REG-BG Group 3rd Quarter Results - Part 1
Released: 28/10/2009
Released: 28/10/2009
com:20091028:Rnsb4759B
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RNS Number : 4759B
BG GROUP plc
28 October 2009
BG Group plc
2009 THIRD QUARTER RESULTS
Third Quarter Highlights
* Total operating profit of £856 million and cash generated by
operations of £1 186 million
* Production volumes up 5% on third quarter 2008
* Hasdrubal now expected onstream by 30 November
* Material exploration and appraisal success in Brazil -
enhances development options
* Tupi development progressing well and tendering for next
phases underway
* Good progress with QCLNG upstream, trunkline and plant
towards 2010 sanction
* EXCO drilling activity ramping up; seven rigs now operating,
14 planned by Q1 2010
BG Group's Chief Executive, Frank Chapman said:
"These results demonstrate once again the strength of BG Group's integrated gas
business and this, together with current production levels around 700 000
barrels per day, up 12% on Q4 2008, provides us with confidence in the outlook
for the Group's performance. BG Group has assembled an array of material,
long-life projects, and we are now entering a period where we can look forward
to these projects driving exceptional growth to the end of the next decade."
Third Quarter Nine Months
2009 2008 Business Performance(a)(b) 2009 2008
£m £m £m £m
856 1 383 -38% Total operating profit including share of pre-tax operating 3 103 4 216 -26%
results from joint ventures and associates
474 777 -39% Earnings for the period 1 671 2 373 -30%
14.1p 23.2p -39% Earnings per share 49.7p 70.9p -30%
Total results for the period (including disposals,
re-measurements and impairments)(b)
813 1 460 -44% Operating profit before share of results from joint ventures 2 930 4 039 -27%
and associates
884 1 519 -42% Total operating profit including share of pre-tax operating 3 177 4 217 -25%
results from joint ventures and associates
484 857 -44% Earnings for the period 1 703 2 371 -28%
14.4p 25.6p -44% Earnings per share 50.7p 70.9p -28%
a) 'Business Performance' excludes disposals, certain re-measurements and
impairments as exclusion of these items provides a clear and consistent
presentation of the underlying operating performance of the Group's 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 8), note 1 (page 15) and note 3 (page 17). Unless otherwise
stated, the results discussed in this release relate to BG Group's Business
Performance.
b) The principal difference between Business Performance and Total Results is
due to the non-cash mark-to-market movements on certain long-term UK gas
contracts.
Business Review - Group
Third Quarter
Business Performance 2009 2008
£m £m
Revenue and other operating income 2 249 3 291 -32%
Total operating profit including share of pre-tax results
from joint ventures and associates
Exploration and Production 435 917 -53%
Liquefied Natural Gas 304 367 -17%
Transmission and Distribution 103 80 +29%
Power Generation 29 19 +53%
Other activities (15) - -
856 1 383 -38%
Net finance (costs)/income (20) 11 -
Taxation for the period (340) (600) -43%
Earnings for the period 474 777 -39%
Earnings per share 14.1p 23.2p -39%
Capital investment 1 619 730 +122%
Third quarter
Revenue and other operating income fell by 32% to £2 249 million and total
operating profit fell by 38% to £856 million, as oil prices dropped by 41% and
Henry Hub prices by 62% compared to the previous year. The impact of these
sharply lower commodity prices was partially offset by a 5% increase in E&P
production volumes, our medium term LNG sales programme and a stronger US
Dollar.
Cash generated by operations was £1 186 million (2008 £1 198 million). Net
finance costs for the quarter were £20 million after benefiting from foreign
exchange gains of £20 million. As at 30 September 2009, net debt was £2 950
million and the gearing ratio of the Group was 17%.
The Group's effective tax rate (including BG Group's share of joint ventures and
associates tax) for the full year is expected to be 42%. The current quarter's
tax charge includes an adjustment to reflect this tax rate for the first nine
months.
