As at 31 December 2006, the Company had no commitments under operating leases (2005 £nil).
Certain expenditure under operating leases is recovered from third parties under partnership agreements.
At 31 December 2006, the Group had entered into commitments under finance leases commencing after that date of £96m (2005 £217m).
Included within land and buildings are two operating leases over BG Group’s headquarters, which are located at 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT, and where it leases and occupies office space with a gross internal area of approximately 29 000 square metres. The leases expire in 2026.
Included within Other are operating leases over LNG ships. The last of these leases expires in 2012.
The Group sub-leases one of its LNG ships to third parties (2005 three ships). The ship is leased to the Group under a lease included in the table above. Total future minimum lease rentals receivable by the Group under this lease were £32m as at 31 December 2006 (2005 £165m).
The Group has a long-term power sales arrangement where it receives payments in respect of the availability status of a power station. This arrangement is considered an operating lease with BG Group as the lessor. Total future minimum lease rentals receivable under this lease as at 31 December 2006 were £284m (2005 £318m) split between amounts due within one year £36m (2005 £34m); amounts due between two and five years £151m (2005 £149m) and amounts due over five years £97m (2005 £135m).
Following arbitral decisions which were largely favourable to FGPC all outstanding issues between FGPC and Siemens relating to Santa Rita have been finally resolved by a settlement agreement adopted by the tribunal which concluded the arbitration process. US$94m of liquidated damages were retained by FGPC and Siemens agreed to pay FGPC approximately £5m to settle other cross claims, claims for interest and FGPC’s legal costs.
On 12 February 2007, the Court of Brindisi, Italy, announced that it was pursuing a criminal investigation against certain current and former employees and consultants of BG Group and BG Italia S.p.A (BG Italia), a wholly owned subsidiary of BG Group, as well as against BG Italia itself, into allegations of improper conduct related to the authorisation process. There are various unrelated legal proceedings ongoing relating to the Brindisi LNG regasification terminal, the impact of which cannot yet be quantified. For further details see Directors’ report – Significant events subsequent to 31 December 2006 (page 56) and Risk Factors – Brindisi LNG Terminal Investigations (page 44).
In addition, various Group undertakings are parties to legal actions and claims which arise in the ordinary course of business. While the outcome of some of these matters cannot readily be foreseen, it is considered that they will be resolved without material effect on the net asset position as shown in these Financial Statements.
Back to Contents
| 110 | Notes to the accounts continued |
27 COMMITMENTS AND CONTINGENCIES continued
G) OTHER
Other commitments and contingencies include purchase obligations, indemnities to third parties and guarantees in respect of contractual obligations.
Purchase obligations included contracts for the purchase of long-term LNG supplies and other purchase commitments. Amounts payable under these contracts are as follows: less than one year £3 851m (2005 £2 609m); between one and three years £6 135m (2005 £4 475m); between three and five years £4 952m (2005 £3 824m); and thereafter £25 898m (2005 £24 160m). These commitments are calculated using the closing US$/UK£ exchange rate and are primarily indexed to gas market indices. At 31 December 2006, these commitments were primarily calculated using an assumed gas price of US$6.00/mmbtu (2005 US$6.00/mmbtu) .
Also included within purchase obligations are service contracts for the provision of capacity from LNG importation terminals in the USA and the UK. BG Group has applied IFRC 4 ‘Determining whether an Arrangement contains a Lease’ from 1 January 2006 and concluded that the provision of capacity at Lake Charles contains a finance lease. Comparative information for 2005 has been restated to reflect this arrangement. Amounts payable under capacity contracts are due as follows: less than one year £55m (2005 £79m); between one and three years £173m (2005 £156m); between three and five years £178m (2005 £162m) and thereafter £1 435m (2005 £1 053m). BG Energy Holdings Limited, a subsidiary undertaking, has guaranteed these commitments.
The amount of other contingencies and commitments as at 31 December 2006 (mainly the provision of indemnities to third parties in respect of the Company and its subsidiary undertakings, in the normal course of business) amounted to £1 726m (2005 £1 976m), of which £377m (2005 £348m) related to the Company. Within the total, £768m (2005 £889m) related to guarantees and indemnities given in respect of a number of exploration and production developments and £350m (2005 £462m) related to a number of downstream investments, most of which expire after five years.
The exploration and production indemnities include guarantees given by the Company to the Republic of Kazakhstan in respect of contractual obligations and related contractual documents for the Karachaganak field of £300m (2005 £139m). The remainder of these guarantees, contingencies and commitments relate to various fields and activities in the exploration and production segment.
In addition, £421m (2005 £421m) related to an indemnity in respect of warranties given on the sale of a business which expire in 2008. This amount represents the maximum sum payable. The balance related to various guarantees and contingencies arising in the ordinary course of business. BG Group’s share of other commitments and contingencies in respect of its joint ventures and associates amounted to £10m (2005 £41m).
28 RELATED PARTY TRANSACTIONS
BG Group provides goods and services to, and receives goods and services from, its joint ventures and associates. In the year ended 31 December 2006, the Group received and incurred the following income and charges respectively:
| | | 2006 | 2005 | 2004 |
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| | | Income | | Charges | | Income | | Charges | | Income | | Charges | |
| | | £m | | £m | | £m | | £m | | £m | | £m | |
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| LNG | | 77 | | (422 | ) | 91 | | (538 | ) | 66 | | (387 | ) |
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| Shipping | | 31 | | (26 | ) | 24 | | (22 | ) | 24 | | (23 | ) |
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| Other | | 12 | | – | | 7 | | (4 | ) | 4 | | (18 | ) |
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| | | 120 | | (448 | ) | 122 | | (564 | ) | 94 | | (428 | ) |
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As at 31 December 2006, a debtor balance of £38m (2005 £37m) (see note 17, page 99) and a creditor balance of £38m (2005 £109m) (see note 22, page 105) were outstanding with these parties. In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2006, loans of £591m (2005 £550m) were due from joint ventures and associates. These loans are accounted for as part of BG Group’s investment in joint ventures and associates and disclosed in note 14, page 97. Interest of £34m (2005 £21m; 2004 £16m) was charged on these loans during the year at interest rates of between 0% and 9.95% (2005 0% and 9.95%) . The maximum debt outstanding during the year was £601m (2005 £624m).
During 2006, Comgas, a non wholly owned subsidiary undertaking, received charges of £1m (2005 £1m; 2004 £1m) from another of its shareholders, in respect of trading transactions. As at 31 December 2006, a balance of £nil (2005 £nil) was outstanding with this party. In December 2005, MetroGAS was deconsolidated. Prior to this MetroGAS was a non wholly owned subsidiary undertaking. During 2005, MetroGAS incurred charges of £18m (2004 £18m) from another of its shareholders, in respect of trading transactions. As at 31 December 2005, a balance of £1m was outstanding with this party.
Amounts outstanding between the parent company and subsidiary undertakings as at 31 December 2006 are given in note 17, page 99.
William Backhouse, the son of Peter Backhouse, a non-executive Director, is employed by BG International Limited, a wholly owned subsidiary of BG Group plc, under BG Group’s Graduate Development Programme and has a contract of employment with BG International Limited. Peter Backhouse is regarded as interested in the contract of employment by virtue of his relationship with William Backhouse. The terms and conditions of William Backhouse’s employment are in line with others employed under the Graduate Development Programme.
