Annual Report and Accounts 2007

Supplementary information – gas and oil (unaudited)

On 20 December 2007, the Group’s registration with the SEC was terminated and the Group’s SEC reporting obligations also ceased with effect from that date. BG Group continues voluntarily to use the SEC definition of proved reserves to report proved gas and oil reserves and to disclose the unaudited supplementary information detailed in this section, prepared on the basis of FAS 69.

BG Group’s strategy aims to connect competitively priced gas to high value markets. Hydrocarbon reserves, and gas in particular, are developed in relation to the markets which they are intended to supply. Based on the above, the information below is disclosed on the basis of the following geographical areas: (i) the United Kingdom, (ii) Atlantic Basin, (iii) Asia and the Middle East, and (iv) Rest of the World. The countries in the Atlantic Basin, Asia and the Middle East and the Rest of the World geographical areas are grouped as shown below to reflect the nature of the markets for BG Group’s interests in these countries:

Atlantic Basin – Canada, Egypt, Nigeria, Trinidad and Tobago, and the USA
Asia and the Middle East – China, India, Kazakhstan, Oman, Thailand, Israel and areas of Palestinian Authority
Rest of the World – Algeria, Australia, Bolivia, Brazil, Italy, Libya, Madagascar, Mauritania, Norway, Spain and Tunisia

A) PROVED RESERVES

Proved reserves are the estimated quantities of gas and oil which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those quantities that are expected to be recovered from new wells on undrilled acreage or from existing wells where relatively major expenditure is required for completion. Proved undeveloped reserves comprise total proved reserves less total proved developed reserves.

The net movement in proved reserves during the year includes extensions, discoveries and reclassifications (63.3 mmboe), additions and disposals (8.5 mmboe decrease) and revisions to previous estimates (55.1 mmboe). Included within these movements is the net effect of changes in year end prices (117.0 mmboe decrease). Production in the period was 220.1 mmboe (net of Canadian royalty production of 0.2 mmboe).

Gas and oil reserves cannot be measured exactly since estimation of reserves involves subjective judgment. Therefore, all estimates are subject to revision. Increases in year end gas and oil prices in fields subject to Production Sharing Contracts (PSCs) may result in lower entitlements leading to reductions in proved reserves.

Estimated Net Proved Reserves Of Natural Gas

	UK bcf	Atlantic Basin bcf	Asia and Middle East bcf	Rest of World bcf	Total  bcf
As at 31 December 2004	1 039	4 472	2 386	1 179	9 076
Movement during the year:
Revisions of previous estimates(a)	297	392	402	209	1 300
Extensions, discoveries and reclassifications	7	16	–	74	97
Production	(219)	(332)	(158)	(96)	(805)
Purchase of reserves-in-place	–	–	–	–	–
Sale of reserves-in-place	–	(1)	–	–	(1)
	85	75	244	187	591
As at 31 December 2005	1 124	4 547	2 630	1 366	9 667(b)
Movement during the year:
Revisions of previous estimates(a)	80	583	145	20	828
Extensions, discoveries and reclassifications	87	–	–	–	87
Production	(223)	(515)	(170)	(92)	(1 000)
Purchase of reserves-in-place	–	–	–	–	–
Sale of reserves-in-place	–	–	–	–	–
	(56)	68	(25)	(72)	(85)
As at 31 December 2006	1 068	4 615	2 605	1 294	9 582(b)
Movement during the year:
Revisions of previous estimates(a)	122	469	(192)	25	424
Extensions, discoveries and reclassifications	5	–	159	–	164
Production	(192)	(465)	(191)	(90)	(938)
Purchase of reserves-in-place	21	–	–	–	21
Sale of reserves-in-place	–	(57)	–	–	(57)
	(44)	(53)	(224)	(65)	(386)
As at 31 December 2007	1 024	4 562	2 381	1 229	9 196(b)
Proved developed reserves of natural gas:
As at 31 December 2004	867	1 393	2 038	665	4 963
As at 31 December 2005	937	2 267	2 139	929	6 272
As at 31 December 2006	846	2 232	2 006	844	5 928
As at 31 December 2007	807	1 897	2 046	822	5 572

Note:

Conversion factor of 6 bcf of gas to 1 mmboe.

