Annual Report and Accounts 2007

Notes to the accounts

2 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION

The primary reporting segments for BG Group’s operations in 2007 comprise Exploration and Production (E&P), Liquefied Natural Gas (LNG), Transmission and Distribution (T&D), Power Generation (Power) and Other activities. E&P comprises exploration, development, production and marketing of hydrocarbons with a focus on natural gas. LNG combines the development and use of LNG import and export facilities with the purchase, shipping and sale of LNG and regasified natural gas. T&D develops, owns and operates major pipelines and distribution networks, and supplies natural gas through these to the end customer. Power develops, owns and operates natural gas-fired power generation plants around the world. Other activities primarily comprise business development expenditure and corporate costs.

The Group manages its business segments on a global basis. In 2007 most of the operations were managed in five main geographical areas: Europe and Central Asia, South America, Asia Pacific, North America and the Caribbean, and Mediterranean Basin and Africa. From 1 January 2008, the Group’s Asia Pacific and Mediterranean Basin and Africa regions were consolidated into the newly created Africa, Middle East and Asia region. The Group’s South America and North America and Caribbean regions were consolidated into the newly created Americas and Global LNG region. The segmental analysis and results presentation below is aligned with the way the business was managed in 2007.

Intra-group and inter-segment sales are settled at market prices and are generally based on the same prices as those charged to third parties (arm’s length principle). Group revenue, profit for the year, net assets, gross assets and gross liabilities, depreciation and amortisation and capital investment attributable to BG Group activities are shown on below, analysed by business segment and geographical segment.

The presentation of BG Group’s results under International Financial Reporting Standards (IFRS) 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. Results excluding disposals, certain re-measurements and impairments (‘Business Performance’) are presented in order to provide readers with a clear and consistent presentation of the underlying operating performance of the Group’s ongoing business. Further information on Business Performance is given in the Presentation to non-GAAP measures

Disposals, re-measurements and impairments include unrealised gains and losses in respect of certain long–term UK gas sales contracts classified as derivatives under IAS 39, commodity instruments used to manage certain price exposures in respect of optimising the timing and location of physical gas and LNG commitments, and financial instruments used to manage foreign exchange and interest rate exposure. The separate presentation of these items 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. Under IFRS the results from jointly controlled entities (joint ventures) and associates are presented net of tax and finance costs on the face of the income statement. It is also relevant to present the operating profit of the Group including results of joint ventures and associates before interest and tax. The following tables provide a reconciliation between the overall results and Business Performance and operating profit including and excluding the results of joint ventures and associates.

Profit for the year
Analysed by business segment

	Business Performance		Disposals, re-measurements and impairments		Total
for the year ended 31 December	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Group revenue
Exploration and Production	4 063	3 902	–	–	4 063	3 902
Liquefied Natural Gas	3 038	2 334	–	–	3 038	2 334
Transmission and Distribution	978	877	–	–	978	877
Power Generation	521	248	–	–	521	248
Other activities	7	8	–	–	7	8
Less: intra-group sales(a)	(316)	(233)	–	–	(316)	(233)
Group revenue	8 291	7 136	–	–	8 291	7 136
Other operating income	39	134	(172)	404	(133)	538
Group revenue and other operating income	8 330	7 270	(172)	404	8 158	7 674
Operating profit/(loss) before share of results from joint ventures and associates(b)
Exploration and Production	2 387	2 457	(154)	337	2 233	2 794
Liquefied Natural Gas	394	248	–	(69)	394	179
Transmission and Distribution	213	190	1	1	214	191
Power Generation	44	18	–	–	44	18
Other activities	(37)	(43)	–	(18)	(37)	(61)
	3 001	2 870	(153)	251	2 848	3 121
Pre-tax share of operating results of joint ventures and associates
Liquefied Natural Gas	127	104	–	–	127	104
Transmission and Distribution	34	41	–	–	34	41
Power Generation	86	88	–	–	86	88
	247	233	–	–	247	233
Total operating profit/(loss)
Exploration and Production	2 387	2 457	(154)	337	2 233	2 794
Liquefied Natural Gas	521	352	–	(69)	521	283
Transmission and Distribution	247	231	1	1	248	232
Power Generation	130	106	–	–	130	106
Other activities	(37)	(43)	–	(18)	(37)	(61)
	3 248	3 103	(153)	251	3 095	3 354
Net finance costs
Finance income	146	104	6	23	152	127
Finance costs	(120)	(80)	(4)	(22)	(124)	(102)
Share of joint ventures and associates	(53)	(67)	–	–	(53)	(67)
	(27)	(43)	2	1	(25)	(42)
Taxation
Taxation	(1 354)	(1 348)	115	(113)	(1 239)	(1 461)
Share of joint ventures and associates	(31)	(27)	–	–	(31)	(27)
	(1 385)	(1 375)	115	(113)	(1 270)	(1 488)
Profit for the year	1 836	1 685	(36)	139	1 800	1 824
Profit attributable to:
Shareholders (earnings)	1 783	1 640	(37)	139	1 746	1 779
Minority interests	53	45	1	–	54	45
	1 836	1 685	(36)	139	1 800	1 824

