BG Group plc 2010 THIRD QUARTER RESULTS

Transcription

1 Business Performance (a) Highlights Earnings per share of 28.9 cents, up 27% year-on-year Queensland Curtis LNG project sanctioned following Federal environmental approval Capex guidance for two-year period increased from $16.5 billion to $18.5 billion First production from bopd FPSO facility on Tupi field, offshore Brazil Certified gross resources upgrade of 2.7 bboe to Tupi, Iracema and Guará fields, offshore Brazil UK government approves first phase of Jasmine development BG Group s Chief Executive, Frank Chapman said: Alongside a set of good quarterly results, we have made significant progress in the delivery of our growth plans for the decade ahead. In Brazil, we have brought onstream the first Tupi permanent facilities and we have announced a very significant resources upgrade on the Tupi, Iracema and Guará fields. In Australia, we have realised a pivotal strategic objective with the sanction of the Queensland Curtis LNG project. This further globalises our LNG business by establishing a new and material source of equity LNG in the Asia-Pacific arena. BG Group has today announced a certified upgrade to gross resources on Tupi, Iracema and Guará. This is available online at (b) Business Performance (a) % Nine Months (b) Total operating profit including share of pre-tax operating results from joint ventures and associates % % Earnings for the period % 28.9c 22.8c +27% Earnings per share 87.5c 73.2c +20% % % Total results for the period (including disposals, re-measurements and impairments) Operating profit before share of results from joint ventures and associates % Total operating profit including share of pre-tax operating results from joint ventures and associates % % Earnings for the period continuing operations % (27) 14 Earnings for the period discontinued operations (c) (67) c 23.3c +11% Earnings per share continuing operations 73.3c 74.5c -2% (0.8c) 0.4c Earnings per share discontinued operations (c) (2.0c) 1.9c a) Business Performance excludes discontinued operations and 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 ongoing business. For further explanation of Business Performance and the presentation of results from joint ventures and associates, see Presentation of Non-GAAP measures (page 7), note 1 (page 14) and note 3 (page 17). For further details of the items included in disposals, re-measurements and impairments, see note 2 (page 16). Unless otherwise stated, the results discussed in this release relate to BG Group's Business Performance. b) results have been restated from Pounds Sterling to US Dollars, to reflect the application of IFRIC 12 and the presentation of the majority of the businesses that comprised the Power segment as discontinued operations (see note 1, page 14). c) For further information on discontinued operations see page 2, note 1 (page 14) and note 6 (page 20). Results 1

2 Business Review Group Business Performance Restated (a) Revenue and other operating income % Total operating profit including share of pre-tax results from joint ventures and associates Exploration and Production % Liquefied Natural Gas % Transmission and Distribution % Other activities (16) (24) -33% % Net finance costs (123) (25) +392% Taxation for the period (520) (551) -6% Earnings for the period % Earnings per share (cents) 28.9c 22.8c +27% Capital investment (b) % a) See note 1 (page 14). b) Includes $1 million relating to discontinued operations ( $5 million). Third quarter Revenue and other operating income increased by 23% to $4 446 million and total operating profit increased by 21% to $1 667 million as a result of increased LNG cargo diversions and higher commodity prices and T&D volumes. Cash generated by operations was $1 726 million ( $1 950 million). Net finance costs of $123 million for the quarter included foreign exchange losses of $58 million ( $34 million gain). As at 30 September, net debt was $6 265 million ( $4 703 million) and the gearing ratio of the Group was 19% ( 17%). The Group s effective tax rate (including BG Group s share of joint venture and associates tax) was 34% for the quarter and included a credit of $106 million in relation to a favourable settlement in a prior period. Including this credit, the full year effective tax rate is expected to be approximately 39% ( 42%). Capital investment of $2 079 million in the quarter comprised investment in E&P ($1 544 million), LNG ($473 million), T&D ($61 million) and discontinued operations ($1 million). Following the sanction of the QCLNG project in Australia, BG Group has increased planned Group capital expenditure for from $16.5 billion to $18.5 billion. Discontinued operations Power Generation Following the disposal of the Group s power stations in the USA and UK earlier in the year, BG Group announced in September that it had agreed to sell its interests in Santa Rita and San Lorenzo power stations in the Philippines. These power stations represent the majority of the Group s Power business segment and are considered to be a separate major line of business for BG Group. As a result, these operations have been treated as discontinued operations for the period ended 30 September. The remaining Power businesses remain with BG Group and have been allocated to other business segments based on their activity and location. Comparative information has also been restated. For further information on discontinued operations, see note 1 (page 14) and note 6 (page 20). Results 2