Back to Contents
29 PENSIONS AND POST-RETIREMENT BENEFITS
The majority of the Group’s UK employees participate in the BG Pension Scheme (the Scheme). The Scheme is of the defined benefit type. It is a registered (formerly approved) pension scheme established under Trust. The Trustee is BG Group Pension Trustees Limited. The Scheme is funded to cover future pension liabilities in respect of service up to the balance sheet date. It is subject to an independent valuation at least every three years, on the basis of which the independent qualified actuary certifies the rate of employers’ contributions which, together with the specified contributions payable by the employees and proceeds from the Scheme’s assets, are expected to be sufficient to fund the benefits payable under the Scheme.
Employees contribute to the Scheme at a rate of 3% of pensionable pay. Participating employers’ contributions, including Scheme expenses, are certified by the Scheme’s independent qualified actuary. For the year ended 31 December 2006, the employers’ contribution rate in respect of most Scheme members was effectively 25.2% of pensionable pay.
A full independent actuarial valuation of the Scheme was carried out as at 31 March 2005. The actuarial valuation showed that the aggregate market value of the Scheme’s assets at 31 March 2005 was £318m, representing some 91% of the accrued liabilities. The Group made one payment of £11m in 2006 and intends to make two further payments of £11m in 2007 and 2008 in order to reduce the Scheme’s deficit.
A new pensions tax regime came into effect in April 2006. A past service cost of £13m was recognised in the income statement in 2006, reflecting the removal for funding purposes of the earnings cap (a legislative cap on the amount of salary that could be used to calculate pensions from a tax approved scheme) on members whose salary was expected to exceed it. In addition, a prior service credit of £6m was recognised in the income statement, reflecting the impact of the changes to the Scheme to allow members to take more of their benefit in the form of a cash lump sum post April 2006. During the year an initial payment of £4m was made to the Scheme in respect of tax regime changes.
As a result of the new pensions tax regime, the BG Supplementary Benefits Scheme is available to provide benefits in excess of the new ‘lifetime allowance’. This scheme is an unfunded, unregistered (formerly unapproved) arrangement.
A subsidiary undertaking operates a defined benefit pension scheme (the Ballylumford Power Pension Scheme) which is closed to new entrants. The scheme is funded to cover future pension liabilities in respect of service up to the balance sheet date. There is an unfunded post-retirement employee benefit plan for healthcare in respect of employees of Comgas. Provision has been made in respect of these post-retirement benefits.
The Group also has a number of defined contribution schemes and smaller defined benefit schemes for its local employees in overseas businesses. These are not material in Group terms.
IFRS
The following information in respect of the Scheme, the BG Supplementary Benefits Scheme, the Ballylumford Power Pension Scheme and the Comgas post-retirement healthcare plan (described hereafter as the ‘plans’) has been provided in accordance with IAS 19.
Valuations of all of the plans’ assets and expected liabilities as at 31 December 2006 were carried out by independent actuaries in accordance with the requirements of IAS 19. In calculating the charge to the income statement including any recognised actuarial gains and losses, a 10% corridor was applied. This means that a portion of actuarial gains and losses is recognised as income or expense only if it exceeds the greater of:
| a) | 10% of the present value of the defined benefit obligation at that date (before deducting plan assets); and |
| | |
| b) | 10% of the fair value of any plan assets at that date. |
These limits are calculated and applied separately for each defined benefit plan at each balance sheet date and the portion of actuarial gains and losses to be recognised in future years for each plan is the excess of actuarial gains and losses over and above the 10% limits divided by the expected average remaining working lives of the employees participating in that plan.
The valuations as at 31 December were based on the following assumptions:
| | 2006 | | 2005 | | 2004 | |
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| | | | Comgas | | | | Comgas | | | | Comgas | |
| | | | healthcare | | | | healthcare | | | | healthcare | |
| | BG plans | | plan | | BG plans | | plan | | BG plans | | plan | |
| | % | | % | | % | | % | | % | | % | |
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| Rate of price inflation and benefit increases(a) | 3.1 | | 5.0 | | 2.9 | | 5.0 | | 2.8 | | 5.0 | |
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| Future increases in earnings | 5.1 | | n/a | | 4.9 | | n/a | | 4.8 | | n/a | |
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| Discount rate | 4.9 | | 11.3 | | 4.8 | | 11.3 | | 5.3 | | 11.3 | |
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| Healthcare cost trend rate(b) | n/a | | 9.2 | | n/a | | 9.2 | | n/a | | 9.4 | |
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| (a) | Rate of increase of deferred pensions and pensions in payment in excess of any Guaranteed Minimum Pension element. |
| (b) | The rate for the Comgas healthcare plan is initially at 9.2% trending to 6.8% over 45 years (2005 9.2% trending to 6.8%; 2004 9.4% trending to 6.8%). |
If the discount rate used for the valuation of the BG plans was reduced by 0.1% to 4.8%, the defined benefit obligation would increase by £16m and the service cost for 2007 would increase by £2m.
Back to Contents
| 112 | Notes to the accounts continued |
29 PENSIONS AND POST-RETIREMENT BENEFITScontinued
In determining the defined benefit obligation as at 31 December 2006 for the BG plans, mortality assumptions are based on the 1992 mortality series issued by the Institute and Faculty of Actuaries, appropriate to the member’s year of birth, with an allowance for projected longevity improvements in line with the CMI Bureau’s medium cohort tables. Based on these assumptions, the life expectancies of pensioners on the measurement date and also of pensioners in 10 years time are as follows:
| | Life expectancy of pensioners (years) | |
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| | 31 Dec 2006 | | 31 Dec 2016 | |
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| Male age 60 | 26.6 | | 27.3 | |
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| Male age 65 | 21.8 | | 22.5 | |
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| Female age 60 | 29.5 | | 30.2 | |
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| Female age 65 | 24.7 | | 25.3 | |
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If the life expectancy of a member currently age 60 was increased by one year, with consistent changes for members at other ages, the defined benefit obligation in respect of the BG plans would increase by £16m and the service cost for 2007 would increase by £1m.
As at 31 December 2006, the value of the plans’ assets and expected rates of return, together with the liabilities in the plans, were as follows:
| | 2006 | | 2005 | | 2004 | |
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| | Expected | | Percentage | | | | Expected | | Percentage | | | | Expected | | Percentage | | | |
| | rate of | | of plans’ | | | | rate of | | of plans’ | | | | rate of | | of plans’ | | | |
| | return | (a) | assets | | Value | | return | (a) | assets | | Value | | return | (a) | assets | | Value | |
| | % | | % | | £m | | % | | % | | £m | | % | | % | | £m | |
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| Equities | 7.7 | | 64 | | 306 | | 8.0 | | 84 | | 336 | | 8.2 | | 83 | | 258 | |
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| Absolute return strategies | 7.2 | | 20 | | 97 | | – | | – | | – | | – | | – | | – | |
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| Index-linked gilts | 4.3 | | 5 | | 23 | | 4.0 | | 5 | | 19 | | 4.5 | | 5 | | 15 | |
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| Corporate bonds | 5.5 | | 10 | | 49 | | 4.8 | | 10 | | 41 | | 5.2 | | 11 | | 33 | |
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| Cash | 4.1 | | 1 | | 7 | | 3.9 | | 1 | | 4 | | 3.8 | | 1 | | 3 | |
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| Total market value of assets | | | | | 482 | | | | | | 400 | | | | | | 309 | |
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| Present value of liabilities | | | | | (727 | ) | | | | | (647 | ) | | | | | (479 | ) |
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| Deficit in plans | | | | | (245 | ) | | | | | (247 | ) | | | | | (170 | ) |
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| Unrecognised net loss | | | | | 78 | | | | | | 93 | | | | | | 35 | |
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| Net benefit liability | | | | | (167 | ) | | | | | (154 | ) | | | | | (135 | ) |
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| (a) | Long-term expected rate of return. |
The expected rate of return on assets has been determined following advice from the funded plans’ independent actuary and is based on the expected return on each asset class together with consideration of the long-term asset strategy. A real return (relative to price inflation) of 4.6% (a premium of 3.4% over the yield on index-linked gilts) is expected on equities. The expected return on absolute return strategies is 0.5% below the equities return. The overall expected rate of return as at 31 December 2006 was 7.2% .