(a)

Intra-group sales are attributable to segments as follows: E&P £237m (2006 £233m), and LNG £79m (2006 £nil).

(b)

Operating profit/(loss) before share of results from joint ventures and associates includes disposals and provisions for impairment of £19m (2006 £(153)m), attributable to segments as follows: E&P £18m (2006 £(67)m), LNG £nil (2006 £(69)m), T&D £1m (2006 £1m) and Other activities £nil (2006 £(18)m). Also included are: (i) non-cash remeasurements of £(172)m (2006 £404m), attributable to the E&P segment; and (ii) £104m (2006 £113m) of unsuccessful exploration expenditure written off and charged to the E&P segment.

Profit for the year
analysed by geographical segment

	Business Performance		Disposals, re-measurements and impairments		Total
for the year ended 31 December	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Group revenue(a)
Europe and Central Asia	3 081	3 105	–	–	3 081	3 105
South America	877	806	–	–	877	806
Asia Pacific	1 594	801	–	–	1 594	801
North America and the Caribbean	2 051	1 583	–	–	2 051	1 583
Mediterranean Basin and Africa	688	841	–	–	688	841
Group revenue	8 291	7 136	–	–	8 291	7 136
Other operating income	39	134	(172)	404	(133)	538
Group revenue and other operating income	8 330	7 270	(172)	404	8 158	7 674
Operating profit/(loss) before share of results from joint ventures and associates(b)
Europe and Central Asia	1 517	1 397	(170)	287	1 347	1 684
South America	181	165	–	–	181	165
Asia Pacific	274	255	–	(8)	274	247
North America and the Caribbean	714	611	18	38	732	649
Mediterranean Basin and Africa	315	442	(1)	(66)	314	376
	3 001	2 870	(153)	251	2 848	3 121
Finance income					152	127
Finance costs					(124)	(102)
Share of post-tax results from joint ventures and associates					163	139
Profit before tax					3 039	3 285
Taxation					(1 239)	(1 461)
Profit for the year					1 800	1 824
Profit attributable to:
Shareholders (earnings)					1 746	1 779
Minority interests					54	45
					1 800	1 824

(a)

Based on destination.

(b)

Based on location of operational management.

Joint Ventures and Associates
analysed by business segment

	Pre-tax share of operating results of joint ventures and associates		Share of net finance costs and tax of joint ventures and associates		Share of post-tax results from joint ventures and associates
for the year ended 31 December	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Liquefied Natural Gas	127	104	(49)	(49)	78	55
Transmission and Distribution	34	41	(6)	(16)	28	25
Power Generation	86	88	(29)	(29)	57	59
	247	233	(84)	(94)	163	139

Analysed by geographical segment

	Pre-tax share of operating results of joint ventures and associates		Share of net finance costs and tax of joint ventures and associates		Share of post-tax results from joint ventures and associates
for the year ended 31 December	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Europe and Central Asia	43	54	(17)	(26)	26	28
South America	12	12	1	(3)	13	9
Asia Pacific	65	63	(19)	(16)	46	47
North America and the Caribbean	99	85	(31)	(29)	68	56
Mediterranean Basin and Africa	28	19	(18)	(20)	10	(1)
	247	233	(84)	(94)	163	139

Net Assets, Total Assets and Total Liabilities
Analysed by business segment

	Total assets (a)		Total liabilities		Net assets/(liabilities) (b)
as at 31 December	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Exploration and Production	7 589	6 571	(2 418)	(1 797)	5 171	4 774
Liquefied Natural Gas	2 996	2 594	(969)	(748)	2 027	1 846
Transmission and Distribution	1 415	1 141	(383)	(202)	1 032	939
Power Generation	1 128	621	(82)	(131)	1 046	490
Other activities	56	58	(313)	(101)	(257)	(43)
Net borrowings, net interest and tax	2 206	1 703	(3 868)	(3 244)	(1 662)	(1 541)
	15 390	12 688	(8 033)	(6 223)	7 357	6 465

(a)

Total assets includes investment in joint ventures and associates of £1 156m (2006 £1 085m), attributable to segments as follows: LNG £740m (2006 £639m), T&D £118m (2006 £110m) and Power £298m (2006 £336m).

