* Commercial production has commenced from the first permanent FPSO on the Lula field.

* The Santos Basin consortium plans to deploy a further 12 FPSOs on Lula, Cernambi, Guará, Iara and Carioca between 2013 and 2017, with total production capacity by 2017 anticipated at approximately 2.3 million boed.

* Santos Basin total gas resources are currently estimated at more than 14 tcf gross, located within reach of Brazilian downstream markets served by BG Group’s Comgás business.

* In light of BG Group’s latest certified resources estimates and with further progress anticipated in field development planning, in the Group’s view these fields are of sufficient quality and scale to support net production above 550 000 boed by 2020.

USA

* BG Group’s US shale gas total resources now amount to 8.5 tcf (1.4 billion boe).

* Net production increased by around 300% in 2010.

* Wells in the Haynesville shale in East Texas and North Louisiana demonstrate high levels of capital efficiency, with economic break-even at natural gas prices down to $3.20 per million British thermal units.

* BG Group is expanding its operations in the Pennsylvania/West Virginia Marcellus shale.

* BG Group derives a competitive advantage from its ownership of US midstream assets, with volumes through its TGGT joint venture midstream business expected to increase by more than 30% per annum to 2014, reaching more than 3 billion cubic feet per day.

* Net production expected from the Group’s US joint venture interests now amounts to 190 000 boed by 2015 – almost double the volumes anticipated one year ago.

Australia

* QCLNG project sanction realises a long-term BG Group strategic objective to globalise its LNG business through an Asia-Pacific equity LNG position, with long-term LNG sales agreements of almost 10 million tonnes per annum.

* Plant construction, on Curtis Island near Gladstone, is gathering pace.

* The QCLNG project offers good expansion potential, with environmental site permits for three LNG trains and space on BG Group’s Curtis Island site for up to five. The Group anticipates significantly lower incremental unit capital expenditure for a third train and has already begun marketing third train production.

* BG Group plans to produce up to 210 000 boed net from the first two trains.

Exploration

* Since 1997, BG Group has grown its total resources base from 3.6 billion boe to 16.2 billion boe – representing, on average, the organic addition of 1 billion boe to total resources every year for the past 14 years. The Group’s exploration prospect inventory has grown by approximately 12% per annum over the last 10 years.

* Tanzania: BG Group has an extensive acreage position in three frontier play blocks, with two significant gas discoveries in high-quality reservoirs from the Group’s first two exploration wells.

* China: encouraging early signs from the Group’s first exploration well, offshore China, which encountered high-quality gas-bearing sands in the deepwater Qiongdongnan Basin.

Production

* BG Group anticipates strong rates of growth in the period 2011-2015, above the Group’s long-term rate of 6-8% to 2020. The Group expects 2011 to be a transitional year in which E&P growth will approach the lower end of the long-term range. From 2012, the Group expects growth to accelerate above the 6-8% range as new production ramps up in Brazil, Australia and the USA. Capital investment

* Capital investment in 2011 of $10 billion and $11 billion in 2012, with the focus on the Group’s major investments in Brazil, the USA and Australia.

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Source: BG Group, February 8, 2011;