The actual return on the plans’ assets was £50m (2005 £75m).
The following amounts have been recognised in the consolidated income statement in the year to 31 December under the requirements of IAS 19:
| | 2006 | | 2005 | | 2004 | |
| | £m | | £m | | £m | |
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| Amounts recognised in the consolidated income statement: | | | | | | |
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| Operating costs: | | | | | | |
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| Current service cost | 41 | | 27 | | 24 | |
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| Loss on curtailment | 2 | | 1 | | 6 | |
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| Recognised actuarial loss | 2 | | – | | – | |
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| Past service cost | 7 | | 3 | | – | |
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| Total charge to operating costs | 52 | | 31 | | 30 | |
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| Net finance costs: | | | | | | |
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| Expected return on the plans’ assets | (31 | ) | (24 | ) | (19 | ) |
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| Interest on the plans’ liabilities | 33 | | 27 | | 21 | |
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| Total charge to finance costs | 2 | | 3 | | 2 | |
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| Total included within employee costs | 54 | | 34 | | 32 | |
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Back to Contents
29 PENSIONS AND POST-RETIREMENT BENEFITS continued
Movements in the present value of fair value of defined benefit obligations during the period were as follows:
| | 2006 | | 2005 | |
| | £m | | £m | |
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| Reconciliation of the present value of the Defined Benefit Obligation (DBO) | | | | |
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| Present value of DBO as at 1 January | 647 | | 479 | |
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| Movement in year: | | | | |
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| Current service cost | 41 | | 27 | |
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| Interest cost | 33 | | 27 | |
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| Employee contributions | 4 | | 3 | |
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| Actuarial losses | 5 | | 105 | |
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| Benefit payments (including expenses) | (11 | ) | (5 | ) |
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| Curtailments | 2 | | 1 | |
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| Past service cost | 7 | | 3 | |
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| Foreign exchange movements | (1 | ) | 7 | |
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| Present value of DBO as at 31 December | 727 | | 647 | |
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As at 31 December 2006 £672m of the defined benefit obligation relates to wholly funded defined benefit plans (2005 £582m) and £55m relates to unfunded defined benefit plans (2005 £65m).
Movements in the fair value of plan assets during the period were as follows:
| | 2006 | | 2005 | |
| | £m | | £m | |
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| Reconciliation of the fair value of the plans’ assets | | | | |
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| Fair value of the plans’ assets as at 1 January | 400 | | 309 | |
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| Movement in year: | | | | |
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| Expected return on the plans’ assets | 31 | | 24 | |
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| Actuarial gains | 19 | | 51 | |
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| Company contributions | 39 | | 18 | |
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| Employee contributions | 4 | | 3 | |
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| Benefit payments | (9 | ) | (4 | ) |
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| Expenses paid | (2 | ) | (1 | ) |
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| Fair value of the plans’ assets as at 31 December | 482 | | 400 | |
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The history of experience adjustments is as follows:
| | 2006 | | 2005 | | 2004 | | 2003 | |
| for the year ended 31 December | £m | | £m | | £m | | £m | |
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| Details of experience gains/(losses) for all plans | | | | | | | | |
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| Present value of defined benefit obligations | (727 | ) | (647 | ) | (479 | ) | (406 | ) |
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| Fair value of the plans’ assets | 482 | | 400 | | 309 | | 256 | |
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| Surplus/(deficit) in the plans | (245 | ) | (247 | ) | (170 | ) | (150 | ) |
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| Difference between the expected and actual return on the plans’ assets: | | | | | | | | |
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| Amount (£m) | 19 | | 51 | | 17 | | 28 | |
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| Percentage of the plans’ assets (%) | 3.9 | | 12.8 | | 5.5 | | 10.9 | |
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| Experience gains and losses on the plans’ liabilities: | | | | | | | | |
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| Amount (£m) | 10 | | (6 | ) | (4 | ) | (6 | ) |
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| Percentage of the present value of the plans’ liabilities (%) | 1.4 | | 0.9 | | 0.8 | | 1.5 | |
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| Actuarial losses on the plans’ liabilities: | | | | | | | | |
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| Amount (£m) | (5 | ) | (105 | ) | (24 | ) | (55 | ) |
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| Percentage of the present value of the plans’ liabilities (%) | 0.7 | | 16.2 | | 5.0 | | 13.5 | |
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Aggregate contributions for the year ended 31 December 2007 are expected to be £61m, including £11m in respect of payments made by the Group to reduce the actuarial funding deficit of the BG Pension Scheme and £13m in respect of payments to the BG Pension Scheme arising from changes in the Scheme following the new pensions tax regime. The next independent actuarial valuation for the BG Pension Scheme is expected to be undertaken as at 31 March 2008. Following this valuation, the rate of the employer’s contributions will be reviewed and adjusted if necessary.
The projected benefit obligation for the Comgas post-retirement employee benefit plan for healthcare was £33m (2005 £35m). The effect of a one percentage point increase or decrease in the assumed healthcare cost trend rates (with all other assumptions remaining constant) on the aggregate service and interest costs for the Comgas plan would be an increase of £0.5m or a decrease of £0.4m (2005 £0.4m increase or decrease) and on the accumulated post-retirement benefit obligation would be an increase of £4m (2005 £4m) or a decrease of £3m (2005 £3m).
Back to Contents
| 114 | Notes to the accounts continued |
29 PENSIONS AND POST-RETIREMENT BENEFITScontinued
US GAAP
Calculations in respect of the US GAAP pension disclosures for the BG Pension Scheme, the Ballylumford Power Pension Scheme, and the BG Supplementary Benefits Scheme (the ‘BG plans’) and the Comgas post-retirement healthcare plan (the ‘Comgas healthcare plan’) have been prepared using a measurement date of 31 December.