3 Exploration and Production (E&P) Business Performance Restated (a) Production volumes (mmboe) Revenue and other operating income % Total operating profit before exploration charge % Exploration charge (133) (199) -33% Total operating profit % Capital investment % a) See note 1 (page 14). Additional operating and financial data is given on page 23. Third quarter Revenue and other operating income of $1 946 million was 12% higher, reflecting higher realised oil, liquids and international gas prices. Total operating profit increased by 7% to $761 million as a result of the increase in revenue and other operating income and a lower exploration charge, partially offset by an adverse production mix in the quarter related to shutdowns at the Karachaganak and Panna/Mukta fields. Production volumes were in line with as higher production from the USA and the Hasdrubal field in Tunisia was offset by the biennial shutdown for extended maintenance at the Karachaganak field in Kazakhstan and the unplanned shutdown of the Panna/Mukta field in India. BG Group continues to expect slight production growth for the full year. International gas realisations were 23% higher at cents per produced therm, reflecting gas prices linked to higher oil and Henry Hub market prices. The average realised gas price in the UK of pence per produced therm was in line with. For the /11 UK gas year, BG Group expects to sell approximately two-thirds of its North Sea gas production at an average price of around 42 pence per therm. The exploration charge of $133 million was $66 million lower as a result of lower well write-off. Unit operating expenditure increased to $7.08 per barrel of oil equivalent, reflecting the impact of higher commodity prices, the phasing of maintenance activity and changes in the production mix. Capital investment of $1 544 million in the quarter comprised investment in the Americas ($611 million), Africa, Middle East and Asia ($326 million), Australia ($319 million) and Europe and Central Asia ($288 million). Third quarter business highlights Brazil BG Group has announced a 2.7 billion barrels of oil equivalent (boe) upgrade to estimates of gross resources for the Tupi, Iracema, and Guará fields in the Santos Basin, offshore Brazil. BG Group s new aggregate best estimate of economically recoverable gross resources* for these fields amounts to 10.8 billion boe, representing a 34% increase to the 8.1 billion boe mid-point of the Group s previous indicative resource range. As a result of the upgrade, BG Group s aggregate best estimate of its economically recoverable net resources on Tupi, Iracema and Guará now stands at 2.8 billion boe. BG Group engaged the oil and gas consulting firm Miller and Lents, Ltd (MLL) to provide expert independent verification of the estimates of resources on Tupi, Iracema and Guará. MLL were provided with full access to BG Group s data and development models for these fields and have certified their best estimate** for gross resources for these fields to be 10.8 billion boe in aggregate. Further details are available in the separate announcement available online at * Resources are defined by BG Group as the aggregate of proved and probable reserves and discovered resources. These terms are defined in the BG Group Annual Report and Accounts ( ** The MLL letter of certification to BG Group is available online at Results 3

4 In October, BG Group and partners completed two new successful appraisal wells known as Iracema Norte and Tupi SW in BM-S-11 (BG Group 25%) in the Santos Basin, offshore Brazil. These are the eighth and ninth consecutive successful wells on the Tupi accumulation and confirm the extended presence of light oil. In October, BG Group announced that production from the first permanent floating production, storage and offloading (FPSO) vessel on the Tupi field in block BM-S-11 had commenced. The Cidade de Angra dos Reis FPSO, which is initially connected to well RJS-660 (known as Tupi-P1), is expected to produce up to barrels of oil per day and up to 177 million standard cubic feet of gas per day. UK In October, the Department of Energy and Climate Change (DECC) approved the first phase development of the Jasmine discovery (BG Group 30.5%) in the central North Sea. Jasmine Phase 1 is expected onstream by the end of Jasmine will benefit from utilising J-Block s existing infrastructure. Tanzania In October, BG Group (60%) and partner Ophir Energy plc (40% and operator) announced that the Pweza-1 exploration well, located in Block 4 approximately 85 kilometres offshore southern Tanzania and in a water depth of metres, has demonstrated the presence of a working hydrocarbon system with gas-bearing sands. Pweza-1 is the first of a three-well initial work programme planned for Blocks 1, 3 and 4. The programme also includes the acquisition of square kilometres of 3D seismic data. BG Group has the option to assume operatorship of all three blocks upon completion of the initial work programme. Results 4

