Summary Annual Report & Accounts 2013

Focused on delivery

This is an online summary of our 2013 Annual Report & Accounts.

Our vision

BG Group's vision is to be an internationally diversified exploration and production company with a specialism in gas and LNG.

Chairman's statement

Andrew Gould - Chairman

“Despite progress on project milestones, developments in 2013, particularly in Egypt and the USA, reduced BG Group's growth outlook for 2014 and 2015. The Board recognises that this is a frustrating setback for our shareholders”.

Andrew Gould CHAIRMAN

Dividends

+10%

Increase in full-year dividend (cents per share)

WHERE WE WORK

BG Group has interests in more than 20 countries on five continents. The Group has two business segments: Upstream and LNG Shipping & Marketing.

Close

UK

BG Group brought two new projects onstream during 2013. The Everest East expansion project came onstream in March and the Jasmine field started production in November.

Upstream - Exploration and Production

Key

 Case studies

CHIEF EXECUTIVE'S STATEMENT

Chris Finlayson - Chief Executive

Operating profit

Our strategy

“In May 2013, I outlined BG Group's new strategy. I addressed the longer-term outlook, detailing how we will build on our competitive strengths and strong pipeline of new growth opportunities as a focused E&P and LNG company. There are six pillars to our strategy.”

Chris Finlayson Chief Executive

Our strategies

Our strategy

How we create value

Our strategy is driven by two highly distinctive capabilities – our world-class exploration and our unique LNG business. We create value through these core strengths, each facilitated by our commercial agility.

Exploration is at the heart of what we do. Our exploration strategy, which has been consistent over the last 15 years, is in two parts.

Existing areas

Where we are already actively operating and/or exploring, we look for new opportunities by capitalising on:

  • our detailed knowledge of local geology;
  • our infrastructure already in place; and
  • our relationships with governments and others affected by or involved in our operations.

New basins

We seek large frontier acreage, where we can find giant oil and gas opportunities at a relatively low cost of entry.

  • We have wide geological and technical expertise.
  • Our people and our culture are important parts of our competitive advantage.
  • We also have simple, consistent and robust screening processes that enable us to make fast decisions, and then establish positions rapidly.

We have the capabilities of a major, but we can move at the pace of a small company.

How we
deliver value

We will deliver value through active portfolio management, improving our project development and operations capability, and simplifying our organisation.

  • We are focused on creating a balanced portfolio of 10-15 high-quality and valuable assets.
  • We have a rich opportunity set and expect to have more potential projects than our investment capacity. This should enable us to be selective about the projects in which we choose to participate and at what equity level. We will make these decisions to maximise capital discipline and efficiency; that is, to seek to maximise the value we can deliver for each dollar of investment. By prioritising projects on this metric, we can maximise the value we generate from our investment capacity and ensure we only invest in projects with rates of return well above our cost of capital.
  • In practice, this means we will focus on areas where we create most value:

    – We aim to enter new projects at an early stage and seek, where possible, to maintain high levels of control to optimise the oil, gas and LNG value chains. We will then take forward to development and operation the most capital efficient projects. We will divest from some projects at this pre-project sanction stage.

    – As we approach the project sanction and development phase, we will review opportunities to reduce our equity position, and bring in strategic partners, to manage risk, realise value and, as appropriate, secure buyers of LNG or gas.

    – In the early production phase, we will capture opportunities for further value creation through high-return expansion projects and satellite tie-backs into our existing operations.

    – Later in the life of the asset, our ability to add value through LNG optimisation continues but other opportunities tend to decline. Some assets will be held to provide cash flow but others will be divested to allow capital to be re-invested or distributed to shareholders.
  • We expect that strong production growth will enable around 25% of our discovered resources to be monetised over the next 10 years. We expect active portfolio management to monetise a further 25%, bringing the total nearer to 50% of discovered resources. We expect our resource additions to be roughly in balance with the rate of resource monetisation. This faster recycling of discovered resources will enable us to deliver value to shareholders more quickly and provide for higher levels of investment in early-stage exploration and new business development.
  • We monetised more than one billion barrels during 2013, 231 million barrels through production, and around another 860 million barrels through disposals, principally the QCLNG sell-down to CNOOC. Our organic reserves replacement ratio on SEC measurement was 115% on a one-year basis and 179% on a three-year basis.
  • The total capital to be released from our divestment programme in 2012 and 2013 amounts to $8.5 billion, significantly exceeding our $5 billion target. Further details are included in the Financial review.