The valuation as at 31 December was based on the following assumptions:
| | 2006 | | 2005 | | 2004 | |
| |
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|
| | | | Comgas | | | | Comgas | | | | Comgas | |
| | | | healthcare | | | | healthcare | | | | healthcare | |
| | BG plans | | plan | | BG plans | | plan | | BG plans | | plan | |
| | % | | % | | % | | % | | % | | % | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rate of pension increase | 3.1 | | 5.0 | | 2.9 | | 5.0 | | 2.8 | | 5.0 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Rate of salary increase | 5.1 | | n/a | | 4.9 | | n/a | | 4.8 | | n/a | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Discount rate | 4.9 | | 11.3 | | 4.8 | | 11.3 | | 5.3 | | 11.3 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Healthcare cost trend rate | n/a | | 9.2 | | n/a | | 9.2 | | n/a | | 9.4 | |
|
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|
|
|
|
|
|
|
|
|
The assumptions used for the net periodic benefit cost are based on the assumptions above for the previous year end valuation, together with the following assumptions for the expected long-term rate of return on assets: 2006 7.4%; 2005 7.7%; and 2004 7.5% .
In determining the projected benefit obligation as at 31 December 2006 for the BG plans, mortality assumptions are based on the 1992 mortality series, issued by the Institute and Faculty of Actuaries, appropriate to the member’s year of birth, with an allowance for projected longevity improvements in line with the CMI Bureau’s medium cohort tables. The discount rate is based on the rate of return on high quality corporate bonds of equivalent currency and term to the projected benefit obligation.
The expected long-term rate of return on assets has been determined following advice from the plans’ independent actuary and is based on the expected return on each asset class together with consideration of the long-term asset strategy. The percentage of fair value of total assets in the plan for each major category of assets for the BG plans is set out in the IAS 19 disclosure on page 112.
The Trustees of the BG plans are responsible for setting the investment strategy after consultation with the sponsoring company and professional advisers. The Trustees’ overall investment objectives are: the acquisition of suitable, appropriately liquid and diversified assets, which together with new contributions from the employers and members will generate returns to meet the cost of current and future benefits provided by the BG plans; to limit the risk of the assets failing to meet the liabilities over the long-term and to avoid causing excessive volatility in the employers’ financial position; and to minimise the long-term costs to the BG plans by maximising the return on the assets whilst having regard to the risks identified above. The following strategic asset allocation has been set by the Trustees of the BG Pension Scheme in order to achieve their objective: UK equities 14%; overseas equities 51%; absolute return strategies 20%; UK index-linked gilts 4.5%; and UK corporate bonds 10.5% . Assets of the Ballylumford Power Pension Scheme are invested in index-linked gilts.
The information required to be disclosed in accordance with FAS 87, ‘Employers’ Accounting for Pensions’ and FAS 132R, ‘Employers’ Disclosure about Pensions and Other Postretirement Benefits’, amended by FAS 158 ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans’ an amendment of FASB statements 87, 88, 106 and 132R, concerning the funded status of the pension plans is given below.
| | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Change of benefit obligation | | | | |
|
|
|
|
|
| Projected benefit obligation as at 1 January | 647 | | 479 | |
|
|
|
|
|
| Service cost (employers’ share) | 41 | | 27 | |
|
|
|
|
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| Interest cost | 33 | | 27 | |
|
|
|
|
|
| Plan participants’ contributions | 4 | | 3 | |
|
|
|
|
|
| Actuarial loss | 5 | | 105 | |
|
|
|
|
|
| Benefits paid (including expenses) | (11 | ) | (5 | ) |
|
|
|
|
|
| Termination payments | 2 | | 1 | |
|
|
|
|
|
| Past service cost | 7 | | 3 | |
|
|
|
|
|
| Foreign exchange movements | (1 | ) | 7 | |
|
|
|
|
|
| Projected benefit obligation as at 31 December | 727 | | 647 | |
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|
Back to Contents
29 PENSIONS AND POST-RETIREMENT BENEFITScontinued
US GAAPcontinued
| | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Change in the plans’ assets | | | | |
|
|
|
|
|
| Fair value as at 1 January | 400 | | 309 | |
|
|
|
|
|
| Actual return on assets | 50 | | 75 | |
|
|
|
|
|
| Employers’ contributions | 39 | | 18 | |
|
|
|
|
|
| Plan participants’ contributions | 4 | | 3 | |
|
|
|
|
|
| Benefits paid | (11 | ) | (5 | ) |
|
|
|
|
|
| Fair value as at 31 December | 482 | | 400 | |
|
|
|
|
|
| | | | | |
| | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Accrued benefit cost prior to adoption of FAS 158 | | | | |
|
|
|
|
|
| Funded status as at 31 December | (245 | ) | (247 | ) |
|
|
|
|
|
| Unrecognised prior service costs | – | | 1 | |
|
|
|
|
|
| Unrecognised actuarial net loss | 146 | | 165 | |
|
|
|
|
|
| Accrued benefit cost as at 31 December | (99 | ) | (81 | ) |
|
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|
|
|
| | | | | |
| | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Adjustment for additional minimum liability prior to the adoption of FAS 158 | | | | |
|
|
|
|
|
| Accumulated benefit obligation as at 31 December(a) | 498 | | 463 | |
|
|
|
|
|
| Fair value of the plans’ assets as at 31 December(a) | (482 | ) | (400 | ) |
|
|
|
|
|
| Adjustment for additional minimum liability: | | | | |
|
|
|
|
|
| Accrued benefit cost as at 31 December prior to adoption of FAS 158(b) | (99 | ) | (81 | ) |
|
|
|
|
|
| Accumulated other comprehensive income | – | | (6 | ) |
|
|
|
|
|
| Net amount recognised as at 31 December prior to adoption of FAS 158(c) | (99 | ) | (87 | ) |
|
|
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|
|
| (a) | In 2006, includes £1m of liabilities and £2m of assets (2005 £1m of liabilities and £2m of assets) in respect of a plan where the assets exceed the accumulated benefit obligation. |
| (b) | In 2005, includes £45m in respect of a plan whose unfunded accumulated benefit obligation was £22m. |
| (c) | Comprises £75m (2005 £64m) in respect of the BG plans and £24m (2005 £23m) in respect of the Comgas healthcare plan. |
| | | | | |
| | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Change in Accumulated other comprehensive income recognised on application of FAS 158 | | | | |
|
|
|
|
|
| Amounts recognised in Accumulated other comprehensive income as at 1 January | (6 | ) | (6 | ) |
|
|
|
|
|
| Increase prior to adoption of FAS 158 | 6 | | – | |
|
|
|
|
|
| Decrease on adoption of FAS 158 | (146 | ) | – | |
|
|
|
|
|
| Accumulated other comprehensive income as at 31 December(a) (b) | (146 | ) | (6 | ) |
|
|
|
|
|
| (a) | This amount represents actuarial losses which have not yet been recognised as a component of net periodic benefit cost. £5m of this amount is expected to be recognised as a component of net periodic benefit cost for the year ended 31 December 2007. |
| (b) | Comprises £137m (2005 £6m) in respect of the BG plans and £9m (2005 £nil) in respect of the Comgas healthcare plan. |
| | | | | | | |
| | Before | | Effect of | | After | |
| | application of | | application of | | application of | |
| | FAS 158 | | FAS 158 | | FAS 158 | |
| | £m | | £m | | £m | |
|
|
|
|
|
|
|
| Change in balance sheet line items on application of FAS 158 | | | | | | |
|
|
|
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|
|
|
| Amount recognised on the balance sheet (before deferred tax) | (99 | ) | (146 | ) | (245 | ) |
|
|
|
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|
|
| Deferred tax asset | 23 | | 44 | | 67 | |
|
|
|
|
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|
|
| Deferred tax liability | 8 | | – | | 8 | |
|
|
|
|
|
|
|
| Accumulated other comprehensive income, net of tax | – | | (102 | ) | (102 | ) |
|
|
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|
|
|
|
The amounts shown in the table above are before minority interest. The effect of the application of FAS 158 on BG Group shareholders’ funds is an increase in the net liability recognised on the balance sheet of £142m; an increase in deferred tax assets of £43m; and a reduction in accumulated other comprehensive income of £99m.