(b)

Includes net assets classified as held for sale of £nil (2006 £51m), attributable to segments as follows: E&P £nil (2006 £62m) and Other activities £nil (2006 £(11)m). Further details on assets held for sale are given in note 19.

Analysed by geographical segment

	Total assets (a)		Total liabilities		Net assets/(liabilities) (b)
as at 31 December	2007 £m	2006 £m	2007 £m	2006 £m	2007 £m	2006 £m
Europe and Central Asia	4 551	3 978	(2 387)	(1 655)	2 164	2 323
South America	1 693	1 315	(251)	(210)	1 442	1 105
Asia Pacific	877	748	(195)	(163)	682	585
North America and the Caribbean	3 935	3 192	(1 032)	(781)	2 903	2 411
Mediterranean Basin and Africa	2 128	1 752	(300)	(170)	1 828	1 582
Net borrowings, net interest and tax	2 206	1 703	(3 868)	(3 244)	(1 662)	(1 541)
	15 390	12 688	(8 033)	(6 223)	7 357	6 465

(a)

Total assets includes investments in joint ventures and associates of £1 156m (2006 £1 085m), attributable to segments as follows: Europe and Central Asia £314m (2006 £318m), South America £155m (2006 £75m), Asia Pacific £190m (2006 £182m), North America and the Caribbean £429m (2006 £436m) and Mediterranean Basin and Africa £68m (2006 £74m).

(b)

Includes net assets classified as held for sale of £nil (2006 £51m), attributable to segments as follows: Europe and Central Asia £nil (2006 £(11)m), Mediterranean Basin and Africa £nil (2006 £62m). Further details on assets held for sale are given in note 19.

Depreciation, Amortisation and Impairment
Analysed by business segment

for the year ended 31 December	2007 £m	2006 £m
Exploration and Production(a)	555	585
Liquefied Natural Gas(b)	46	141
Transmission and Distribution	33	28
Power Generation	42	19
Other activities(c)	5	6
	681	779

Analysed by geographical segment

for the year ended 31 December	2007 £m	2006 £m
Europe and Central Asia(b)(c)	364	383
South America	36	30
Asia Pacific	55	48
North America and the Caribbean	102	87
Mediterranean Basin and Africa (a)	124	231
	681	779

(a)

In 2006, includes a provision for impairment of £64m in respect of Mauritania Holdings B.V. which is held within the Mediterranean Basin and Africa segment.

(b)

In 2006, includes a provision for impairment of £104m in respect of Brindisi LNG S.p.A. which is held within the Europe and Central Asia segment.

(c)

In 2006, includes a provision for impairment of £3m in respect of Microgen which is included within the Europe and Central Asia segment.

Capital Investment
Analysed by business segment

	Capital expenditure (a)		Capital investment (b)
for the year ended 31 December	2007 £m	2006 £m	2007 £m	2006 £m
Exploration and Production	1 652	1 165	1 652	1 165
Liquefied Natural Gas	71	399	194	496
Transmission and Distribution	116	122	117	123
Power Generation	5	8	520(c)	55(c)
Other activities	14	8	14	8
	1 858	1 702	2 497	1 847

Analysed by geographical segment

	Capital expenditure (a)		Capital investment (b)
for the year ended 31 December	2007 £m	2006 £m	2007 £m	2006 £m
Europe and Central Asia	627	491	753(c)	530
South America	172	198	248	199
Asia Pacific	135	127	135	127
North America and the Caribbean	303	549	740(c)	654(c)
Mediterranean Basin and Africa	621	337	621	337
	1 858	1 702	2 497	1 847

(a)

Comprises expenditure on property, plant and equipment and other intangible assets.

(b)

Comprises expenditure on property, plant and equipment, other intangible assets and investments, including business combinations.

(c)

Includes business combinations. Further details of 2007 business combinations are given in note 15.