In 2008, BG Group made material additions to reserves and resources through exploration success in Brazil and the acquisition of QGC.

E&P Highlights

• Acquisition of Queensland Gas Company Limited (QGC) adds more than 11 tcf of resource
  
• BG Group’s net share of reserves and resources from Brazil discoveries currently estimated at over three billion boe
• Iara and Guará discoveries in the Santos Basin, Brazil
• 2P reserves increased by 64%; total reserves and resource base increased by 31% to 13.1 billion boe
• Agreed an asset exchange with BP, which concentrates operations in the UK central North Sea
• Drilled 43 wells with 22 successes in Algeria, Brazil, Canada, Norway, Thailand, Trinidad and Tobago and the UK

	Exploration success in Brazil Following significant exploration success in the pre-salt Santos Basin, the partners have now sanctioned the extended well test and initial development phase on Tupi.     New reserves in Australia Australia has been added to BG Group's portfolio with the acquisition of QGC, which has added more than 11 tcf of resource. The focus in 2009 will be on the drilling of around 200 wells to further prove up reserves.     UK operations consolidated The asset exchange in the North Sea consolidates and strengthens BG Group’s UK Continental Shelf interests. Once complete, the Group will operate 46% of its UK North Sea assets and will be concentrated in the central North Sea.

Production was 226.7mmboe in 2008 (2007 220.3mmboe). The 3% increase in production was primarily due to a full year contribution from the Buzzard field in the UK and new production in India and Trinidad and Tobago. The 3% growth in E&P production was achieved after absorbing the impact of industrial action in the UK and planned shutdowns to tie in new production facilities in Egypt, Kazakhstan and the UK. In 2007, production was adversely impacted by asset disposals (Canada and Mauritania) and the shutdown of the Central Area Transmission System(CATS) pipeline following damage by a third-party vessel. The daily production in 2008 was equivalent to 619 000 boed.

In 2008, proved reserves^(a) were 2 459mmboe (2007 2 039mmboe) after net additions and revisions of 646mmboe and production of 226.7mmboe. Full details can be found on page 115 of the 2008 Annual Report. Total reserves and resources^(a) increased by 31% during 2008 to 13.1 billion boe as at 31 December 2008 (see chart), amounting to 58 years of production at 2008 levels.

^(a) For an explanation of these terms, refer to page 121 of the 2008 Annual Report.

BG Group net production in the UK totalled 60.8mmboe in 2008 and accounted for 27% of the Group’s production. In 2008, BG Group had its first full year’s contribution from the Buzzard field (BG Group 21.73%) where peak production reached 220 000 bopd gross, approximately 10% above nameplate capacity. Reserves in this field have continued to grow from both increased reservoir size and improved recovery factors and now exceed 600mmboe gross. During the first quarter, the partners sanctioned the Buzzard Enhancement Project which involves the construction of an additional processing platform to remove hydrogen sulphide and extend plateau production beyond 2010.

The West Franklin field (BG Group 14.11%) in the central North Sea also contributed its first full year’s production, and has been producing over 25 000 boed. Following the drilling of the West Franklin B appraisal well, gross resources are now estimated at close to 200mmboe with additional drilling, and it is now expected to produce 45 000 boed.

In December 2008, BG Group announced an asset exchange with BP plc (BP) under which it proposes to acquire BP’s entire equity in the Everest, Lomond and Armada fields, increasing its equity stake in these fields from around 60% to around 80%, and part of BP’s equity in the Erskine field in the central North Sea. BG Group will become operator of the Everest and Lomond fields and will continue to operate the Armada field. In return, BG Group will transfer all its equity interests in fields in the southern North Sea to BP. This consolidates and strengthens BG Group’s UK Continental Shelf interests. It should allow the Group to increase efficiency and develop satellite fields economically.

From 2012 and beyond, new production is expected from the Jasmine and Jackdaw discoveries, where exploration and appraisal work continued during 2008. On Jasmine, exploration drilling and a side-tracking programme has yielded two successful wells and the partners are now optimising the potential development concept.

Further information:
	UK Upstream operations

BG Group’s net production from Egypt was 57.2mmboe in 2008 (2007 56.6mmboe) from its two gas producing areas offshore the Nile Delta – the Rosetta and the West Delta Deep Marine (WDDM) concessions.

BG Group continues to be a key supplier to the domestic market through its Rosetta, Scarab and Saffron fields. In September 2008, BG Group signed an agreement with the Egyptian Government to increase domestic gas pricing for production from these fields.

