Annual Report and Accounts 2009 - BG Group

8
Directors’ Report: Business Review
Chief Executive’s statement
Although challenging market conditions had
an impact on gas demand during the year, the
Group continued to demonstrate very good
momentum in implementing its business
plan. There was excellent progress with the
Group’s projects, particularly in Australia,
Brazil and the USA, and total reserves and
resources grew by 10% to 14.5 billion barrels
oil equivalent (boe). Taken together, these
developments underpin our confidence in
the Group’s growth prospects.
In Exploration and Production (E&P),
total operating profit* of £2 087 million
(2008 £3 512 million) was 41% lower
year-on-year, reflecting reductions in
international benchmark oil and gas prices,
partially offset by the effect of a stronger
US Dollar. E&P volumes increased by 4% to
234.9 million boe, up from 226.7 million boe
in 2008. However, production growth during
the year was below expectations, principally
due to weakness in demand in a number of
the Group’s key markets and the delay to the
start-up of the Hasdrubal project in Tunisia.
Further detail is set out in the Operating
Review on pages 16 to 23.
An effective commodity price risk
management programme combined
with favourable exchange rate movements
ensured that operating performance in
Liquefied Natural Gas (LNG) was sustained
through 2009. LNG total operating profit
of £1 551 million (2008 £1 585 million) was
broadly in line with 2008 despite sharply
lower commodity prices during the period
under review.
Total operating profit for BG Group’s
Transmission and Distribution (T&D)
businesses increased by £266 million to
£426 million (2008 £160 million), principally
reflecting the recovery of gas costs incurred
in earlier periods at the Group’s Brazilian
gas distribution business, Comgás. Power
Generation (Power) total operating profit
increased by £40 million in the full year to
£158 million (2008 £118 million).
www.bg-group.com
Very good momentum in 2009 in
implementing our business plan
and increased confidence in the
Group’s growth prospects.
Frank Chapman
Chief Executive
* For a reconciliation between Business Performance and Total Results, see note 2, page 77.
† BG Group net production is pre-CNOOC farm-out (5%).
Progress in 2009
The global business environment in 2009
proved to be one of the most challenging
for many years. The slowing of growth in
energy demand and consequent fall in gas
prices were reflected in a reduction in
BG Group’s earnings and lower growth in
production volumes. While the Group expects
weak demand effects to continue through
2010, we believe the outlook will be more
positive. For further details of our view of
the market context, see page 15.
BG Group has assembled a portfolio of assets
which we are confident can sustain upstream
volume growth out to 2020 at the upper end
of our 6-8% compound annual growth rate
target, resulting in upstream production of
1.2-1.6 million barrels oil equivalent per day
(boed) by the end of the decade. In LNG, we
expect to reach 20 million tonnes per annum
(mtpa) of contracted volumes by 2015 and to
deliver profits of $1.8-2.0 billion per annum
through to 2012. This marks our confidence
that LNG performance will be sustained for
the foreseeable future.
Our confidence in delivering growth that
is a multiple of the industry average is
underpinned by a strengthened and
rebalanced portfolio, summarised in the
Operating Review on pages 16 to 23.
Our key projects in Australia, Brazil and
the USA are being significantly and rapidly
de-risked. Moreover, our successful appraisal
and commercialisation programme in 2009,
taken together with targeted acquisitions at
the recent low point in the economic cycle,
means that BG Group already owns, today,
the reserves and resources needed to meet
our growth ambitions. As a result, I believe
we are well-placed to extend our track record
of growth and shareholder value creation
deep into the future.
However, importantly, our growth story is not
just about tomorrow. Production from our
projects in the Santos Basin pre-salt, offshore
Brazil, is already underway today and will
ramp up strongly in the first half of the decade
on a steep trajectory to achieve more than
400 000 boed net to BG Group by 2020. The
Santos Basin pre-salt is one of the world’s
most important new hydrocarbon provinces.
BG Group is in a strong position as the
pre-salt developments come to fruition,
with net reserves and resources of more
than 3 billion boe and a close relationship
with our partner Petrobras.
During 2009, we also made excellent progress
towards sanction this year of our Queensland
Curtis LNG project in Australia. This is a
significant and material new liquefaction
venture, controlled and operated by BG Group,
close to the world’s largest LNG markets on
the Asia-Pacific rim and underpinned by up
to 8.3 mtpa of LNG agreements. The plant is
planned to come onstream in 2014, with net
plateau production from our QGC business’
low-cost coal seam gas resources ultimately
reaching 225 000 boed†.
The entry into and subsequent development
of our new alliance with EXCO Resources, Inc.
(“EXCO”), a US shale gas producer, was
another key highlight of 2009. We now expect
our US shale gas interests to contribute net
production of 100 000 boed by around 2015.
The very positive developments in Australia,
Brazil and the USA contributed to further
growth in BG Group’s total reserves and
resources, up by around 1.4 billion boe to
reach a total of 14.5 billion boe.
This represents an increase of 10% over last
year, yielding a reserves and resources to
production life of around 62 years based on
2009 production. Discovered resources are up
by 32% to 4.9 billion boe. The Group’s proved
reserves replacement ratio for 2009 was 160%,
with a three-year replacement ratio of 166%,
which is an upper-quartile performance.
Since 2005, BG Group has doubled its total
reserves and resources, equating to a
compound growth rate of some 20% per
annum. The strong increase in the Group’s
total reserves and resources provides a firm
foundation for our plans to achieve upstream
production of 1.2-1.6 million boed by 2020.