Annual Report and Accounts 2009 - BG Group

6
Directors’ Report: Business Review
Chairman’s statement
Global economic conditions were notably
challenging in 2009, with adverse consequences
for energy demand in some of BG Group’s
key markets. Despite this, BG Group’s
performance over the year was solid. Total
operating profit* of £4 211 million was 21%
lower year-on-year against a background of
significant reductions in international
benchmark oil and gas prices. Earnings per
share were 27% lower at 67.3 pence. The
Group continues to benefit from strong cash
flows. Gearing is higher than in previous years
but at 17% remains within the range that the
Group considers to be appropriate. The
full-year dividend payment has been
increased by 10% to 12.35 pence per share.
Full details of the Group’s 2009 financial
performance can be found on page 69.
BG Group enjoyed continued exploration
success, particularly offshore Brazil,
strengthening further the Group’s platform
for growth through the new decade. During
the year, the Group acquired Pure Energy
Resources Limited in Australia and entered
into an alliance with EXCO Resources, Inc.
(“EXCO”), a US shale gas producer with
upstream and transmission assets at the
heart of the world’s largest gas market.
Market context
Although timely intervention by governments
prevented the 2008 banking crisis from
tipping the global economy into collapse, the
new decade begins with many economies
weighed down by a range of recessionary
factors. These include a reduction in industrial
activity, growing unemployment and a fall
in consumer confidence, leading to lower
demand for goods and services in the major
consumer markets. Additionally, a number of
countries, including the UK, enter the decade
with very high levels of national debt and
huge fiscal deficits.
Oil prices partially recovered through the
year from the lows of late 2008, and appear
to have stabilised at levels which, while
significantly lower than the summer 2008
www.bg-group.com
A solid performance despite
notably challenging global
economic conditions.
Sir Robert Wilson
Chairman
* For a reconciliation between Business Performance and Total Results, see note 2, page 77.
peak, seem to be broadly sustainable, at least
under current market conditions. However,
gas prices remain subdued – a factor reflected
in the Group’s 2009 earnings.
The present weak level of global energy
demand has led to talk of a natural gas ‘glut’
as new sources of supply continue to come
onstream and producers compete to secure
customers in a buyer’s market. There is in
some markets a mismatch between capacity
and demand at the moment. However,
this may not last long if, as anticipated,
momentum is restored to global economic
growth in the early years of this decade.
There are two other relevant factors.
First, despite the weak conclusions of the
Copenhagen summit, political leaders still
face an urgent need to define credible and
deliverable policies which will meet current
and future national energy requirements,
while simultaneously achieving a significant
reduction in carbon emissions. Second, US
and European concerns about energy
security are driving a desire to secure new
and sustainable sources of energy which are
free from the threat of politically-motivated
supply constraints.
Natural gas goes some way to addressing
both of those policy issues. It is acknowledged
to be a ‘bridge fuel’ with a role to play in
displacing higher-carbon fossil fuels, such
as coal, which remain the energy sources
of choice across much of the world. Gas
resources are abundant and for many years
have been brought to market using
techniques that are proven and cost-effective,
unlike a number of alternative energy
technologies. Finally, from an energy
security perspective, it is important not to
underestimate the significance of liquefied
natural gas (LNG) – an increasingly fungible
global commodity with diverse and resilient
global sources of supply – as well as the rapid
development of unconventional gas resources
within the borders of developed world
nations, particularly the USA and Australia.
The pace of gas usage growth in China – one
of the world’s largest economies – is just one
indication that the new decade is likely to see
further growth in demand for the cleanest
of the fossil fuels. I believe that BG Group,
as a global gas company, is strongly placed to
benefit as natural gas continues to underpin
the journey to a lower-carbon future.
A strengthened and rebalanced portfolio
A challenge shared by all oil and gas
companies is that a substantial proportion
of global hydrocarbon resources is located
within developing economies. Over the last
three years, the Group has rebalanced its
portfolio to ensure that future growth has
a firm foundation in countries with a long
track record of stability. That does not imply,
though, that BG Group will avoid all
countries where there is an element of risk.
Doing so would not be tenable in this
industry, nor would it be in our shareholders’
wider interests.
I am pleased to report that the Group
continues to make important improvements
in its overall geopolitical risk profile in order
to protect, as well as create, value for our
shareholders. The rapid development of the
Group’s QGC business in Australia and the
Santos Basin successes in Brazil are two key
outcomes from this deliberate strategy to
establish new opportunities for material value
creation in countries proven to be favourable
destinations for long-term investment.
BG Group’s alliance with EXCO in the USA is
intended to achieve two interlocking aims.
First, it strengthens the Group’s US supply
portfolio and expertise near the hub of the
US eastern seaboard gas market. Second, it
expands the Group’s skills and development
opportunities in unconventional gas resources at
a time when, as a consequence of technological
developments, these are emerging rapidly as
substantial sources of natural gas production.
An overview of developments in BG Group’s
portfolio is set out in the Operating Review on
pages 16 to 23.