Annual Report and Accounts 2009 - BG Group

32
Directors’ Report: Business Review
Principal risks and uncertainties continued
Political context and stakeholder relationships
Principal risks and uncertainties
BG Group faces a range of political risks. For instance, governments
may alter fiscal or other terms governing oil and gas industry
operations, especially where they face financial pressures, or may
act (or fail to act) in a way which delays project schedules or increases
costs, thus destroying value. In addition, BG Group needs to work
together with governments and national oil companies in order to
secure access to new resources and ensure the successful monetisation
of existing resources. In such cases, political considerations can
influence decision making.
Similarly, BG Group will be exposed to risk if it does not recognise, and
take account of, the interests of the communities in the areas where it
operates. BG Group’s operations will only be sustainable and successful
over the long term if its local stakeholders see benefit from them and
support the Group’s presence.
Interest rate and liquidity risk
Principal risks and uncertainties
BG Group’s financing costs may be affected by interest rate volatility.
The Group is also exposed to liquidity risks, including risks associated
with refinancing borrowings as they mature, the risk that borrowing
facilities are not available to meet cash requirements and the risk that
financial assets cannot readily be converted to cash without loss of
value. Failure to manage financing risks could have a material impact
on the Group’s cash flow, balance sheet and financial position.
Exchange rates
Principal risks and uncertainties
BG Group’s financial results up to and including the results for the
financial year ended 31 December 2009 have been reported in Pounds
Sterling. A significant majority of the Group’s business activity is
conducted in US Dollars, and the Group holds substantial US Dollardenominated
assets, as well as other non-Sterling assets and liabilities.
Consequently, the Group’s results and financial position were affected
by exchange rate fluctuations.
From 1 January 2010, the Group will report its financial results in
US Dollars. As a result of business activities, and asset and liability
positions, conducted or held in other currencies, the Group’s results
and financial position will continue to be affected by exchange
rate fluctuations.
www.bg-group.com
Commentary
The commitments in BG Group’s Business Principles form the basis
of the Group’s efforts to address these issues and are summarised
on pages 34 to 37 and in the Sustainability Report, published at
www.bg-group.com/sustainability
Under those commitments, BG Group seeks to:
• apply the highest standards of conduct to all of its activities;
• set safety as an overriding priority at all times;
• act as a model employer;
• work closely with local communities; and
• follow international best practice on environmental issues.
From this starting point, BG Group works to ensure that governments
and national oil companies see it as a partner of choice. The Group
seeks to understand their priorities and interests and seek alignment
with them wherever possible, while making it clear that contract
sanctity and stability are essential to attract and underpin direct
foreign investment.
BG Group also aims to ensure that its portfolio is appropriately
diversified. In that respect, expansion in Australia, Brazil and the
USA, has changed positively the overall balance of political risk.
Commentary
The Group’s interest rate management policy requires that borrowings
are substantially floating rate. Exceptions from this policy require
approval from the Group’s Finance Committee. The Group maintains
adequate committed borrowing facilities and holds its financial assets
primarily in short-term, highly liquid investments that are readily
convertible to known amounts of cash. The Group imposes limits on
the amount of borrowings that mature within any specific period.
Commentary
The Group mitigates its exposure to certain currencies other than
the US Dollar (primarily Pounds Sterling, the Brazilian Real and
the Australian Dollar) by denominating a portion of its after-swap
borrowings in such currencies, with the balance denominated in
US Dollars. The Group hedges certain expected cash flows into
US Dollars. Currency hedging is also undertaken to mitigate currency
exposure in certain cross-border transactions.