Back to Contents
| 116 | Notes to the accounts continued |
29 PENSIONS AND POST-RETIREMENT BENEFITScontinued
| | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Reconciliation from IFRS balance sheet provision to US GAAP balance sheet provision | | | | |
|
|
|
|
|
| Balance sheet provision under IFRS | (167 | ) | (154 | ) |
|
|
|
|
|
| US GAAP reconciliation adjustment (see note 31, page 119) | (78 | ) | 67 | |
|
|
|
|
|
| Amount recognised on the balance sheet under US GAAP | (245 | ) | (87 | ) |
|
|
|
|
|
The amount recognised in the balance sheet following the adoption of FAS 158 is split between current liabilities in respect of the Comgas healthcare plan of £2m (2005 £2m) and non-current liabilities in respect of the BG plans of £212m (2005 £64m) and in respect of the Comgas healthcare plan of £31m (2005 £21m). The total accumulated projected benefit obligation in respect of the Comgas healthcare plan is £33m and this is recognised in full on the balance sheet.
| | 2006 | | 2005 | | 2004 | |
| | £m | | £m | | £m | |
|
|
|
|
|
|
|
| Net periodic benefit cost | | | | | | |
|
|
|
|
|
|
|
| Service cost (employers’ share) | 41 | | 27 | | 25 | |
|
|
|
|
|
|
|
| Interest cost | 33 | | 27 | | 21 | |
|
|
|
|
|
|
|
| Expected return on the plans’ assets | (31 | ) | (24 | ) | (20 | ) |
|
|
|
|
|
|
|
| Recognised actuarial loss | 7 | | 6 | | 6 | |
|
|
|
|
|
|
|
| Recognised loss due to termination payments | 2 | | 1 | | 11 | |
|
|
|
|
|
|
|
| Past service cost | 7 | | 3 | | – | |
|
|
|
|
|
|
|
| Net periodic benefit cost (US GAAP) | 59 | | 40 | | 43 | |
|
|
|
|
|
|
|
| Less: net periodic benefit cost (IFRS) | (54 | ) | (34 | ) | (32 | ) |
|
|
|
|
|
|
|
| US GAAP adjustment to net periodic benefit cost | 5 | | 6 | | 11 | |
|
|
|
|
|
|
|
Expected future benefit payments in respect of the pension and post-retirement benefit plans as at 31 December 2006 were as follows: within one year £10m; between one and two years £13m; between two and three years £15m; between three and four years £17m; between four and five years £17m; and for the five year period to 2016, £133m.
Aggregate expected contributions for future years are discussed in the IAS 19 disclosure on page 113.
The net periodic benefit cost for the Comgas healthcare plan was £4m (2005 £3m). The effects of a one percentage point increase or decrease in the assumed healthcare cost trend rates on the aggregate service and interest costs and on the accumulated post-retirement benefit obligation are discussed in the IAS 19 disclosure on page 113.
POST-RETIREMENT BENEFITS
The Group has no material post-retirement benefits other than those discussed above.
Back to Contents
30 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT
CASH GENERATED BY OPERATIONS
| | The Group | | The Company | |
| |
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|
|
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|
| | 2006 | | 2005 | | 2004 | | 2006 | | 2005 | |
| | | | Restated | | Restated | | | | | |
| | £m | | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
|
|
| Profit before taxation | 3 285 | | 2 504 | | 1 494 | | 1 035 | | 889 | |
|
|
|
|
|
|
|
|
|
|
|
| Share of post-tax results of joint ventures and associates | (139 | ) | (158 | ) | (125 | ) | – | | – | |
|
|
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|
|
|
|
|
|
|
|
| Depreciation and impairments of property, plant and equipment | 708 | | 499 | | 451 | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Amortisation of other intangible assets | 4 | | 4 | | 2 | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Share-based payments | 30 | | 20 | | 8 | | 30 | | 20 | |
|
|
|
|
|
|
|
|
|
|
|
| Dividends received | – | | – | | – | | (1 047 | ) | (900 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Fair value movements in commodity contracts | (456 | ) | 253 | | – | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Profit/(loss) on disposal of non-current assets | 49 | | (446 | ) | (87 | ) | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Unsuccessful exploration expenditure written off | 113 | | 70 | | 52 | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Provisions for liabilities and retirement benefit obligations | 5 | | 7 | | 21 | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Finance income | (127 | ) | (105 | ) | (42 | ) | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Finance costs | 102 | | 112 | | 87 | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| Movements in working capital: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| (Increase)/decrease in inventories | (61 | ) | (76 | ) | (25 | ) | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
| (Increase)/decrease in trade and other receivables | (304 | ) | (368 | ) | (379 | ) | – | | 3 | |
|
|
|
|
|
|
|
|
|
|
|
| Increase/(decrease) in payables | 151 | | 193 | | 142 | | (7 | ) | (1 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Cash generated by operations | 3 360 | | 2 509 | | 1 599 | | 11 | | 11 | |
|
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|
|
|
|
|
|
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| | | | | | | | | | | |
Back to Contents
| 118 | Notes to the accounts continued |
31 US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
BG Group prepares its consolidated Financial Statements in accordance with International Financial Reporting Standards (IFRS) adopted by the European Union, which differ in certain significant respects from those applicable in the United States (US GAAP).