During first quarter 2008, BG Group successfully delivered first gas from the WDDM Phase 4 and the Rosetta Phase 3 projects in Egypt, which supply the domestic market. The Group’s reserves are being developed in phases in order to sustain production levels to meet domestic and export commitments. In 2009, WDDM Phase 5 (onshore booster compression), Phase 6/Rosetta Phase 4 (joint development of Sequoia) are expected to be operational, and the Group is expecting to sanction Phase 7.

During 2008, exploration drilling commenced in the Group’s new licence areas with an unsuccessful well drilled in each of El Burg Offshore (BG Group 70%) and El Manzala Offshore (BG Group 100%). BG Group is currently planning the forward exploration programme for these areas for 2010.

Further information:
	Egypt operations

BG Group is joint operator of the Karachaganak field (BG Group 32.5%) in north­west Kazakhstan which in 2008 produced 39.8 mmboe net to BG Group. Of the 24.8 mmboe (net) liquids produced, 18.1 mmboe were exported through the Caspian Pipeline Consortium pipeline (BG Group 2%) and via the Atyrau Samara pipeline into the Transneft system, both selling at international prices. In 2008, gas sales increased to 81.8 bcf, an increase of 2% over 2007 volumes.

Work on the fourth stabilisation train project continued in 2008. A maintenance shutdown for regulatory inspections, production enhancement modifications and Train 4 tie­ins, was successfully completed in September and October. The expanded project includes 13 additional wells and is expected to increase western oil sales to 10.3 mtpa and develop gross reserves of 250 mmboe. It is now planned to be onstream in 2010.

In relation to the next phase of development, Phase III, BG Group has initiated discussions with its partners on re­phasing the project expenditure. The first stage is expected to involve a new drilling programme and will increase gas injection and gas sales. Under current plans, production is expected to remain stable from 2009 to 2014. The production profile beyond this point will depend on the options ultimately selected.

In December, an agreement was announced between BG Group, JSC National Company KazMunayGas and its subsidiary KazMunayGas Exploration Production to co­operate in exploring a range of upstream opportunities in Kazakhstan and other countries.

Further information:
	Kazakhstan operations

Production in Trinidad and Tobago increased by 13% during 2008 to 26.1 mmboe, with almost a doubling in production at Dolphin Deep, largely due to increased domestic demand.

The key project during 2008 has been the phased development of the North Coast Marine Area. Activity has included the development of the Poinsettia field as part of Phase 3c and will include accessing the Heliconia and Bougainvillea fields as part of Phase 3d. This has involved building a new drilling and production platform, the largest structure installed in Trinidadian waters with the 4 200 tonne topsides built entirely in Trinidad, and with initial production from a single sub­sea well. A new pipeline connects the new platform to the Hibiscus platform 20 kilometres away. First gas from Poinsettia was achieved in January 2009.

BG Group and partners signed an agreement in 2007 for further sales of up to 220 mmscfd from the East Coast Marine Area to The National Gas Company of Trinidad and Tobago Limited for up to 15 years. It is due to start in mid­2009.

The three well drilling programme on Block 5(c) which began in mid-2007, continued into 2008.

The first two wells, Victory-1 and Bounty-1, encountered hydrocarbons and were successfully tested. The last well, Endeavour-1, spudded in August 2008 and is planned to access a separate structure to the Victory and Bounty discoveries. The results of the initial wells and from Endeavour are being evaluated.

Further information:
	Trinidad and Tobago operations

In 2008, the Panna/Mukta and Tapti (PMT) fields (BG Group 30%) produced 15.5 mmboe (net). Production was impacted by a fatal incident at Panna following which the field was shut down for 30 days. The Group is working with partners and the Government

In early 2008, the Ministry of Petroleum and Natural Gas reappointed GAIL (India) nominee to purchase all PMT produced gas, effective 1 April 2008. All gas produced from PMT is delivered and sold under the terms of a Gas Sales and Purchase Agreement with GAIL. The new, higher sales price is subject to a floor of US$2.11/mmbtu and ceiling prices of US$5.57/mmbtu and US$5.73/mmbtu for the Tapti and Panna/Mukta fields respectively under the terms of the Production Sharing Contracts which run until 2019. 2.13 mmscmd of PMT gas has been allocated by GAIL to Gujarat Gas Company Limited.

BG Group has been expanding its position in India via licence rounds and farmins. On block KGOSN2004/1, signed in 2007, acquisition of 3D seismic was completed in May with further seismic activity and two exploration wells planned in 2009. In February 2008, BG Group signed two farmin agreements with Oil and Natural Gas Corporation Ltd (ONGC) to acquire a participating interest in two deep water blocks off the Indian east coast – a 30% interest in KGDWN98/4 block and a 25% interest in MNDWN2002/02 block.

