Exploration | LNG | Bolivia-Brazil Pipeline | Comgás | Operations Map

Press Release: 24 June 2010 New well confirms Tupi potential, Santos Basin, Brazil Press Release: 8 April 2010 BG Group and partners announce successful Tupi field step-out appraisal well in the Santos Basin, Brazil Press Release: 24 March 2010 BG Group confirms high productivity from well tests on Tupi North-East in the Santos Basin, Brazil Press Release: 9 December 2009 Iara drilling update, Santos Basin, Brazil Press Release: 19 November 2009 BG Group announces record productivity from well tests on the Iracema appraisal well in the Tupi area, Santos Basin, Brazil Press Release: 17 Novemebr 2009 BG Group and Petrobras joint Santos Basin gas development Press Release: 13 November 2009 New well reinforces Tupi potential, Santos Basin, Brazil Press Release: 15 September 2009 New discovery: Abare West in the pre-salt, Santos Basin, Brazil Press Release: 9 September 2009 Santos Basin Guara contains 1.1 to 2.0 billion recoverable barrels First oil produced from Tupi Further exploration success at Iguaçu, Iracema and Corcovado BG Group estimated net share of reserves and resources at over 3 billion boe BG Group supplied first LNG to Brazil Completion of Comgás tariff review

Key dates

1999
Purchased controlling stake in Comgás

Bolivia-Brazil pipeline connected to São Paulo

2000
Acquired pre-salt non-operated acreage in Santos Basin

2005
Drilling programme began in deepwater Santos Basin

2006
Secured four licences in the ANP 7th licensing round

Oil and gas discoveries in the Santos Basin – Parati (BM-S-10) and Tupi (BM-S-11)

2007
Further discoveries announced: Carioca (BM-S-9) and Tupi Sul (BM-S-11)

2008
Guará announced as the second oil discovery on BM-S-9

Iara announced as a material oil discovery on BM-S-11

Brazil is BG Group’s most significant asset in South America. BG Group aims to build a material business in Brazil through equity in oil and gas reserves and growth of Comgás. Brazil is a core asset in the Group portfolio, offering significant oil and gas reserves, ease of access to world crude markets, and a growing domestic gas market.

Exploration continued during 2008/09 offshore Brazil, where exploration success and scale of resources discovered have been exceptional. BG Group currently estimates that its net share of reserves and resources is over 3 billion boe.

BG Group has a controlling stake in Companhia de Gás de São Paulo (Comgás), Brazil’s largest gas distribution company. At the end of 2008, Comgás had around 630 000 customers in São Paulo. The concession area has a population of over 29 million and Comgás anticipates continued growth opportunities in future.

Other important areas for BG Group’s future business in Brazil include: development of gas infrastructure associated with production from the Santos Basin (with the aim of supplying Comgás); supply of imported LNG to the local market; and further exploration, both in the established basin and new frontiers.

BG Group has an equity position in the Bolivia-Brazil Pipeline (BBP).

The scale of discoveries BG Group has made in the Santos Basin offers the opportunity to build a material, long-term E&P business in Brazil with net production from the first three major developments planned to reach over
400 000 boed in 2020. The Group is also confident that the planned developments are economic at oil prices below $40 a barrel. In addition, there remains in BG Group’s portfolio a number of significant untested exploration prospects in the Santos Basin presalt play, as well as further reserves potential from the appraisal of existing discoveries.

In 2006, the Parati well in BM-S-10
(BG Group 25%) and the Tupi well in BM-S-11 (BG Group 25%) were both declared as discoveries. In 2007, the Carioca well on BM-S-9 (BG Group 30%) was declared a discovery and the Tupi appraisal well, Tupi Sul (BM-S-11), confirmed the 2006 Tupi discovery.

Tupi is a large structure with significant reserves potential requiring further appraisal drilling and evaluation. Initial estimates by BG Group and partners are that Tupi could contain from 12 billion boe to more than 30 billion boe gross hydrocarbons initially in place and gross reserves of 5 to 8 billion boe. The Tupi consortium is currently undertaking further evaluation of the field under an Evaluation Plan approved by the National Petroleum Agency of Brazil (ANP).

An extended well test (EWT) and initial development phase for Tupi were sanctioned in 2008. The EWT started in May 2009 and is planned to last 15 months, with production expected to peak at around 14 000 bopd. The EWT flowed first commercial oil production from Tupi to the FPSO (BWCidade de São Vicente) in May 2009. The initial development phase is expected to commence in late 2010, with initial production of up to 100 000 bopd. The full field development of Tupi may involve up to 300 producing and injector wells and up to ten FPSO modules with a gross oil production up to 1 million bopd and up to 1 bcfd of gas. Development activity is advancing rapidly on Tupi with the award of drilling and facilities contracts.

In BM-S-9, the Guará well was announced as a discovery in June 2008 and in September 2009, BG Group announced that Guará is estimated to contain recoverable volumes of 1.1-2.0 billion boe. In September 2008, BG Group announced the completion of drilling on the Iara well in the BM-S-11 concession and estimated gross recoverable volumes to be three to four billion boe. The exploration success with Guará and Iara has led the partnership to fast track planning on two 120 000 boed initial development phases, with the objective of achieving first production in 2012 on Guará and 2013 on Iara. Evaluation Plans for the Carioca, Guará and Iara discoveries have been approved by the ANP (regulator). Further development phases on Guará and Iara are expected to lead to production of up to 150 000 bopd and 500 000 bopd respectively.