5 Liquefied Natural Gas (LNG) Business Performance Restated (a) Revenue and other operating income % Total operating profit Shipping and marketing % Liquefaction % Business development and other (25) (42) -40% % Capital investment % a) See note 1 (page 14). Additional operating and financial data is given on page 23. Third quarter LNG total operating profit for the quarter increased by 43% to $725 million. Shipping and marketing total operating profit of $674 million was 42% higher. Third quarter performance benefited from favourable market conditions and a higher number of diversions. BG Group does not expect the strong performance in the third quarter to continue into the fourth quarter. BG Group s share of operating profit from liquefaction activities increased by 6% to $76 million. Capital investment of $473 million in the quarter included $387 million in Australia and $46 million relating to LNG ships. Third quarter business highlights Australia In October, BG Group announced that it had taken the Final Investment Decision approving implementation of the first phase of the Queensland Curtis Liquefied Natural Gas project (QCLNG) following receipt of Australian Federal and State Government environmental approvals with acceptable conditions. The first phase of QCLNG encompasses the development of a two-train 8.5 million tonnes per annum (mtpa) liquefaction plant together with the associated upstream and pipeline facilities. Over the next four years ( ), BG Group plans to invest approximately US$15 billion in developing the liquefaction plant and related wells, field facilities and pipelines. Final notices to proceed will be issued to the main contractors appointed for the development of the first phase of QCLNG. First LNG exports are planned to commence from 2014, underpinned by agreements in Chile, China, Japan and Singapore for the purchase of up to 9.5 mtpa of LNG. Total gross discovered coal seam gas reserves and resources presently amount to an estimated 17.3 trillion cubic feet (tcf) equivalent to more than 2.9 billion barrels of oil equivalent (boe) with 2P (proved plus probable) reserves now estimated at 7 tcf. From first entry to Queensland to project sanction has taken less than three years, reinforcing BG Group s reputation, previously demonstrated in Trinidad and Tobago and Egypt, for advancing innovative and complex gas chain projects within challenging timeframes. In October, BG Group announced it had executed a heads of agreement with Chubu Electric Power Co. Inc (Chubu Electric) for the long-term supply of LNG from BG Group s global LNG portfolio, including from the QCLNG project. The heads of agreement sets out the basis for Chubu Electric s purchase of up to 120 cargoes over a 20-year term commencing in BG Group and Chubu Electric intend to complete negotiations and execute the fully termed agreement in the first half of Results 5

6 Transmission and Distribution (T&D) Business Performance Revenue and other operating income Restated (a) Comgás % Other % % Total operating profit Comgás % Other % % Capital investment a) See note 1 (page 14). Third quarter Revenue and other operating income increased by 17% to $806 million, reflecting higher volumes at Comgás in Brazil and at Gujarat Gas in India. T&D total operating profit for the quarter of $197 million was 7% higher, reflecting the increase in revenue and other operating income and the timing effect of gas cost recovery at Comgás. Excluding the timing effect of gas cost recovery, total operating profit at Comgás increased by 10%, reflecting higher volumes and favourable Brazilian Real foreign exchange movements. The net recovery of gas costs at Comgás in the quarter was $67 million compared with $53 million in. At the end of the quarter, $90 million of accrued benefit is due to be passed back to customers through lower prices in future periods. Power Generation Following the disposal of the majority of BG Group s power interests, the Group s remaining power assets have been re-allocated to other operating segments based on their activity and location. Third quarter business highlights Philippines In September, BG Group announced that it had signed a Sale and Purchase Agreement for the sale of the Group s 40% interests in both the Santa Rita and San Lorenzo power stations in the Philippines for a net consideration of approximately $400 million. Closing of the transaction is expected in first quarter 2011 and is subject to receiving necessary waivers and consents from non-recourse lenders and First Philippine Holdings Corporation. Results 6

7 Presentation of Non-GAAP measures Business Performance Business Performance excludes discontinued operations and disposals, certain re-measurements and impairments (see below) as exclusion of these items provides a clear and consistent presentation of the underlying operating performance of the Group s ongoing business. BG Group uses commodity instruments to manage price exposures associated with its marketing and optimisation activity in the UK and USA. This activity enables the Group to take advantage of commodity price movements. It is considered more appropriate to include both unrealised and realised gains and losses arising from the mark-to-market of derivatives associated with this activity in Business Performance. Disposals, certain re-measurements and impairments BG Group s commercial arrangements for marketing gas include the use of long-term gas sales contracts. Whilst the activity surrounding these contracts involves the physical delivery of gas, certain UK gas sales contracts are classified as derivatives under the rules of IAS 39 and are required to be measured at fair value at the balance sheet date. Unrealised gains and losses on these contracts reflect the comparison between current market gas prices and the actual prices to be realised under the gas sales contract and are disclosed separately as disposals, re-measurements and impairments. BG Group also uses commodity instruments to manage certain price exposures in respect of optimising the timing and location of its physical gas and LNG sales commitments. These instruments are also required to be measured at fair value at the balance sheet date under IAS 39 and where practical have been designated as formal hedges. However, IAS 39 does not always allow the matching of fair values to the economically hedged value of the related commodity, resulting in unrealised movements in fair value being recorded in the income statement. These movements in fair value, together with any unrealised gains and losses associated with discontinued hedge accounting relationships that continue to represent economic hedges, are disclosed separately as disposals, re-measurements and impairments. BG Group also uses financial instruments, including derivatives, to manage foreign exchange and interest rate exposure. These instruments are required to be recognised at fair value or amortised cost on the balance sheet in accordance with IAS 39. Most of these instruments have been designated either as hedges of foreign exchange movements associated with the Group s net investments in foreign operations, or as hedges of interest rate risk. Where these instruments cannot be designated as hedges under IAS 39, unrealised movements in fair value are recorded in the income statement and disclosed separately as disposals, re-measurements and impairments. Realised gains and losses relating to the instruments referred to above are included in Business Performance. This presentation best reflects the underlying performance of the business since it distinguishes between the temporary timing differences associated with re-measurements under IAS 39 rules and actual realised gains and losses. BG Group has also separately identified profits and losses associated with the disposal of non-current assets, and impairments of non-current assets as they require separate disclosure in order to provide a clearer understanding of the results for the period. For a reconciliation between the overall results and Business Performance and details of disposals, re-measurements and impairments, see the consolidated income statements (pages 9 and 10), note 2 (page 16) and note 3 (page 17). Joint ventures and associates Under IFRS the results from jointly controlled entities (joint ventures) and associates, accounted for under the equity method, are required to be presented net of finance costs and tax on the face of the income statement. Given the relevance of these businesses within BG Group, the results of joint ventures and associates are presented before interest and tax, and after tax. This approach provides additional information on the source of BG Group s operating profits. For a reconciliation between operating profit and earnings including and excluding the results of joint ventures and associates, see note 3 (page 17). Net borrowings/funds BG Group provides a reconciliation of net borrowings/funds and an analysis of the amounts included within net borrowings/funds as this is an important liquidity measure for the Group. Results 7