EFFECT ON NET INCOME OF DIFFERENCES BETWEEN IFRS AND US GAAP
| | 2006 | | 2005 | | 2004 | |
| for the year ended 31 December | £m | | £m | | £m | |
|
|
|
|
|
|
|
| Profit for the year under IFRS (restated)(1) | 1 824 | | 1 565 | | 911 | |
|
|
|
|
|
|
|
| Less: profit attributable to minority interest(a) | (45 | ) | (40 | ) | (28 | ) |
|
|
|
|
|
|
|
| Profit attributable to shareholders under IFRS (restated)(1) | 1 779 | | 1 525 | | 883 | |
|
|
|
|
|
|
|
| US GAAP adjustments: | | | | | | |
|
|
|
|
|
|
|
| Pension costs(b) | (5 | ) | (6 | ) | (11 | ) |
|
|
|
|
|
|
|
| Regulatory current account(c) | 7 | | (13 | ) | 1 | |
|
|
|
|
|
|
|
| Premier Power CCGT Project(d) | 4 | | 4 | | 4 | |
|
|
|
|
|
|
|
| Share options(e) | (55 | ) | (59 | ) | (6 | ) |
|
|
|
|
|
|
|
| Decommissioning and other provisions(f) | (1 | ) | 4 | | 7 | |
|
|
|
|
|
|
|
| Liquidated damages(g) | 3 | | – | | (1 | ) |
|
|
|
|
|
|
|
| Commodity contracts(h) | 594 | | (380 | ) | (278 | ) |
|
|
|
|
|
|
|
| Currency and interest rate derivative instruments(h) | 52 | | (76 | ) | 60 | |
|
|
|
|
|
|
|
| Profit/(loss) on disposal(i) | – | | (56 | ) | – | |
|
|
|
|
|
|
|
| Currency translation adjustments(j) | – | | – | | (4 | ) |
|
|
|
|
|
|
|
| Fair value adjustments on acquisitions(k) | (2 | ) | (2 | ) | (2 | ) |
|
|
|
|
|
|
|
| Taxes(l) | (279 | ) | 192 | | 73 | |
|
|
|
|
|
|
|
| Leases(m) | 5 | | 5 | | 5 | |
|
|
|
|
|
|
|
| Income before cumulative effect of a change in accounting principle | 2 102 | | 1 138 | | 731 | |
|
|
|
|
|
|
|
| Cumulative effect on prior periods of adoption of FAS 123(R) | 1 | | – | | – | |
|
|
|
|
|
|
|
| Net income (US GAAP) | 2 103 | | 1 138 | | 731 | |
|
|
|
|
|
|
|
| Currency translation adjustments (2004 net of tax of £1m) | (568 | ) | 520 | | (199 | ) |
|
|
|
|
|
|
|
| Net gain/(loss) on cash flow hedging instruments (net of tax of £(23)m; 2005 £(8)m; 2004 £(1)m) | 17 | | (15 | ) | (2 | ) |
|
|
|
|
|
|
|
| Adjustment for additional minimum pension liability (net of tax of £2m; 2005 £nil; 2004 £3m)(b) | 4 | | – | | 7 | |
|
|
|
|
|
|
|
| Realised gains on listed investments (2004 net of tax of £(7)m)(n) | – | | – | | (16 | ) |
|
|
|
|
|
|
|
| Comprehensive income | 1 556 | | 1 643 | | 521 | |
|
|
|
|
|
|
|
| | | | | | | |
|
|
|
|
|
|
|
| Analysis of net income between: | | | | | | |
|
|
|
|
|
|
|
| – continuing operations (net of tax of £1 793m; 2005 £655m; 2004 £519m) | 2 173 | | 901 | | 718 | |
|
|
|
|
|
|
|
| – discontinued operations (net of tax (credit)/charge of £(26)m; 2005 £133m; 2004 £25m)(o) | (70 | ) | 237 | | 13 | |
|
|
|
|
|
|
|
| Net income (US GAAP) | 2 103 | | 1 138 | | 731 | |
|
|
|
|
|
|
|
| | | | | | | |
|
|
|
|
|
|
|
| Earnings per ADS(p): | | | | | | |
|
|
|
|
|
|
|
| Basic – continuing operations (£) | 3.14 | | 1.27 | | 1.01 | |
|
|
|
|
|
|
|
| – discontinued operations (£)(o) | (0.10 | ) | 0.34 | | 0.02 | |
|
|
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|
|
|
| | 3.04 | | 1.61 | | 1.03 | |
|
|
|
|
|
|
|
| Diluted – continuing operations (£) | 3.11 | | 1.27 | | 1.01 | |
|
|
|
|
|
|
|
| – discontinued operations (£)(o) | (0.10 | ) | 0.33 | | 0.02 | |
|
|
|
|
|
|
|
| | 3.01 | | 1.60 | | 1.03 | |
|
|
|
|
|
|
|
| (1) | IFRS figures have been restated for the application of IFRIC interpretation 4 ‘Determining whether an Arrangement contains a Lease’. Further details are in note 1, page 79 |
| | |
Back to Contents
31 US GENERALLY ACCEPTED ACCOUNTING PRINCIPLEScontinued
EFFECT ON SHAREHOLDERS’ EQUITY OF DIFFERENCES BETWEEN IFRS AND US GAAP
| as at 31 December | 2006 | | 2005 | |
| | £m | | £m | |
|
|
|
|
|
| Total equity under IFRS (restated)(1) | 6 465 | | 6 267 | |
|
|
|
|
|
| Less: minority interest in equity(a) | (102 | ) | (98 | ) |
|
|
|
|
|
| Shareholders’ equity under IFRS (restated)(1) | 6 363 | | 6 169 | |
|
|
|
|
|
| US GAAP adjustments: | | | | |
|
|
|
|
|
| Pension costs(b) | (74 | ) | 67 | |
|
|
|
|
|
| Regulatory current account(c) | (7 | ) | (13 | ) |
|
|
|
|
|
| Premier Power CCGT Project(d) | (15 | ) | (19 | ) |
|
|
|
|
|
| Share options(e) | (85 | ) | 10 | |
|
|
|
|
|
| Decommissioning and other provisions(f) | (10 | ) | (10 | ) |
|
|
|
|
|
| Liquidated damages(g) | (19 | ) | (22 | ) |
|
|
|
|
|
| Commodity contracts(h) | (42 | ) | (547 | ) |
|
|
|
|
|
| Currency and interest rate derivative instruments(h) | (7 | ) | 10 | |
|
|
|
|
|
| Profit on disposal(i) | (43 | ) | (50 | ) |
|
|
|
|
|
| Fair value adjustments on acquisitions(k) | 19 | | 24 | |
|
|
|
|
|
| Taxes(l) | 68 | | 262 | |
|
|
|
|
|
| Leases(m) | 23 | | 20 | |
|
|
|
|
|
| Goodwill(q) | 80 | | 82 | |
|
|
|
|
|
| BG Group shareholders’ funds (US GAAP) | 6 251 | | 5 983 | |
|
|
|
|
|
RECONCILIATION OF SHAREHOLDERS’ FUNDS UNDER US GAAP
| | 2006 | | 2005 | | 2004 | |
| | £m | | £m | | £m | |
|
|
|
|
|
|
|
| BG Group shareholders’ funds (US GAAP) at 1 January | 5 983 | | 4 408 | | 3 972 | |
|
|
|
|
|
|
|
| Net income for the year ended 31 December | 2 103 | | 1 138 | | 731 | |
|
|
|
|
|
|
|
| Other comprehensive income for the year ended 31 December | (547 | ) | 505 | | (210 | ) |
|
|
|
|
|
|
|
| Adjustment on application of FAS 158 (net of tax of £43m)(b) | (99 | ) | – | | – | |
|
|
|
|
|
|
|
| Reclassification of FAS 123(R) share options from equity to liabilities(e) | (45 | ) | – | | – | |
|
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|
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| Dividends | (247 | ) | (142 | ) | (127 | ) |
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| Share option movements in equity | 44 | | 83 | | 30 | |
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| Repurchase of BG Group shares (net of issues) | (941 | ) | (9 | ) | 12 | |
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| BG Group shareholders’ funds (US GAAP) as at 31 December | 6 251 | | 5 983 | | 4 408 | |
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| | | | | | | |
| EXPLANATION OF RECONCILING DIFFERENCES BETWEEN IFRS AND US GAAP |
| a) | Under US GAAP, minority interest is classified as a ‘mezzanine’ item between liabilities and equity on the balance sheet and does not form part of shareholders’ funds. Under IFRS, it is treated as a component of equity. Accordingly, it constitutes a reconciling item between equity under IFRS and shareholders’ funds under US GAAP. |
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| b) | As allowed by IFRS 1, ‘First-time Adoption of International Financial Reporting Standards’, BG Group has recognised cumulative actuarial gains and losses in respect of the Group’s pension and post-retirement benefit plans in full on transition to IFRS. From 1 January 2003, actuarial gains and losses which exceed the greater of 10% of the plan assets or obligations at the beginning of the financial year are spread over the average remaining service lives of the employees participating in the plan and are reflected in operating profit. US GAAP has no equivalent to the transition arrangements of IFRS 1. BG Group has adopted the prospective transition requirements of FAS 158, ‘Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans’ as at 31 December 2006. Accordingly, gains and losses that have not yet been included in net periodic benefit cost have been recognised as a component of accumulated other comprehensive income, net of tax. The incremental effect of applying FAS 158 has been an increase in the liability for pension benefits of £142m (net of minority interest of £4m); an increase in deferred tax assets of £43m (net of minority interest of £1m); and a reduction in shareholders’ funds of £99m (net of minority interest of £3m). |
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| | The supplementary disclosures required by FAS 87, ‘Employers’ Accounting for Pensions’, FAS 132(R), ‘Employers’ Disclosures about Pensions and Other Postretirement Benefits’ and FAS 158 are given in note 29, page 114. The US GAAP pension costs and disclosures incorporate the requirements of FAS 88, ‘Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and Termination Benefits’. |
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| c) | Under US GAAP, in accordance with FAS 71, ‘Accounting for the Effects of Certain Types of Regulation’, Comgas (BG Group’s regulated Brazilian distribution business) recognises balances in respect of the pass-through of gas costs in future tariff reviews. Under IFRS, the retrospective benefits and obligations do not meet the criteria for assets or liabilities. Accordingly, the movement in the balance and the liability at year end is recognised as a reconciling difference. |