How we work

Our business is built on partnerships with all our stakeholders, from governments and communities to our own employees and wider society. Meeting their changing expectations and winning their respect is essential to our present and future business.

Our Business Principles set out our commitment to work ethically, respecting the needs and concerns of others and the environment.

Conduct

  • We act with integrity, fairness and transparency.
  • We comply with legal, regulatory and licence requirements.
  • We do not tolerate corruption in any form, whether direct or indirect.
  • Our investment criteria take account of economic returns, environmental impacts, social consequences and human rights.
  • High standards of corporate governance are integral to the way we manage our business.

Our people

  • We treat people with fairness, respect and decency.
  • We help employees develop their potential.
  • We believe that all injuries are preventable.
  • We provide healthy, safe and secure work environments.

Society

  • We work to ensure that neighbouring communities benefit from our presence on an enduring basis.
  • We listen to neighbouring communities and take account of their interests.
  • We support human rights within our areas of influence.

Environment

  • We make a positive contribution to the protection of the environment.
  • We go beyond compliance with local environmental regulation to meet internationally accepted best practice.
  • We reduce to the minimum practicable any adverse effects of our operations on the environment.

What our
strategy delivers

Key elements of BG Group's strategy include:

  • focusing on areas where we have competitive advantage – early-stage origination, discovery and development – in upstream gas and oil and in LNG;
  • prioritising value over production;
  • managing the portfolio more actively by:
    – monetising assets at different stages in their life cycle;
    – bringing in partners to accelerate value delivery; and
    – recycling capital into new, high-return, early-stage growth opportunities;
  • creating a focused portfolio of 10-15 high-quality, material assets; and
  • a lean and agile organisation.

“I believe that this strategy will deliver industry-leading growth in shareholder value. In the medium to long term, we expect*:

  • strong growth in E&P and LNG volumes driven by Australia and Brazil;
  • the proportion of production with cash margins of more than $50 per barrel of oil equivalent to triple over the next five years as oil production from Brazil and QCLNG volumes ramp up;
  • earnings to grow faster than production;
  • in 2015, our capital expenditure to fall to $8-$10 billion and the delivery of positive free cash flow**;
  • to monetise – through production or disposal – up to 50% of our discovered resources in the next 10 years; and
  • increasing return on capital employed.

This will provide capital for disciplined reinvestment in more high-return projects, and allow us to return cash to shareholders in the medium term.”

Chris Finlayson CHIEF EXECUTIVE

* At the Group's Reference Conditions.
** Free cash flow is defined in the Glossary.

OUR PERFORMANCE

BG Group has identified the key performance indicators it believes are useful in assessing the Group's performance against its strategic aims. They encompass both financial and non-financial measures and are set out below.

Business performance earnings per share*
(cents)

Earnings per share: 2013:128.6,2012:128.9,2011:124.9,2010:110.1,2009:92.9

For the year ended 31 December.

* For a reconciliation between business performance and total results, see note 1 and note 9.

Total shareholder return
(%)

Total shareholder return, 2013: Peer group: 8.6, BG Group: 2.7

For the year ended 31 December.

  • Peer group(a) (sample average to 2010 and weighted average from 2011)
  • BG Group

(a) Constituents of the peer group.

Total recordable case frequency
(per million work hours)

Total recordable case frequency employed (Per million work hours): 2013:1.64,2012:2.26,2011:1.92,2010:0.94,2009:1.59

For the year ended 31 December.

Exploration and production volumes (net)
(kboed)

Exploration and production volumes (net): 2013:633,2012:657,2011:641,2010:646,2009:644

For the year ended 31 December.

Total reserves and resources
(mmboe)

Total reserves and resources: 2013:17,721,2012:18,511,2011:17,130,2010:16,180,2009:14,494

For the year ended 31 December.

  • Proved reserves(a)
  • Probable reserves(a)
  • Discovered resources(a)
  • Risked exploration(a)

(a) An explanation of these terms.

Liquified natural gas delivered volumes
(mtpa)

Liquified natural gas delivered volumes: 2013:10.9,2012:12.1,2011:12.8,2010:12.9,2009:13.1

For the year ended 31 December.

More information on delivered volumes.

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