8 Legal Notice Certain statements included in these results contain forward-looking information concerning BG Group s strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which BG Group operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within BG Group s control or can be predicted by BG Group. Although BG Group believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the Risk Factors included in s Annual Report and Accounts. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in or any other entity, and must not be relied upon in any way in connection with any investment decision. BG Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required. Results 8

9 Consolidated Income Statement Notes Business Performance (b) Disposals, re-measurements and impairments (Note 2) (b) Restated (a) Total Result Disposals, re-measure- Business ments and Perform- impairments ance (b) (Note 2) (b) Group revenue Other operating income Group revenue and other operating income Operating costs (2 882) (2 882) (2 331) (2 331) Profits and losses on disposal of non-current assets and impairments 2 (171) (171) Operating profit/(loss) (c) (117) Finance income 2, 4 (42) (73) (115) Finance costs 2, 4 (69) 68 (1) (65) (71) (136) Share of post-tax results from joint ventures and associates Profit/(loss) before tax (122) Taxation 2, 5 (488) 20 (468) (531) (14) (545) Profit/(loss) for the period from continuing operations (102) Profit/(loss) for the period from discontinued operations 6 (27) (27) Attributable to: BG Group shareholders (earnings) 978 (129) Non-controlling interest (129) Earnings per share continuing operations basic c (3.0c) 25.9c 22.8c 0.5c 23.3c Earnings per share discontinued operations basic (0.8c) (0.8c) 0.4c 0.4c Earnings per share continuing operations diluted c (2.9c) 25.8c 22.7c 0.4c 23.1c Earnings per share discontinued operations diluted (0.8c) (0.8c) 0.4c 0.4c Total operating profit/(loss) including share of pre-tax operating results from joint ventures and associates (d) (117) a) See note 1 (page 14). b) See Presentation of Non-GAAP measures (page 7) for an explanation of results excluding disposals, certain re-measurements and impairments and presentation of the results of joint ventures and associates. c) Operating profit/(loss) is before share of results from joint ventures and associates. d) This measurement is shown by BG Group as it is used as a means of measuring the underlying performance of the business. Total Result Results 9

10 Consolidated Income Statement Nine Months Notes Business Performance (b) Restated (a) Disposals, re-measurements and impairments (Note 2) (b) Total Result Business Performance (b) Disposals, re-measurements and impairments (Note 2) (b) Group revenue Other operating income (249) (98) Group revenue and other operating income (249) Operating costs (8 199) (8 199) (7 063) (7 063) Profits and losses on disposal of non-current assets and impairments 2 (410) (410) Operating profit/(loss) (c) (659) Finance income 2, Finance costs 2, 4 (190) (26) (216) (187) (88) (275) Share of post-tax results from joint ventures and associates Profit/(loss) before tax (655) Taxation 2, 5 (1 868) 176 (1 692) (1 811) (47) (1 858) Profit/(loss) for the period from continuing operations (479) Profit/(loss) for the period from discontinued operations 6 (67) (67) Attributable to: BG Group shareholders (earnings) (546) Non-controlling interest (546) Earnings per share continuing operations basic c (14.2c) 73.3c 73.2c 1.3c 74.5c Earnings per share discontinued operations basic (2.0c) (2.0c) 1.9c 1.9c Earnings per share continuing operations diluted c (14.1c) 72.9c 72.6c 1.2c 73.8c Earnings per share discontinued operations diluted (2.0c) (2.0c) 1.9c 1.9c Total operating profit/(loss) including share of pre-tax operating results from joint ventures and associates (d) (659) a) See note 1 (page 14). b) See Presentation of Non-GAAP measures (page 7) for an explanation of results excluding disposals, certain re-measurements and impairments and presentation of the results of joint ventures and associates. c) Operating profit/(loss) is before share of results from joint ventures and associates. d) This measurement is shown by BG Group as it is used as a means of measuring the underlying performance of the business. Total Result Results 10