Capital investment in the quarter of £1 619 million included £605 million
acquisition costs associated with the alliance with EXCO Resources Inc. (EXCO)
and £90 million on the acquisition of additional equity in Block 5c in Trinidad
and Tobago, and continuing investment in E&P (£724 million), LNG (£146 million),
T&D (£37 million) and Power (£17 million).
US Dollar reporting
Separately, BG Group has today announced that it will be changing the currency
in which it reports its results to US Dollars from its financial year 2010. This
is available online at: www.bg-group.com
Exploration and Production (E&P)
Third Quarter
Business Performance 2009 2008
£m £m
Production volumes (mmboe) 56.6 54.0 +5%
Revenue and other operating income 1 055 1 462 -28%
Total operating profit before exploration charge 556 1 032 -46%
Exploration charge (121) (115) +5%
Total operating profit 435 917 -53%
Capital investment 1 419 615 +131%
Additional operating and financial data is given on page 23.
Third quarter
E&P total operating profit was £435 million as higher production volumes and the
favourable effect of a stronger US Dollar partially offset sharply lower oil
prices (down 41%) and Henry Hub gas prices (down 62%).
Production for the quarter, at 56.6 mmboe, was up 5% on Q3 2008. This was around
2 mmboe below the Group's expectations for the quarter, predominantly due to a
delay in the start-up of the Hasdrubal facility in Tunisia. Hasdrubal is
expected to commence operations by 30 November and the impact of this delay on
planned fourth quarter production is expected to be 1.2 mmboe. There are no
other changes to the Group's previous production guidance.
The average realised gas price per produced therm in the UK fell by 4.8 pence to
30.8 pence and International gas realisations fell by 7.8 pence to 16.0 pence
per produced therm both principally due to the impact of lower commodity market
prices.
For the UK gas year commencing October 2009, BG Group has sold around 60% of
North Sea gas production at an average price of approximately 40 pence per
therm.
Unit operating expenditure was 26 cents lower at $6.65 per barrel of oil
equivalent.
The exploration charge of £121 million was £6 million higher than 2008.
Capital investment of £1 419 million comprised investment in Americas (£906
million), Europe and Central Asia (£251 million), Africa, Middle East and Asia
(£207 million) and Australia (£55 million).
Third quarter business highlights
Brazil
BG Group had further material exploration and appraisal success in the Santos
Basin pre-salt. In September, BG Group announced that the Guarss discovery
(BM-S-9, BG Group 30%) is estimated to contain recoverable volumes of 1.1 to 2.0
billion boe. During its drill stem test (DST), data indicated that a permanent
production well would be capable of producing initial rates of up to 50 000
boed. This provides further evidence of the robust economics of this pre-salt
play. To prioritise the development of Guarss, the partners have agreed that it
will receive the second FPSO available for the pre-salt developments, with a
capacity of 120 000 bopd. First production is targeted for 2012.
Also on BM-S-9, BG Group announced a new discovery known as Abare West, which
proved the presence of an accumulation of oil and natural gas. The well will be
fully analysed and the forward plan for this discovery will be incorporated into
one of the two evaluation plans for BM-S-9 approved by ANP. Abare West is the
fourth consecutive BM-S-9 discovery following Carioca, Guarss and Iguacu.
BG Group has completed testing operations on Corcovado 1 (BM-S-52, BG Group
40%). The well flowed both condensate and gas on drill stem testing. The
drilling of both Corcovado 1 and 2 has extended the partners' understanding of
the Corcovado structure, one of the major structural highs on the edge of the
Santos Basin pre-salt area, where the play is still evolving. The two-well
campaign has successfully proved both the presence of moveable hydrocarbons and
identified additional prospectivity on the flanks of the high. The well results
are being evaluated to determine future drilling plans.
On Tupi, in the BM-S-11 concession area (BG Group 25%):
* The first of two DSTs has been completed on the Iracema
well, located 33 kilometres north-west of the Tupi discovery
well. Early test data looks very promising. Preparation for
testing of a second, separate interval at Iracema is
underway.