(a)

Includes effect of oil and gas price changes on PSCs.

(b)

Estimates of proved natural gas reserves at 31 December 2007 include fuel gas of 632 bcf (31 December 2006 640 bcf; 31 December 2005 534 bcf).

Estimated Net Proved Reserves Of OilESTIMATED NET PROVED RESERVES OF OIL

‘Oil’ includes crude oil, condensate and natural gas liquids.

Estimated Net Proved Reserves Of Oil

	UK mmbbl	Atlantic Basin mmbbl	Asia and Middle East mmbbl	Rest of World mmbbl	Total mmbbl
As at 31 December 2004	164.5	10.9	414.2	45.2	634.8
Movement during the year:
Revisions of previous estimates(a)	12.3	7.7	(46.9)	4.5	(22.4)
Extensions, discoveries and reclassifications	1.5	–	–	7.4	8.9
Production	(18.3)	(0.5)	(27.4)	(2.8)	(49.0)
Purchase of reserves-in-place	–	–	–	–	–
Sale of reserves-in-place	–	–	–	–	–
	(4.5)	7.2	(74.3)	9.1	(62.5)
As at 31 December 2005	160.0	18.1	339.9	54.3	572.3
Movement during the year:
Revisions of previous estimates(a)	10.0	(1.5)	18.4	(5.4)	21.5
Extensions, discoveries and reclassifications	10.2	–	–	–	10.2
Production	(18.4)	(1.8)	(28.1)	(3.4)	(51.7)
Purchase of reserves-in-place	–	–	–	–	–
Sale of reserves-in-place	–	–	–	–	–
	1.8	(3.3)	(9.7)	(8.8)	(20.0)
As at 31 December 2006	161.8	14.8	330.2	45.5	552.3
Movement during the year:
Revisions of previous estimates(a)	31.3	1.9	(47.1)	(1.7)	(15.6)
Extensions, discoveries and reclassifications	0.3	–	35.7	–	36.0
Production	(27.2)	(2.8)	(31.4)	(2.4)	(63.8)
Purchase of reserves-in-place	1.0	–	–	–	1.0
Sale of reserves-in-place	–	–	–	(3.5)	(3.5)
	5.4	(0.9)	(42.8)	(7.6)	(45.9)
As at 31 December 2007	167.2	13.9	287.4	37.9	506.4
Proved developed reserves of oil:
As at 31 December 2004	87.1	1.6	382.3	20.4	491.4
As at 31 December 2005	80.9	9.4	313.8	26.3	430.4
As at 31 December 2006	116.2	7.6	282.2	26.1	432.1
As at 31 December 2007	138.9	9.0	223.5	21.5	392.9

(a)

Includes effect of oil and gas price changes on PSCs.

B) STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS

The following tables set out the standardised measure of discounted future net cash flows relating to proved gas and oil reserves and report the causes of changes in the standardised measure of the cash flows relating to reserves. Future cash inflows have been computed by reference to the Group’s estimate of third-party prices ruling at the year end and estimates of future production of net proved gas and oil reserves at the end of each year.

The standardised measure of discounted future net cash flow information presented below is not intended to represent the replacement cost or fair market value of the Group’s gas and oil properties. The disclosures shown are based on estimates of proved reserves, future production schedules and costs which are inherently imprecise and subject to revision. The standardised measure is as follows:

Standardised Measure Of Discounted Future Net Cash Flows

	UK £bn	Atlantic Basin £bn	Asia and Middle East £bn	Rest of World £bn	Total £bn
As at 31 December 2005:
Future cash inflows	13.46	12.89	11.37	5.12	42.84
Future production and development costs	(2.86)	(1.76)	(4.06)	(1.57)	(10.25)
Future income tax expenses	(5.61)	(5.13)	(2.52)	(1.48)	(14.74)
Future net cash flows	4.99	6.00	4.79	2.07	17.85
10% annual discount for estimated timing of cash flows	(1.34)	(2.36)	(2.14)	(0.92)	(6.76)
	3.65	3.64	2.65	1.15	11.09
As at 31 December 2006:
Future cash inflows	8.44	7.23	9.81	4.75	30.23
Future production and development costs	(3.13)	(1.86)	(3.54)	(1.91)	(10.44)
Future income tax expenses	(2.77)	(2.25)	(2.15)	(1.08)	(8.25)
Future net cash flows	2.54	3.12	4.12	1.76	11.54
10% annual discount for estimated timing of cash flows	(0.57)	(1.26)	(2.01)	(0.78)	(4.62)
	1.97	1.86	2.11	0.98	6.92
As at 31 December 2007:
Future cash inflows	13.05	8.56	13.66	7.32	42.59
Future production and development costs	(3.87)	(1.90)	(5.04)	(2.16)	(12.97)
Future income tax expenses	(4.83)	(2.85)	(3.10)	(2.08)	(12.86)
Future net cash flows	4.35	3.81	5.52	3.08	16.76
10% annual discount for estimated timing of cash flows	(1.27)	(1.59)	(2.80)	(1.12)	(6.78)
	3.08	2.22	2.72	1.96	9.98

The following were the main sources of change in the standardised measure of discounted cash flows in the three accounting years preceding 31 December 2007:

The main sources of change in the standardised measure of discounted cash flows in the three accounting years preceding 31 December 2007

	2007 £bn	2006 £bn	2005 £bn
Standardised measure at the beginning of the year	6.92	11.09	6.20
Sale of gas and oil produced net of production costs and other operating costs(a)	(3.49)	(3.40)	(2.67)
Net changes in prices and production costs(b)	6.55	(7.33)	9.35
Extensions, discoveries, reclassifications and revisions to previous estimates	1.42	1.13	2.46
Changes in estimated future development costs	(1.14)	(1.09)	(1.02)
Development costs incurred in the period	1.18	0.72	0.68
Accretion of discount	1.11	1.85	0.96
Net change in income taxes	(2.53)	3.94	(4.95)
Other	(0.04)	0.01	0.08
Standardised measure at the end of the year(c)	9.98	6.92	11.09

(a)

Production costs and other operating costs include lifting, tariff, insurance and royalty costs but not depreciation costs.

(b)

Includes the effect of foreign exchange movements.

(c)

footnote C

Based on the following:	2007	2006	2005
Brent oil price ($/bbl)	96	59	58
Henry Hub ($/mmbtu)	7.48	5.64	11.23
UK Spot Gas (p/therm)	47.90	24.05	73.40
US$/UK£ exchange rate	1.99	1.96	1.72
Standardised measure at the end of the year ($bn)	19.87	13.55	19.06

C) CAPITALISED COSTS

Capitalised costs incurred using the successful efforts method and net of depreciation were as follows:

Capitalised Costs

	UK £m	Atlantic Basin £m	Asia and Middle East £m	Rest of World £m	Total £m
As at 31 December 2005:
Proved gas and oil properties	3 361	1 533	1 592	860	7 346
Unproved gas and oil properties	49	271	21	191	532
	3 410	1 804	1 613	1 051	7 878
Accumulated depreciation	(2 210)	(229)	(287)	(290)	(3 016)
Net Capitalised Costs	1 200	1 575	1 326	761	4 862
As at 31 December 2006:
Proved gas and oil properties	3 631	1 585	1 601	842	7 659
Unproved gas and oil properties	60	324	37	266	687
	3 691	1 909	1 638	1 108	8 346
Accumulated depreciation	(2 395)	(377)	(362)	(332)	(3 466)
Net Capitalised Costs	1 296	1 532	1 276	776	4 880
As at 31 December 2007:
Proved gas and oil properties	3 955	1 755	1 885	1 185	8 780
Unproved gas and oil properties	102	318	51	298	769
	4 057	2 073	1 936	1 483	9 549
Accumulated depreciation	(2 654)	(442)	(498)	(342)	(3 936)
Net Capitalised Costs	1 403	1 631	1 438	1 141	5 613