11 Consolidated Statement of Comprehensive Income Restated (a) Nine Months Restated (a) Profit for the period (297) 9 Hedge adjustments net of tax (b) (457) (496) (2) (3) Fair value movements on available-for-sale assets net of tax (c) (1) Currency translation adjustments Other comprehensive income, net of tax Total comprehensive income for the period Attributable to: BG Group shareholders Non-controlling interest a) See note 1 (page 14). b) Income tax relating to hedge adjustments is a $126 million credit for the quarter ( $3 million charge) and a $176 million credit for the nine months ( $190 million credit). c) Income tax relating to fair value movements on available-for-sale assets is $nil for the quarter ( $1 million credit) and a $1 million credit for the nine months ( $nil). Results 11

12 Consolidated Balance Sheet As at 30 Sept As at 31 Dec Restated (a) As at 30 Sept Restated (a) As at 31 Dec 2008 Restated (a) Assets Non-current assets Goodwill Other intangible assets Property, plant and equipment Investments Deferred tax assets Trade and other receivables Commodity contracts and other derivative financial instruments Current assets Inventories Trade and other receivables Current tax receivable Commodity contracts and other derivative financial instruments Cash and cash equivalents Assets classified as held for sale 238 Total assets Liabilities Current liabilities Borrowings (1 461) (1 158) (1 113) (404) Trade and other payables (3 708) (4 186) (3 488) (5 222) Current tax liabilities (1 664) (1 579) (1 820) (1 614) Commodity contracts and other derivative financial instruments (1 263) (1 390) (1 566) (2 088) (8 096) (8 313) (7 987) (9 328) Non-current liabilities Borrowings (6 132) (5 024) (4 936) (2 727) Trade and other payables (70) (63) (60) (55) Commodity contracts and other derivative financial instruments (587) (849) (734) (760) Deferred income tax liabilities (3 007) (3 147) (3 047) (2 955) Retirement benefit obligations (267) (279) (271) (256) Provisions for other liabilities and charges (1 630) (1 537) (1 438) (1 333) (11 693) (10 899) (10 486) (8 086) Liabilities associated with assets classified as held for sale (107) Total liabilities (19 896) (19 212) (18 473) (17 414) Net assets Equity Total shareholders equity Non-controlling interest in equity Total equity a) See note 1 (page 14). Results 12

13 Consolidated Cash Flow Statement Restated (a) Nine Months Restated (a) Cash flows from operating activities Profit before tax (72) (74) Share of post-tax results from joint ventures and associates (243) (243) Depreciation of property, plant and equipment and amortisation of intangible assets (63) (13) Fair value movements in commodity based contracts 312 (108) 212 Profits and losses on disposal of non-current assets and impairments Unsuccessful exploration expenditure written off (50) (58) Decrease in provisions (69) (61) 115 (102) Finance income (147) (143) 136 Finance costs Share-based payments (384) 111 (Increase)/decrease in working capital (216) (547) Cash generated by operations (594) (474) Income taxes paid (1 603) (1 553) Net cash inflow from operating activities Cash flows from investing activities Dividends received from joint ventures and associates Proceeds from disposal of property, plant and equipment and intangible assets Proceeds from the sale of investments 468 (1 944) (2 094) Purchase of property, plant and equipment and intangible assets (6 047) (5 037) 66 (41) Loans to and repayments from joint ventures and associates 62 (90) (32) (317) Business combinations and investments (326) (1 092) (1 694) (2 403) Net cash outflow from investing activities (5 245) (6 055) Cash flows from financing activities (68) (40) Net interest paid (b) (157) (111) (329) (305) Dividends paid (674) (628) (37) (11) Dividends paid to non-controlling interest (69) (30) Net proceeds from issue and repayment of borrowings Issue of shares Purchase of own shares (2) (4) (283) 974 Net cash (outflow)/inflow from financing activities (845) 47 Net (decrease)/increase in cash and cash equivalents (c) (151) (453) Cash and cash equivalents at beginning of period (17) Effect of foreign exchange rate changes (e) Cash and cash equivalents at end of period (d) 984 (e) a) See note 1 (page 14). b) Includes capitalised interest for the third quarter of $20 million ( $16 million) and for the nine months of $48 million ( $31 million). c) Includes net cash flows from discontinued operations for the third quarter of $nil ( $nil) and for the nine months an inflow of $14 million ( $nil). d) Cash and cash equivalents comprise cash and short-term liquid investments that are readily convertible to cash. e) The balance at 30 September includes cash and cash equivalents of $969 million and cash included within assets held for sale of $15 million. Results 13

