Annual Report and Accounts 2009 - BG Group

Credit
Principal risks and uncertainties
The challenging credit environment witnessed during the past
two years has highlighted the importance of managing credit risk.
BG Group’s exposure to credit risk takes the form of a loss that would
be recognised if counterparties (including sovereign entities) failed, or
were unable, to meet their payment or performance obligations. These
risks may arise in all forms of commercial agreements and in certain
agreements relating to amounts owed for physical product sales, the
use of derivative instruments, and the investment of surplus cash
balances. The Group is also exposed to political and economic risk
events that exacerbate country risk, which may cause non-payment
of foreign currency obligations to BG Group by governments or
government-owned entities, or otherwise impact successful project
delivery and implementation. The impact of credit issues could also
lead to the failure of companies in the sector, potentially including
partners, contractors and suppliers.
Health, Safety, Security and Environment (HSSE)
Principal risks and uncertainties
Upstream production of hydrocarbons, and the management of them
midstream, and downstream, present a number of HSSE risks and the
inherent potential for major accidents or incidents. These include:
asset integrity failure, leading to a loss of containment of hydrocarbons
and other hazardous materials; personal health and safety; natural
disasters and pandemics; and breaches of security. The Group often
operates in harsh and remote working environments. Major accidents
or incidents and/or the failure to manage these risks could result in
injury or loss of life, damage to the environment, or loss of certain
facilities with an associated loss or deferment of production and
revenues. Access to gas and oil resources may be affected by
developments in policies intended to protect local habitats.
Climate change
Principal risks and uncertainties
Policies and initiatives at national and international level to address
climate change are likely to affect business conditions and demand for
various types of energy in the medium to long-term. Worldwide policy
and regulatory actions are driving targeted reductions in greenhouse
gas (GHG) emissions which will in turn influence the future of the
energy industry. Policy approaches that promote the usage of
alternative energy sources (such as renewables, biofuels, hydro-electric
power and nuclear power) may have an impact on BG Group’s ability
to maintain its position in key markets. Additionally, new regulatory
regimes intended to establish emissions trading schemes could alter
hydrocarbon production economics.
Commentary
Credit exposure risk is monitored centrally for individual transactions
including concentration risk and the appropriateness of limits. The
Group considers each counterparty’s (including sovereign entities’),
financial and credit condition prior to entering into commercial
contracts, trading sales agreements, swaps, futures and options
contracts. The Group may also seek contractual or other forms of
protection or mitigation, including cash collateral, letters of credit,
security over assets or parent company guarantees. Where multiple
transactions are undertaken with a single counterparty or group
of related counterparties, the Group may enter into a netting
arrangement. For physical commodity trading, the Group seeks to
put in place bespoke master netting agreements or standard
arrangements appropriate to the local market.
Commentary
Safety and asset integrity are overriding priorities for the Group. The
Group designs and operates management systems and tools to help it
manage risks in these areas. The Group’s mandatory HSSE and Asset
Integrity Standards are regularly reviewed to ensure they are in line
with industry best practice, and are embedded in the organisation
through extensive training backed up by regular audits and
assessments. Contractor management is recognised as an essential
part of good safety management and the Group seeks to ensure that
its worldwide contractor community understands and applies the
Group’s safety culture and processes in their own operations. Further
details of the Group’s approach to HSSE are set out in The way we
work section on pages 34 to 37.
Commentary
Public policy responses to climate change continue to evolve, and the
Group closely monitors developments in this area. Group strategy takes
account of the fact that the energy industry will necessarily play a role
in the solution to climate change and that natural gas has a recognised
contribution to make. Many governments are seeking increased natural
gas utilisation as a lower-carbon alternative to coal or oil within the
context of their broader climate change mitigation strategies. The
Group seeks to leverage its core competence across the gas chain to
capitalise on the opportunity gas offers in reducing global GHG
emissions. Assessments of physical and economic risks, reviews of
scenarios for future uses of energy as well as the current and future
policy environment, all play a part in our response to climate change.
The Group actively identifies and carries out projects to minimise GHG
emissions across its existing operations and in new developments,
including applying ‘Best Available Techniques’ to help meet a Group
target of a one million tonne reduction in emissions (compared to a
‘no-action’ base case) between 2007 and 2012. All new developments
take into account national and international initiatives to reduce GHG
emissions, including the opportunity to participate in applicable
carbon-emissions trading schemes. Further details of the Group’s
approach to climate change are set out in the BG Group Sustainability
Report, available online at www.bg-group.com/sustainability
BG Group Annual Report and Accounts 2009
33
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