* Additionally on Tupi, the appraisal well Tupi North-East,
located 16 kilometres from the Tupi discovery well, is
appraising the reservoir to the north-eastern end of the
Tupi high. The well has reached target depth and logging is
ongoing.
* The Tupi P1 development well, 7 kilometres south-east of
Tupi, is being drilled as part of the Tupi extended well
test (EWT) project with the aim of collecting dynamic data
to support development planning on the Tupi field. Coring of
the reservoir section is continuing.
* The EWT on Tupi Sul has to date produced in excess of 1
mmboe gross. Results exceed pre-test expectations, showing
excellent reservoir performance with good flow rates and
sustained deliverability. These results confirm a very large
volume of connected oil with very good lateral reservoir
qualities. The well flow rate is currently being constrained
at some 20 000 bopd.
* Also in BM-S-11, the Iara well (1-RJS-656) DST is ongoing. A
total of three tests have so far been completed in different
zones and a fourth test is ongoing. The well test confirmed
the presence of producible light oil. Further appraisal is
planned for 2010 and 2011.
In terms of forward developments, the FPSO to deliver the first 100 000 bopd
phase on Tupi is 48% complete and remains on schedule for first production at
end 2010. Tenders for the first of two 120 000 bopd FPSOs are currently being
evaluated. Following Tupi, the second FPSO will be located on Guarss.
This year's extensive work programme has delivered outstanding results and
confirms the technical and economic robustness of the pre-salt play,
underpinning the material and growing value of BG Group's extensive position in
the Santos Basin.
EXCO
In August, BG Group completed the previously announced alliance with EXCO
Resources Inc. (EXCO). This alliance brings material new resources and supply to
the Group's existing US gas marketing business at a competitive price and in a
prime market location. The alliance is performing well; with industry-leading
initial production rates across the Haynesville Shale and progressive reductions
in drilling days per well. Drilling activities are being ramped up. The partners
currently have seven rigs operating and expect to add another three rigs in the
fourth quarter and a further four in first quarter 2010. Gas transportation
capacity of 200 mmcfd has been secured and the partners are actively pursuing
additional long-term capacity to support growth in gas production.
Egypt
In August, BG Group announced the delivery of first gas from the Sequoia subsea
development located 90 kilometres offshore Egypt in the Mediterranean Sea.
Straddling both the West Delta Deep Marine and Rosetta concessions, the Sequoia
unitised development brings into production six new subsea wells, three located
in each of the concessions, which will help maintain overall plateau production.
Norway
In August, BG Group concluded the drilling of appraisal wells on the Bream oil
discovery in the Norwegian North Sea. The appraisal wells confirmed the extent
of the reservoir and extensive data acquisition and sampling were carried out.
Work is now underway to evaluate development options.
Thailand
In September, the partners in the Bongkot Joint Venture announced that a Gas
Sales Agreement (GSA) was signed with the Petroleum Authority of Thailand (PTT)
covering all gas production from the Greater Bongkot South (GBS) field in the
Gulf of Thailand. GBS first production is expected in 2012 and at plateau, it is
anticipated that GBS will contribute 13 000 boed, net to BG Group.
UKCS
On 31 August, BG Group completed the exchange of equity interests in North Sea
production assets with subsidiaries of BP plc (BP). BG Group acquired BP's
entire equity in the Everest, Lomond and Armada fields and part of BP's equity
in the Erskine field. In return, BG Group transferred all of its equity
interests in all fields in the southern North Sea to BP. BG Group also became
operator of the Everest and Lomond fields.
India
In October, following India's New Exploration Licensing Policy (NELP) VIII
licensing round, a consortium led by BG Group (30% and operator), was the
successful bidder for an exploration block (KG-DWN-2009/1) in the deep water
Krishna Godavari (KG) Basin. The deep water block which covers an area of
approximately 1 800 square kilometres, is located off the east coast of India. A
formal communication of the award is awaited from the Government of India and
subject to approvals. BG Group will own interests in three licences in the KG
Basin.