Further information:
	India

BG Group net production in Tunisia during 2008 was 11.0 mmboe gas and condensate from the Miskar field (BG Group 100%). A six well infill drilling programme is underway at Miskar, with completion scheduled for 2009. The first well entered production in December 2007 and two more entered production in 2008.

A major shutdown was completed across Miskar and Hannibal processing facilities in order to increase capacity, handle higher inert content gas and improve asset integrity. Combined with a capacity de-bottlenecking project, these ventures are key to maintaining plateau production from Miskar. Facilities include a sulphuric acid plant enabling an environmentally friendly way of disposing of sour gas. Additional wells/de-bottlenecking opportunities are being assessed.

Development of the Hasdrubal field (BG Group 50%) was close to completion at year end. Gross production of around 30 000 boed is expected when it comes onstream mid-2009 and will see BG Group produce LPG for the first time in Tunisia. As a result, BG Group’s net production in Tunisia is expected to increase to 56 000 boed over the next two years.

Further information:
	Tunisia operations

In 2008, BG Group produced 9.8 mmboe net from its Bongkot field (BG Group 22.22%), close to peak production 15 years after first gas. Programmes of well intervention and infill drilling were successfully completed improving field deliverability and reservoir recovery. Work continued on the expansion of the Greater Bongkot North (GBN) facilities. Development phase 3F, including 20 new development wells, was brought onstream during 2008 and the first wellhead platform for phase 3G was installed in October.

During 2008, further commitments were made to invest in GBN facilities to extend its production plateau well into the next decade. In July, execution of phase 3H was approved which will deliver production from three new GBN structures, commencing in 2010. A further campaign of exploration drilling was completed in 2008 with three wells proving gas in new structures that are earmarked for future development.

In October 2008, execution of the Greater Bongkot South (GBS) Project commenced to develop 11 new structures in the southern part of the Bongkot concession. New offshore facilities will include a central processing facility and approximately 13 wellhead platforms. First gas is now expected in 2012.

Further information:
	Thailand operations

BG Group net volumes in Bolivia were 5.7 mmboe in 2008 (2007 5.5 mmboe) including the Margarita Early Production Facilities (BG Group 37.5%). In 2008, the partnership issued a Declaration of Commerciality in respect of the Huacaya X1 discovery on the northern part of the Caipipendi block where Margarita is located.

Further information:
	Bolivia operations

In February 2008, BG Group announced an alliance with Queensland Gas Company Limited (QGC), a leading Australian coal seam gas company supplying the Queensland market. BG Group initially acquired 20% of QGC’s assets in the Surat Basin, southwest Queensland, and a 9.9% stake in QGC.

In October 2008, BG Group and QGC agreed a takeover under which BG Group offered to acquire all the remaining issued shares in QGC at A$5.75/share by means of an unconditional on market takeover bid. The all cash offer valued the entire issued shares of QGC at approximately A$5.4 billion (£2.2 billion).

At 31 December 2008, BG Group held almost 100% of QGC and had moved to acquire the remaining shares. This transaction gives BG Group full control of the development of reserves to progress the planned Queensland Curtis LNG project (see the LNG Operating review on page 24 of the 2008 Annual Report). 2008 production totalled 0.9 mmboe (net). The Group's aim is to grow production to 225 000 boed by 2015 for domestic and LNG markets.

Since the alliance was formed, QGC has announced substantial increases in reserves, taking 2P reserves to 3.7 tcf and total resources to over 11 tcf. Ongoing appraisal and development activity is planned to continue proving up reserves for Queensland Curtis LNG.

BG Group also entered into an option agreement with AGL Energy Limited (AGL) under which AGL has the right (but not the obligation) to acquire either or both of: 100% of the Lacerta gas field and a 15% interest in the Polaris gas exploration licence, amounting to certified 3P reserves of 1 097 PJ and 2P reserves of 469 PJ and/or the 140 MW Condamine combined cycle power station, currently under construction, together with an associated 10 PJ per annum gas supply contract until 1 January 2014.

Further information:
	Australia operations

BG Group’s Canadian production was 0.1 mmboe in 2008, following the sale in 2007 of most of the Group’s producing assets. During 2008, drilling and seismic activities continued in BG Group’s acreage in Canada with three successful exploration wells drilled.

Further information:
	Canada operations