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| 120 | Notes to the accounts continued |
31 US GENERALLY ACCEPTED ACCOUNTING PRINCIPLEScontinued
| d) | In 2000, BG Group received proceeds of £168m in connection with the securitisation of receivables under the Premier Power CCGT transaction. Under IFRS, this amount was recognised as revenue in the year of receipt, along with the impairment of the property, plant and equipment associated with the original power plants. US GAAP treats these proceeds as debt, with no impairment of property, plant and equipment. |
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| | Under US GAAP, the outstanding debt, as at 31 December 2006, would be £96m, bearing interest at a rate of 7.62% and maturing in March 2012. The increase in the US GAAP net interest expense and the increase in depreciation from the property, plant and equipment not impaired would be more than offset by increased revenue as the debt is unwound, resulting in the increase to net income. The maturity profile is as follows: 2007 £19m; 2008 £15m; 2009 £17m; 2010 £18m; 2011 £19m and thereafter £8m. |
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| e) | BG Group adopted FAS 123(R), ‘Share-Based Payments’, on 1 January 2006, with modified prospective application. Under US GAAP, the cost of awards granted or modified after 1 January 2006 and the unvested portion of awards granted before 1 January 2006 is charged to the income statement over the service period, based on the fair value of the instrument and the likelihood of vesting under the rules of the applicable scheme. Prior to 1 January 2006, as permitted under FAS 123, ‘Accounting for Stock-Based Compensation’, BG Group accounted for stock options using the intrinsic accounting method under Accounting Principles Board opinion (APB) 25, ‘Accounting for Stock Issued to Employees’ as clarified by Financial Accounting Standards Board (FASB) Interpretation No. 44, ‘Accounting for Certain Transactions Involving Stock Compensation’ (FIN 44) and FIN 28, ‘Accounting for Stock Appreciation and Other Variable Stock Option or Award Plans’. In any ten year period, not more than 10% of the issued ordinary share capital of the Company may be issued or issuable under all schemes. BG Group has elected to use the short cut method under FAS 123(R) to determine the pool of windfall tax benefits as of adoption of FAS 123(R). |
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| | The cumulative impact of the transition from the provisions of FAS 123 in 2006 on income before income taxes and net income are shown on page 118. Income from continuing operations increased by £1m, basic and diluted EPS did not change. |
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| | The compensation cost that has been charged against income under US GAAP in 2006 was £97m (2005 £86m; 2004 £26m). The aggregate fair value of shares that vested during the year was £8m (2005 £12m; 2004 £5m). Compensation cost capitalised as part of fixed assets was £5m (2005 £4m; 2004 £2m). At 31 December 2006, the total compensation cost not yet recognised in respect of non-vested awards was £92m; this is expected to be recognised over a weighted average period of 20 months. |
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| | The total income tax benefit recognised in the income statement for share-based compensation arrangements was £20m (2005 £26m; 2004 £7m). The tax benefit realised from stock options exercised and shares awarded in the year was £19m. |
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| | The total payment made in respect of cash settled share-based awards was £2m (2005 £1m; 2004 £nil). In addition, payments have been made of £5m (2005 £3m; 2004 £nil) in respect of social security costs on employee share option and share schemes. The following table illustrates the effect of the application of FAS 123(R) on net income and shareholders’ funds: |
| |
| | | Net income | | Shareholders’ funds | |
| | | £m | | £m | |
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| | US GAAP adjustment at 1 January 2006 (prior to FAS 123(R) restatement) | – | | 10 | |
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| | Cumulative effect of the adoption of FAS 123(R) | 1 | | (45 | ) |
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| | Social security payments – reversal of accrual under IFRS | 5 | | 5 | |
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| | Company Share Option Scheme (CSOS) – treated as liability awards under FAS123(R) | (60 | ) | (55 | ) |
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| | US GAAP adjustment as at 31 December 2006(a) | (54 | ) | (85 | ) |
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| a) | The net income charge of £54m represents an additional £55m charge in the year offset by a £1m credit on transition under FAS 123(R). | | | | |
| | | | | |
| | Details of the BG Group Company Share Option Scheme (CSOS) are given on page 62. In any ten year period, not more than 5% of the issued share capital of the Company may be issued or be issuable under discretionary share option schemes, including the CSOS. Under IFRS 2, costs of this scheme are charged to the income statement over the vesting period, based upon the fair value of the share option at the grant date and the likelihood of options vesting under the scheme; the awards are classified as equity awards. |
| | |
| | Under US GAAP from 1 January 2006, CSOS awards are classified as liability awards because the performance condition includes a factor related to the UK Retail Prices Index, which is not considered a market variable. Costs of the scheme are therefore charged to the income statement based upon the fair value at the balance sheet date, rather than at the grant date. |
| | |
| | The fair value of the awards at the balance sheet date was estimated using a Black-Scholes option pricing model with the same assumptions as those for cash-settled CSOS awards as shown on page 87. The average fair value of outstanding CSOS share options at the balance sheet date was £3.07 per option. No fair value has been calculated at the balance sheet date in respect of prior years as these awards were treated as equity under APB 25 and accounted for using grant date intrinsic values. The total intrinsic value of options exercised during the year under the CSOS was £34m (2005 £28m; 2004 £3m). The total intrinsic value of options vested and exercisable as at 31 December 2006 was £79m and the total intrinsic value of options outstanding at 31 December 2006 was £149m. The weighted average contractual life of exercisable and outstanding options at 31 December 2006 was 5 years and 7 years 8 months respectively. |
| | |
| | Under US GAAP prior to 1 January 2006, variable accounting was applied to this scheme and compensation expense, charged to the income statement over the vesting period, was equal to the difference between the market value of the underlying share relating to the option and the exercise price. At each reporting period, compensation expense was adjusted for changes in the market value of the shares since the grant date. The fair value of share options granted during the year in respect of the CSOS under IFRS 2 is set out on page 87. The fair value at grant date under FAS 123(R) was the same as that under IFRS 2. |
| | |
| | Under IFRS 2, BG Group accrues for social security payments on shares and share options over the vesting period and until they are exercised. US GAAP requires these amounts to be accounted for when paid; therefore, there is a reconciling item within shareholders’ funds to reverse the IFRS accrual. |
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| | |
| 31 | US GENERALLY ACCEPTED ACCOUNTING PRINCIPLEScontinued |