During 2009, there has been further drilling activity on BM-S-9, with an exploration well, Iguaçu, completed in April 2009. The Iguaçu well has proven the presence of another accumulation of light oil. Future operations continue to determine the ultimate potential and comply with Evaluation Plan obligations. A further exploration well, Abaré West, also on BM-S-9, has begun drilling. In June 2009, BG Group announced that the Iracema well on BM-S-11 had encountered hydrocarbons.

An exploration well is planned to commence in 2009 on Sagittario (BM-S-50). On BM-S-52, two exploration wells are being drilled in 2009. BG Group has a 40% interest in the concession and is operator during the exploration phase. The first well, Corcovado-1 encountered hydrocarbons in April 2009. The rig then went on to drill a second well, Corcovado-2. Evaluation of these two wells continues.

In June 2008, BG Group and Petrobras signed a Master Sales and Purchase Agreement and two confirmation memoranda to supply LNG to Petrobras terminals in Pecem (State of Ceará) and in Guanabara Bay (State of Rio de Janeiro).

BG Group supplied the commissioning cargoes to the Pecem terminal in July 2008 and to the Guanabara Bay terminal in May 2009. In future, LNG will be supplied to either the Pecem or Guanabara terminals as required by Petrobras, subject to local market demand.

With total capacity of 30 mmcmd, the BTB is 3 150 kilometres long, of which 2 593 kilometres are in Brazil. The project was developed through two different companies: Gas Transboliviano (GTB), which owns and operates the assets in Bolivia, and Transportadora Brasileira Gasoduto Bolivia Brasil (TBG), which owns and operates the Brazilian portion of the pipeline. Operation of the two pipelines is coordinated through an Interconnection Agreement.

BG Group participates in TBG through BBPP Holdings, together with El Paso and Total. BG Group’s one-third equity in BBPP Holdings represents a 9.67% interest in TBG. BG Group holds a 2% interest in GTB. BG Group has an effective overall interest of 7.65%, although this does not represent a direct equity holding, as GTB and TBG are two separate entities. Construction of the pipeline was completed in 2000, opening the Brazilian energy market to Bolivian gas reserves.

Summary of Comgás 2008 results:

• 6% increase in the total volume of gas sales to 5.3 bcm;

• 10% increase in residential customers;

• 4% increase in commercial customers; and

• 449 kilometres of network expansion.

Comgás

BG Group has a 60.1% majority interest in Comgás, Brazil’s largest gas distribution company. Comgás is listed on the São Paulo stock exchange.

At end 2008, Comgás had 5 704 kilometres of pipelines covering 67 municipalities and supplied gas to 1 004 industrial, 8 885 commercial and 620 191 residential customers in the state of São Paulo. Additionally, Comgás supplied 401 NGV filling stations, 20 customers in co-generation and two in the thermo-generation market. Comgás has increased its average daily volume from 3.0 mmcmd in 1999 to 14.6 mmcmd in 2008.

In 2008, Comgás’ operating profit was £115million (2007 £211million) and volumes increased by 6%. A strong underlying performance was obscured by a significant increase in the cost of gas. Regulatory mechanisms allow the higher cost of gas incurred by Comgás to be passed through to customers in future periods. At the end of 2008, the balance of gas costs to be recovered in 2009 and 2010 was £161million. Excluding the impact of the timing effect of increased cost of gas at Comgás, the operating profit increased by 15% in 2008, reflecting volume growth and better margin performance at Comgás.

The Comgás concession is a 30-year franchise, with a potential for a further 20 years. The concession area contains 7.7million households and is in the industrial heartland of Brazil, accounting for about 25% of Brazil’s GDP. The current business focus continues to be the connection of higher-margin commercial and residential customers.

The concession contract requires a tariff review every five years. Since privatisation in 1999, Comgás has invested more than BRL 2.9 billion. In May 2009, the regulator, ARSESP, published the details of the final outcome of Comgás’ tariff review covering the period 2009-2014. The tariff review resulted in some reductions in Comgás’ margins, mainly reflecting the pass through of reduced cost of gas seen in the last six months and some reduction of the maximum allowed margin. As a result of the reduction, competitiveness of natural gas is expected to improve.

Comgás purchases gas at prices indexed to a basket of oil-related fuels. Brazilian gas supplies from Petrobras of 3.5 mmcmd are contracted until December 2012. Bolivian gas supplies from Petrobras began in July 1999 under a 20-year contract, with volume increasing from 4.0 mmcmd in 1999 to 8.7 mmcmd in 2007, and they are contracted until July 2019. Comgás has two further gas supply contracts with Petrobras: a firm energy contract (1.0 mmcmd until December 2012) and an interruptible contract (up to 1.5 mmcmd until December 2010).

In May 2008, a new supply agreement for 0.65 mmcmd was agreed between
BG Group’s gas marketing arm, BG Comercio, and Comgás to replace an earlier agreement that needed to be restructured as a result of changes to the Bolivian regulatory regime. In 2009, industrial and commercial demand reduced due to the fall in economic activity and high rainfall benefiting competing hydro electric generation. The residential segment continues to add connections. Growth in the industrial and commercial segments is expected to resume as the economic outlook improves.

Further information on Comgás can be found on its website: http://www.comgas.com.br