14 Notes 1. Basis of preparation These primary statements are the unaudited interim consolidated financial statements ( the financial statements ) of for the quarter ended 30 September. The financial statements do not comprise statutory accounts within the meaning of Section 434 of the Companies Act 2006, and should be read in conjunction with the Annual Report and Accounts for the year ended 31 December which have been prepared in accordance with IFRS as adopted by the EU, as they provide an update of previously reported information. The latest statutory accounts delivered to the registrar were for the year ended 31 December which were audited by BG Group s statutory auditors PricewaterhouseCoopers LLP and on which the Auditors Report was unqualified and did not contain statements under Sections 498(2) or 498(3) of the Companies Act These financial statements are Interim Management Statements and have been prepared in accordance with the requirements of the Disclosure and Transparency Rules issued by the Financial Services Authority and the accounting policies set out in the Annual Report and Accounts (except as disclosed below). The preparation of the financial statements requires management to make estimates and assumptions that affect the reported amount of revenues, expenses, assets and liabilities at the date of the financial statements. If in the future such estimates and assumptions, which are based on management s best judgement at the date of the financial statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the year in which the circumstances change. With effect from 1 January, BG Group has presented its results in US Dollars. Accordingly, results have been translated from Pounds Sterling to US Dollars using monthly average rates of exchange. Comparative assets and liabilities have been translated from Pounds Sterling to US Dollars at closing rates of exchange. Further information on the procedures used to restate comparative information into US Dollars can be found on page 114 of the Annual Report and Accounts. In September, BG Group announced that it had agreed to sell its interests in Santa Rita and San Lorenzo power stations in the Philippines. Accordingly, as at 30 September, these assets were classified as held for sale at their carrying value. This agreement followed the disposal earlier in the year of power stations in the USA, Premier Power Limited in the UK and the Group s investment in the Seabank power station in the UK. These power stations represent the majority of the Group s Power business segment and are considered to be a separate major line of business for BG Group. As a result of the disposals, these operations have been treated as discontinued operations for the period ended 30 September. The remaining Power businesses remain with BG Group and have been allocated to other business segments based on their activity and location. A single amount is presented on the income statement for discontinued operations, comprising the post-tax results of these businesses and the post-tax profit or loss recognised on re-measurement to fair value less costs to sell and on disposal of the businesses. Comparative information has also been restated to reflect the presentation of discontinued operations as a separate line item. Presentation of results The presentation of BG Group s results separately identifies the effect of: The re-measurement of certain financial instruments; and Profits and losses on the disposal and impairment of non-current assets and businesses. These items, which are detailed in note 2 to the financial statements (page 16) are excluded from Business Performance in order to provide readers with a clear and consistent presentation of the underlying operating performance of the Group s ongoing businesses. Results 14

15 1. Basis of preparation continued New accounting standards and interpretations IFRIC 12 Service Concession Arrangements is applicable to BG Group for the period beginning 1 January. This interpretation provides guidance on the accounting by operators for public-to-private service concession arrangements and requires infrastructure considered to be under the control of a regulator rather than an operator to be recognised as an intangible concession asset and amortised over the concession period. Prior to the adoption of IFRIC 12 such infrastructure was recognised as property, plant and equipment of the operator and depreciated over its useful economic life. The interpretation also requires additions to the infrastructure incurred by the operator to be accounted for as a construction contract with the regulator, with revenues and associated costs recognised in the income statement on a percentage of completion basis. BG Group has concluded that the Comgás concession in Brazil falls within the scope of IFRIC 12 and has applied the interpretation from 1 January, restating comparative information as necessary. On 1 January, infrastructure associated with the transmission and distribution network operated by Comgás of approximately $1.6 billion (30 September $1.5 billion; 1 January $1.1 billion) was recognised as intangible assets resulting in a corresponding decrease to property, plant and equipment. The application of IFRIC 12 has resulted in an increase to revenue and operating costs of $97 million in the 9 months to 30 September ( $74 million). There has been no change to total operating profit or earnings for the Group. A number of other amendments to accounting standards issued by the IASB are applicable from 1 January. They have not had a material impact on the Group s financial statements for the nine months ended 30 September. Results 15