Liquefied Natural Gas (LNG)
Third Quarter
Business Performance 2009 2008
£m £m
Revenue and other operating income 797 1 390 -43%
Total operating profit
Shipping and marketing 284 351 -19%
Liquefaction 45 36 +25%
Business development and other (25) (20) +25%
304 367 -17%
Capital investment 146 58 +152%
Additional operating and financial data is given on page 23.
Third quarter
LNG total operating profit for the quarter was £304 million.
Shipping and marketing operating profit of £284 million was 19% lower, a
resilient performance against a backdrop of sharply lower gas prices, with the
average Henry Hub price down 62%. This reflected the continued benefit of the
Group's medium-term contract sales, the deployment of its flexible portfolio to
the highest value markets and the effects of the stronger US$/UK£ exchange
rate.
BG Group's share of operating profit from liquefaction activities increased 25%
to £45 million principally due to higher profits at Egyptian LNG and the effects
of the stronger US$/UK£ exchange rate.
Capital investment in the quarter included £89 million relating to LNG ships,
£26 million in Australia, £18 million in the UK and £8 million in Chile.
Third quarter business highlights
In August, the Environmental Impact Statement for the Queensland Curtis LNG
project was released for public consultation. A decision from the Queensland and
Australian Governmental authorities is expected in 2010. Good progress towards
sanction is being made, with more than 150 wells drilled this year, tendering
underway for the pipeline material and construction contracts, and Front End
Engineering and Design for the upstream facilities and LNG plant progressing to
plan.
Transmission and Distribution (T&D)
Third Quarter
Business Performance 2009 2008
£m £m
Revenue and other operating income
Comgsss 304 362 -16%
Other 52 44 +18%
356 406 -12%
Total operating profit
Comgsss 92 69 +33%
Other 11 11 -
103 80 +29%
Capital investment 37 37 -
Third quarter
T&D total operating profit for the quarter increased by £23 million to £103
million.
At Comgsss, in Brazil, total operating profit increased by £23 million to £92
million reflecting the continuing recovery of past gas costs which more than
offset lower demand in the industrial, power and vehicles segments.
At the end of the quarter, the cost of gas to be recovered in future periods was
£58 million.
Capital investment mainly represents the development of the Comgsss pipeline
network.
Power Generation
Third Quarter
Business Performance 2009 2008
£m £m
Revenue and other operating income 115 157 -27%
Total operating profit
Power Generation 34 22 +55%
Business development and other (5) (3) +67%
29 19 +53%
Capital investment 17 20 -15%
Third quarter
Power total operating profit increased by £10 million to £29 million primarily
due to the phasing of profits at BG Italia Power.
Presentation of Non-GAAP measures
Business Performance
'Business Performance' excludes 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 US. 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. However, IAS 39 does not always allow
the matching of these 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 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 10
and 11 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.
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 manner is intended to provide
additional information to explain further the underlying trends
in the business.
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.
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 BG Group plc's Annual Report and
Accounts 2008. No part of these results constitutes, or shall
be taken to constitute, an invitation or inducement to invest
in BG Group plc 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.
Consolidated Income Statement
Third Quarter
2009 2008
Notes Business Perform-ance(a) Disposals, Total Result Business Perform- Disposals, Total
£m re-measure-ments £m ance(a) re-measure- Result
and £m ments and impairments £m
impair- (Note 2)(a)
ments £m
(Note 2)(a)
£m
Group revenue 2 247 - 2 247 3 299 - 3 299
Other operating income 2 2 28 30 (8) 132 124
Group revenue and other operating income 3 2 249 28 2 277 3 291 132 3 423
Operating costs (1 464) - (1 464) (1 967) - (1 967)
Profits and losses on disposal of non-current assets and 2 - - - - 4 4
impairments
Operating profit(b) 3 785 28 813 1 324 136 1 460
Finance income 2, 4 30 33 63 58 18 76
Finance costs 2, 4 (40) (43) (83) (36) (10) (46)
Share of post-tax results from joint ventures 3 45 - 45 38 - 38
and associates
Profit before tax 820 18 838 1 384 144 1 528
Taxation 2, 5 (324) (8) (332) (590) (64) (654)
Profit for the period 496 10 506 794 80 874
Attributable to:
BG Group shareholders (earnings) 474 10 484 777 80 857
Minority interest 22 - 22 17 - 17
496 10 506 794 80 874
Earnings per share - basic 6 14.1p 0.3p 14.4p 23.2p 2.4p 25.6p
Earnings per share - diluted 6 14.0p 0.3p 14.3p 22.9p 2.4p 25.3p
Total operating profit including share of pre-tax operating 3 856 28 884 1 383 136 1 519
results from joint ventures and associates(c)
a) See Presentation of Non-GAAP measures, page 8, for an explanation of
results excluding disposals, certain re-measurements and impairments and
presentation of the results of joint ventures and associates.
