Interim Strategy Update
* Excellent exploration and appraisal results with success in eight countries so far in 2008
* BG Group estimates its net share of reserves and resources in Brazil at over 3 billion boe(i)
* BG Group 2P reserves(i) expected to rise by over 2 billion boe(ii) (+60%) this year
* BG Group total reserves and resources(i) expected to increase by ca. 3 billion boe(ii) (+30%) this year
* Increasing resource base underpins potential to sustain a 6-8% CAGR in E&P production to 2020(iii)
* E&P production targets(iii) confirmed: 2009 - 680 000 boed and 6-8% CAGR from 2005 to 2012
* Expect increased production in Brazil and expenditure re-phasing at Karachaganak Phase III
* Recommended offer for Queensland Gas Company Limited (QGC)
* 2008 and 2009 LNG operating profit guidance raised to £1.4 billion and £1.3 billion, respectively
* BG Group remains strongly financed
Interim Strategy Update
Ahead of its February 2009 annual strategy presentation, BG Group is providing the following interim strategy update.
BG Group has achieved excellent exploration and appraisal results so far in 2008, with success in Algeria, Australia, Brazil, Norway, Oman, Thailand, Trinidad and Tobago and the UK.
Offshore Brazil, the exploration success and scale of resources discovered have been exceptional.
BG Group and partners have now achieved a sequence of six successes in the Santos Basin pre-salt play, with the Tupi, Tupi Sul, Iara, GuarŠ, Carioca and Parati discoveries. Based on these drilling successes,
BG Group currently estimates its net share of reserves and resources(i) at over 3 billion barrels of oil equivalent (bboe).
BG Group had indicated in its February 2008 strategy presentation, that it believed the Santos Basin pre-salt play had the potential to realise 2 to 3.5 bboe of net reserves(i) to BG Group. This has been validated by progress through the year, which has advanced current expectations towards the upper end of that range. In addition, there remains in BG Groupís portfolio a number of significant untested exploration prospects in the Santos Basin pre-salt play, as well as further reserves potential from the appraisal of existing discoveries.
Success has also continued in Queensland, with BG Group and QGC coal seam gas 3P reserves(iv) more than doubling since the start of the year to 8 200 PJ (ca. 7.5 tcf), including Sunshine Gas and Roma Petroleum.
As a consequence of the above successes, BG Group expects this year to report an annual increase of over 2 bboe(ii) to the Groupís 2P reserves(i) (60% increase) and an increase of ca. 3 bboe(ii) to the total reserves and resources base(i) (30% increase).
The material growth in BG Groupís reserves and resources(i) in 2008 to date supports our confidence in the potential of the portfolio to sustain a 6-8% CAGR in E&P production from 2005 out to 2020(iii), as outlined in the Groupís February 2008 strategy presentation.
Nearer term, the February 2008 strategy presentation identified the major projects supporting BG Groupís 2009 production target as Buzzard, Karachaganak, Trinidad and Tobago domestic gas, Panna/Mukta and Tapti in India and Hasdrubal in Tunisia. BG Group confirms that all of these projects are either now already in production or on track for start-up in 2009. In addition, the major projects supporting continued production from existing ventures; Rosetta Phase III and West Delta Deep Marine Phase IV are already in production and the Poinsettia development in Trinidad and Tobago is progressing towards start-up at end of 2008. As a consequence, BG Group today confirms its E&P production target for 2009 is 680 000 boed(iii).
BG Group also confirms its target of 6-8% CAGR over the period from 2005 to 2012(iii). BG Group expects some changes to the mix of projects underpinning the growth to 2012, principally in relation to the Santos Basin projects in Brazil and Karachaganak phasing.
In Brazil, development activity is advancing rapidly on Tupi with the award of drilling and facilities contracts. First commercial production is now expected from the 100 000 bbl/day Tupi pilot by fourth quarter 2010. In addition, the exploration success with GuarŠ and Iara has led the partnership to fast-track planning on two additional 100 000 bbl/day pilot schemes, with the objective of achieving first production in 2012.
In parallel, full field development and infrastructure plans are being advanced.
At Karachaganak, it is BG Groupís view that full advantage should be taken of an expected downturn in oil and gas project costs, due to substantial falls in raw material costs and activity levels. BG Group has initiated discussions with KazMunaiGas around alternative phasing of project expenditure to ensure that the full Phase III capital commitment is not made at the peak of the cost cycle. These moves are expected to secure improved returns for the Republic of Kazakhstan and investing partners. Karachaganak has produced record volumes so far in 2008 and reserves and production potential remain unchanged.
In Australia, the acquisition of QGC enhances BG Groupís global gas strategy, builds on existing Australian domestic and export interests and provides both material Asia Pacific gas resources and Pacific Basin LNG supply. Based on success in proving up reserves, and anticipated on-going progress with reserves, BG Group now expects to sanction a 7.5 mtpa, two-train first phase to the LNG project in 2010.
As announced in the Groupís third quarter 2008 results, BG Groupís LNG shipping and marketing business continues to trade strongly. BG Group is raising its guidance for 2008 operating profit for the LNG segment to £1.4 billion.
For 2009, the shipping and marketing business has contracted over 50% of its volume and has fixed the margin on a material proportion of these sales. Based on current commodity prices and exchange rates, the Group is upgrading its guidance for the LNG segmentís 2009 operating profit to around £1.3 billion.
Longer term, BG Group expects global LNG demand to continue to grow strongly and confirms its goal of securing 20 mtpa of equity and contracted LNG supply by 2015. By that time, BG Group anticipates material equity LNG supply and a range of customer positions in both Atlantic and Pacific basins, underpinning expansion of the Groupís global gas business.
BG Group will provide its usual detailed strategy presentation on 5 February 2009.
i) For further information about BG Groupís reserves categorisation, please see BG Groupís Annual Report and Accounts 2007. 2P reserves means proved plus probable reserves
ii) With 100% ownership of QGC
iii) At reference conditions (see BG Groupís February 2008 strategy presentation)
iv) QGC categorises its reserves in accordance with the Society of Petroleum Engineers. For further information, please refer to BG Groupís press release dated 28 October 2008
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