16 2. Disposals, re-measurements and impairments Nine Months Revenue and other operating income re-measurements of commodity based contracts (249) 110 (171) Profits and losses on disposal of non-current assets and impairments (410) (5) (18) Net finance (costs)/income re-measurements of financial instruments 4 (22) 20 (14) Taxation 176 (47) (102) 14 Impact on earnings continuing operations (479) 41 Third quarter and nine months: Revenue and other operating income Re-measurements included within revenue and other operating income amount to a credit of $54 million for the quarter ( $46 million credit), of which a charge of $4 million ( $27 million credit) represents non-cash mark-to-market movements on certain long-term UK gas contracts. For the nine months, a charge of $249 million in respect of re-measurements is included within revenue and other operating income ( $110 million credit), of which a charge of $27 million represents non-cash mark-to-market movements on certain long-term UK gas contracts ( $90 million credit). Whilst the activity surrounding these contracts involves the physical delivery of gas, the contracts fall within the scope of IAS 39 and meet the definition of a derivative instrument. In addition, re-measurements include a $58 million credit for the quarter ( $19 million credit) and a $222 million charge for the nine months ( $20 million credit) representing unrealised mark-to-market movements associated with economic hedges. Third quarter and nine months: Disposals and impairments of non-current assets During the third quarter, a pre-tax impairment charge of $169 million (post-tax $124 million) was recognised against certain exploration assets in the E&P segment. Other fixed asset disposals resulted in a pre and post-tax charge of $2 million in the quarter. During the second quarter, BG Group completed the disposal of its Canadian E&P assets. This resulted in a pre-tax profit on disposal of $12 million (post-tax $7 million) in the quarter. Also during the second quarter, a pre-tax impairment charge of $191 million (post-tax charge $138 million) was recognised against certain assets in the E&P segment. Other disposals and impairments resulted in a pre-tax charge to the income statement of $8 million (post-tax $4 million) in the quarter. During the first quarter, BG Group committed to sell its Canadian E&P assets. Accordingly, these assets were reclassified as held for sale and revalued to the lower of their carrying amount and fair value less costs to sell. This resulted in a pre-tax impairment charge of $52 million (post-tax charge $37 million) against the Canadian E&P assets in the quarter. Third quarter and nine months: Net finance costs Re-measurements presented in net finance costs include certain derivatives used to hedge foreign exchange and interest rate risk, partly offset by foreign exchange movements on certain borrowings. Results 16

17 3. Segmental analysis Profit for the period Analysed by operating segment Business Performance Disposals, re-measurements and impairments Total Result Group revenue Exploration and Production Liquefied Natural Gas Transmission and Distribution Less: intra-group sales (185) (119) (185) (119) Group revenue Other operating income (a) Group revenue and other operating income Operating profit/(loss) before share of results from joint ventures and associates Exploration and Production (43) Liquefied Natural Gas (72) Transmission and Distribution (2) Other activities (16) (24) (16) (24) (117) Pre-tax share of operating results of joint ventures and associates Exploration and Production Liquefied Natural Gas Transmission and Distribution Total operating profit/(loss) Exploration and Production (43) Liquefied Natural Gas (72) Transmission and Distribution (2) Other activities (16) (24) (16) (24) (117) Net finance (costs)/income Finance income (42) 50 (73) 53 (115) 103 Finance costs (69) (65) 68 (71) (1) (136) Share of joint ventures and associates (12) (10) (12) (10) (123) (25) (5) (18) (128) (43) Taxation Taxation (488) (531) 20 (14) (468) (545) Share of joint ventures and associates (32) (20) (32) (20) (520) (551) 20 (14) (500) (565) Profit/(loss) for the period from continuing operations (102) a) Business Performance Other operating income is attributable to segments as follows: E&P $(8) million ( $11 million) and LNG $47 million ( $(6) million). Results 17

18 3. Segmental analysis continued Nine Months Business Performance Disposals, re-measurements and impairments Total Result Group revenue Exploration and Production Liquefied Natural Gas Transmission and Distribution Less: intra-group sales (587) (343) (587) (343) Group revenue Other operating income (a) (249) 110 (98) 244 Group revenue and other operating income (249) Operating profit/(loss) before share of results from joint ventures and associates Exploration and Production (320) Liquefied Natural Gas (337) Transmission and Distribution (2) (1) Other activities 4 (19) 4 (19) (659) Pre-tax share of operating results of joint ventures and associates Exploration and Production Liquefied Natural Gas Transmission and Distribution Total operating profit/(loss) Exploration and Production (320) Liquefied Natural Gas (337) Transmission and Distribution (2) (1) Other activities 4 (19) 4 (19) (659) Net finance (costs)/income Finance income Finance costs (190) (187) (26) (88) (216) (275) Share of joint ventures and associates (35) (29) (35) (29) (108) (140) 4 (22) (104) (162) Taxation Taxation (1 868) (1 811) 176 (47) (1 692) (1 858) Share of joint ventures and associates (82) (60) (82) (60) (1 950) (1 871) 176 (47) (1 774) (1 918) Profit/(loss) for the period from continuing operations (479) a) Business Performance Other operating income is attributable to segments as follows: E&P $20 million ( $16 million) and LNG $131 million ( $118 million). Results 18

19 3. Segmental analysis continued Business Performance Disposals, re-measurements and impairments Total Result Total operating profit/(loss) Exploration and Production (43) Liquefied Natural Gas (72) Transmission and Distribution (2) (117) Other activities (16) (24) (16) (24) (117) Less: Pre-tax share of operating results of joint ventures and associates (103) (90) Add: Share of post-tax results from joint ventures and associates Net finance costs (116) (33) Profit before tax Taxation (468) (545) Profit for the period from continuing operations Nine Months Business Performance Disposals, re-measurements and impairments Total Result Total operating profit/(loss) Exploration and Production (320) Liquefied Natural Gas (337) Transmission and Distribution (2) (1) (659) Other activities 4 (19) 4 (19) (659) Less: Pre-tax share of operating results of joint ventures and associates (322) (282) Add: Share of post-tax results from joint ventures and associates Net finance costs (69) (133) Profit before tax Taxation (1 692) (1 858) Profit for the period from continuing operations Results 19