b) Operating profit is before share of results from joint ventures and
associates.
c) This measurement is shown by BG Group as it is used as a means of
measuring the underlying performance of the business.
Consolidated Income Statement
Nine Months
2009 2008
Notes Business Perform-ance(a) Disposals, Total Business Perform- Disposals, Total
£m re-measure- Result ance(a) re-measure- Result
ments £m £m ments £m
and and impair-
impair- ments
ments (Note 2)(a)
(Note 2)(a) £m
£m
Group revenue 7 567 - 7 567 9 611 - 9 611
Other operating income 2 94 74 168 2 19 21
Group revenue and other operating income 3 7 661 74 7 735 9 613 19 9 632
Operating costs (4 805) - (4 805) (5 575) - (5 575)
Profits and losses on disposal of non-current assets and 2 - - - - (18) (18)
impairments
Operating profit(b) 3 2 856 74 2 930 4 038 1 4 039
Finance income 2, 4 48 42 90 150 19 169
Finance costs 2, 4 (123) (53) (176) (113) (15) (128)
Share of post-tax results from joint ventures and associates 3 161 - 161 118 - 118
Profit before tax 2 942 63 3 005 4 193 5 4 198
Taxation 2, 5 (1 204) (31) (1 235) (1 788) (9) (1 797)
Profit/(loss) for the period 1 738 32 1 770 2 405 (4) 2 401
Attributable to:
BG Group shareholders (earnings) 1 671 32 1 703 2 373 (2) 2 371
Minority interest 67 - 67 32 (2) 30
1 738 32 1 770 2 405 (4) 2 401
Earnings per share - basic 6 49.7p 1.0p 50.7p 70.9p - 70.9p
Earnings per share - diluted 6 49.3p 1.0p 50.3p 70.2p - 70.2p
Total operating profit including share of pre-tax operating 3 3 103 74 3 177 4 216 1 4 217
results from joint ventures and associates(c)
a) See Presentation of Non-GAAP measures, page 8, for an explanation of
results excluding disposals, certain re-measurements and impairments and
presentation of the results of joint ventures and associates.
b) Operating profit is before share of results from joint ventures and
associates.
c) This measurement is shown by BG Group as it is used as a means of
measuring the underlying performance of the business.
Consolidated Statement of Comprehensive Income
Third Quarter Nine Months
2009 2008 2009 2008
£m £m £m £m
506 874 Profit for the period 1 770 2 401
7 41 Hedge adjustments net of tax(a) (329) (125)
(2) (41) Fair value movements on 'available-for-sale' assets 4 30
net of tax(b)
774 213 Currency translation adjustments (61) 328
779 213 Other comprehensive income/(expense), net of tax (386) 233
1 285 1 087 Total comprehensive income for the period 1 384 2 634
Attributable to:
1 250 1 075 BG Group shareholders 1 307 2 602
35 12 Minority interest 77 32
1 285 1 087 1 384 2 634
a) Income tax relating to hedge adjustments is a £2 million charge for the
quarter (2008 £17 million charge) and a £128 million credit for the nine months
(2008 £48 million credit).
b) Income tax relating to fair value movements on 'available-for-sale'
assets is £nil for the quarter (2008 £15 million credit) and £nil for the nine
months (2008 £12 million charge).
Consolidated Balance Sheet
As at As at As at
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