D) COSTS INCURRED IN GAS AND OIL ACTIVITIES

Aggregate costs incurred under the historical cost convention, comprising amounts capitalised to exploration and development and amounts charged to the income statement in respect of exploration and appraisal, were as follows:

Costs Incurred In Gas And Oil Activities

	UK £m	Atlantic Basin £m	Asia and Middle East £m	Rest of World £m	Total £m
Year ended 31 December 2005:
Acquisition of properties:
Unproved	–	–	–	12	12
Exploration	70	89	83	82	324
Development	228	259	104	92	683
Year ended 31 December 2006:
Acquisition of properties:
Unproved	19	2	–	40	61
Exploration	86	207	39	162	494
Development	234	215	174	98	721
Year ended 31 December 2007:
Acquisition of properties:
Proved	67	–	–	–	67
Unproved	5	43	–	–	48
Exploration	81	126	50	231	488
Development	233	343	238	361	1 175

The proportion of exploration costs capitalised in the period was 56.8% (2006 71.4%; 2005 67.0%).

The above table does not include additions to decommissioning provisions which amounted to £94m in 2007 (2006 £49m; 2005 £5m).

E) RESULTS OF OPERATIONS

The results of operations under the historical cost convention and in accordance with IFRS for the gas and oil producing activities (excluding general office overheads and interest costs) were as follows:

Results of operations

	UK £m	Atlantic Basin £m	Asia and Middle East £m	Rest of World £m	Total £m
Year ended 31 December 2005:
Revenues	1 296	669	826	276	3 067
Production costs	(168)	(37)	(98)	(29)	(332)
Other operating costs	–	(18)	(32)	(25)	(75)
Exploration expenses	(25)	(72)	(20)	(64)	(181)
Depreciation and amortisation	(173)	(112)	(84)	(31)	(400)
Other costs	(16)	(25)	(40)	(30)	(111)
	914	405	552	97	1 968
Taxation	(384)	(209)	(203)	(35)	(831)
Results of operations	530	196	349	62	1 137
Year ended 31 December 2006:
Revenues	1 532	968	1 045	357	3 902
Production costs	(198)	(60)	(117)	(41)	(416)
Other operating costs	–	(14)	(38)	(33)	(85)
Exploration expenses	(71)	(99)	(17)	(85)	(272)
Depreciation and amortisation	(185)	(174)	(95)	(43)	(497)
Other costs	(42)	(17)	(47)	(33)	(139)
	1 036	604	731	122	2 493
Taxation	(539)	(315)	(270)	(46)	(1 170)
Results of operations	497	289	461	76	1 323
Year ended 31 December 2007:
Revenues	1 745	823	1 206	289	4 063
Production costs	(266)	(54)	(115)	(33)	(468)
Other operating costs	–	(5)	(66)	(35)	(106)
Exploration expenses	(29)	(80)	(29)	(198)	(336)
Depreciation and amortisation	(256)	(136)	(105)	(26)	(523)
Other costs	(48)	(24)	(48)	(25)	(145)
	1 146	524	843	(28)	2 485
Taxation	(600)	(255)	(313)	12	(1 156)
Results of operations	546	269	530	(16)	1 329

Revenues comprise all invoiced sales. Net royalty payments are classified as other operating costs in the table above.

Revenues, representing gas and oil sold, include intra-group sales at contract prices of £237m for the year ended 31 December 2007 (2006 £233m; 2005 £91m).

The accretion interest expense resulting from changes in the liability for decommissioning due to the passage of time, which is not included in the above table, was £16m (2006 £13m; 2005 £11m).