20 4. Net finance costs Nine Months (45) (40) Interest payable (107) (103) (27) (21) Interest on obligations under finance leases (80) (60) Interest capitalised (17) (20) Unwinding of discount on provisions (a) (51) (55) 68 (71) Disposals, re-measurements and impairments (Note 2) (26) (88) (1) (136) Finance costs (216) (275) (42) 50 Interest receivable (b) (73) 53 Disposals, re-measurements and impairments (Note 2) (115) 103 Finance income (116) (33) Net finance costs (c) (69) (133) a) Relates to the unwinding of the discount on provisions and amounts in respect of pension obligations which represent the unwinding of discount on the plans liabilities offset by the expected return on the plans assets. b) Includes foreign exchange losses for the third quarter of $58 million ( $34 million gains) and foreign exchange gains for the nine months of $64 million ( $32 million gains). c) Excludes Group share of net finance costs from joint ventures and associates for the quarter of $12 million ( $10 million) and for the nine months of $35 million ( $29 million). 5. Taxation The taxation charge for the third quarter before disposals, re-measurements and impairments was $488 million ( $531 million) and the taxation charge including disposals, re-measurements and impairments was $468 million ( $545 million). For the nine months, the taxation charge before disposals, re-measurements and impairments was $1 868 million ( $1 811 million) and the taxation charge including disposals, re-measurements and impairments was $1 692 million ( $1 858 million). The Group share of taxation from joint ventures and associates for the third quarter was $32 million ( $20 million) and for the nine months was $82 million ( $60 million). 6. Discontinued operations During the third quarter, BG Group completed the disposal of Premier Power Limited. This resulted in a pre and post-tax loss on disposal of $41 million in the quarter. In September, BG Group signed a Sale and Purchase Agreement for the sale of its interests in both the Santa Rita and San Lorenzo power stations in the Philippines. Accordingly, these assets were reclassified as held for sale at their carrying value. During the second quarter, BG Group completed the disposal of its power plants in the USA. This resulted in a pre and post-tax profit on disposal of $4 million. The Group also completed the sale of its investment in the Seabank power plant in the UK, which resulted in a pre and post-tax profit on disposal of $142 million. During the first quarter, BG Group signed a Sale and Purchase Agreement for the sale of its power plants in the USA and its investment in the Seabank power plant in the UK. Accordingly, these assets were reclassified as held for sale and revalued to the lower of their carrying amount and fair value less costs to sell. This resulted in a pre-tax impairment charge of $325 million (post-tax charge $226 million) against the Group s US power plants in the quarter. Excluding profits and losses on disposals and impairments, the post-tax profit of the businesses comprising discontinued operations for the third quarter was $14 million ( $14 million) and for the nine months was $54 million ( $63 million). Results 20

21 7. Earnings per ordinary share continuing operations Nine Months Cents per share Cents per share Cents per share Cents per share Earnings continuing operations (14) (0.5) Disposals, re-measurements and impairments (after tax and non-controlling interest) (41) (1.3) Earnings excluding disposals, re-measurements and impairments Basic earnings per share calculations in are based on the weighted average number of shares in issue of million for the quarter and million for the nine months. The earnings figure used to calculate diluted earnings per ordinary share is the same as that used to calculate earnings per ordinary share given above, divided by million for the quarter and million for the nine months, being the weighted average number of ordinary shares in issue during the period as adjusted for dilutive equity instruments. 8. Reconciliation of net borrowings (a) Nine Months Net borrowings as at 31 December (4 775) Net decrease in cash and cash equivalents (151) Cash inflow from changes in borrowings (976) Inception of finance lease liabilities/assets (359) Foreign exchange and other re-measurements (88) Cash and cash equivalents classified as held for sale (15) Non-current borrowings classified as held for sale 99 Net borrowings as at 30 September (a)(b) (6 265) Net borrowings attributable to Comgás were $793 million (31 December $829 million). As at 30 September, BG Group's share of the net borrowings in joint ventures and associates amounted to approximately $1.7 billion, including BG Group shareholder loans of approximately $1.3 billion. These net borrowings are included in BG Group's share of the net assets in joint ventures and associates which are consolidated in BG Group's accounts. a) Net borrowings/funds are defined on page 25. b) Net borrowings comprise: As at 30 Sept Amounts receivable/(due) within one year Cash and cash equivalents Overdrafts, loans and finance leases (1 461) (1 158) Derivative financial instruments (c) (409) 9 Amounts receivable/(due) after more than one year Loans and finance leases (d) (5 999) (5 024) Derivative financial instruments (c) (5 856) (4 784) Net borrowings (6 265) (4 775) c) These items are included within commodity contracts and other derivative financial instrument balances on the balance sheet. d) Includes finance lease receivable of $133 million ( $nil) included within non-current assets on the balance sheet. Results 21 As at 31 Dec