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| | Details of the BG Group Sharesave Scheme are given on page 63. In any five year period, not more than 5% of the issued ordinary share capital of the Company may be issued or be issuable under all-employee share schemes. Under IFRS 2, costs of this scheme are charged to the income statement over the vesting period, based upon the fair value of the share option at the grant date and the likelihood of options vesting under the scheme. Under US GAAP subsequent to 1 January 2006 a similar treatment is applied. Prior to 1 January 2006, under APB 25, the 20% discount on the option price compared with the market price on the date of grant was recognised as compensation expense over the saving period, except in certain specified situations where variable accounting was applied under FIN 44. |
| |
| | The fair value of share options granted during the year in respect of the Sharesave Scheme under IFRS 2 is set out on page 88. The fair value under FAS 123(R) is the same as that under IFRS 2. The total intrinsic value of options exercised during the year under the Sharesave Scheme was £6m (2005 £1m; 2004 £2m). The total intrinsic value of options vested and exercisable at 31 December 2006 was £nil and the total intrinsic value of options outstanding at 31 December was £10m. The weighted average contractual life of exercisable and outstanding options at 31 December 2006 was 6 months and 2 years 8 months respectively. |
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| | Details of the BG Group Long Term Incentive Scheme (LTIS) are given on page 62. Notional allocations of shares under the LTIS scheme are made each year to eligible employees. Under IFRS 2, costs of this scheme are charged to the income statement over the vesting period, based upon the fair value of the shares at the grant date, which is adjusted for the probability of performance indicators being achieved. Under US GAAP subsequent to 1 January 2006 a similar treatment is applied. Prior to 1 January 2006, the income statement charge was based upon the likelihood of the shares vesting under the scheme and the current market value of the shares required to fulfil the allocation. |
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| | The fair value of shares granted during the year in respect of the LTIS under IFRS 2 is set out on page 88. The fair value under FAS 123(R) is the same as that under IFRS 2. The total fair value of shares vested during the year under the LTIS was £4m (2005 £9m; 2004 £2m). |
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| | Details of the BG Group Share Incentive Plan (SIP) are given on page 63. Free Shares awards were made under the SIP in 2006, 2005 and 2004. Under both IFRS and US GAAP, the charge to the income statement in respect of the award is based on the market value of the shares at the grant date. The fair value of the shares awarded during the year is set out on page 88. The fair value under FAS 123(R) is the same as that under IFRS 2. The total fair value of shares awarded and vested during the year under the SIP was £4m (2005 £3m; 2004 £3m). |
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| | BG Group issues shares to satisfy its obligations in respect of options granted under the CSOS and Sharesave Schemes. BG Group grants shares vesting under the LTIS and SIP schemes out of Treasury shares. During 2007, BG Group does not expect to repurchase shares in order to satisfy the requirements of the LTIS and SIP schemes. |
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| | The following table illustrates the effect on net income and earnings per share if the Group had applied the fair value recognition provisions of FAS 123 to stock-based employee compensation in 2004 and 2005: |
| |
| | | | 2005 | | 2004 | |
| | for the year ended 31 December | £m | | £m | |
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| | Net income as reported | 1 138 | | 731 | |
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| | Add: charges to net income under APB 25 (net of tax) | 60 | | 19 | |
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| | Deduct: charges determined under the fair value basis of FAS 123 (net of tax) | (21 | ) | (12 | ) |
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| | Net income | 1 177 | | 738 | |
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| | Earnings per ADS as reported: | | | | |
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| | | Basic (£) | 1.61 | | 1.03 | |
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| | | Diluted (£) | 1.60 | | 1.03 | |
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| | Earnings per ADS: | | | | |
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| | | Basic (£) | 1.66 | | 1.05 | |
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| | | Diluted (£) | 1.65 | | 1.05 | |
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| f) | FAS 143 requires entities to use a credit-adjusted discount rate, and to use the current discount rate each time a new provision is added or an existing provision increased, but not to reassess the discount rate on previously recognised provisions. By contrast, IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, does not require the discount rate to be credit adjusted. It also requires entities to recalculate all their provisions based on the current discount rate at each year end should the discount rate change. |
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| | The reduction in shareholders’ funds under US GAAP of £5m (2005 £10m) represents a reduction of £30m (2005 £27m) in non-current assets, partly offset by a reduction of £25m (2005 £17m) in provisions. The reduction in non-current assets includes an increase of £15m (2005 £19m) in accumulated depreciation. Further details on decommissioning are given in note 23, page 105. |
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| | IAS 37, ‘Provisions, Contingent Liabilities and Contingent Assets’, requires that where the time value of money is material, the amount of a provision shall be discounted. Under US GAAP, where future payments are not fixed and determinable, the provision should not be discounted. This results in a £5m (2005 £nil) increase in provisions and an additional £5m (2005 £nil) charge to operating costs. |
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| g) | Under IFRS, where the Group has contractual rights to liquidated damages to reimburse income lost as a result of delays to commissioning of assets under construction, the liquidated damages are accounted for as income. Liquidated damages recognised during 2006, 2005 and 2004 have been accounted for under US GAAP as a reduction in the value of the asset constructed. The cumulative reduction in non-current assets of £19m (2005 £22m) is stated net of a reduction in accumulated depreciation of £8m (2005 £5m). |
| |
| h) | FAS 133, ‘Accounting for Derivative Instruments and Hedging Activities’, as amended by FAS 138, ‘Accounting for Certain Derivative Instruments and Certain Hedging Activities’, and FAS 149, ‘Amendment of Statement 133 on Derivative Instruments and Hedging Activities’, and clarified by the Emerging Issues Task Force (EITF) consensus on Issue 02-03, ‘Issues Involved in Accounting for Derivative Contracts Held for Trading Purposes and Contracts Involved in Energy Trading or Risk Management Activities’, establishes accounting and reporting |
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| 122 | Notes to the accounts continued |
| 31 | US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued |
| | |
| | standards for derivative instruments and hedging activities. In general, FAS 133 requires that companies recognise all derivatives as eitherassets or liabilities on the balance sheet and measure those instruments at fair value. |
| | |
| | BG Group adopted IAS 39, ‘Financial Instruments: Recognition and Measurement’ on 1 January 2005, with no retrospective application. |
| | |
| | BG Group uses derivative instruments to manage the risk of fluctuations in commodity prices, interest rates and foreign currencies.The maturity of the instruments is up to 30 years. Commodity contracts accounted for as derivatives under IAS 39 and FAS 133 arecalculated based on forward price curves where available. Where market quoted forward price curves are unavailable the fair value hasbeen determined using quotes from third-parties or the Group’s forward planning assumptions for the price of gas, other commodities andindices. The Group calculates the fair value of interest rate and currency exchange rate derivative instruments by using market valuationswhere available or, where not available, by discounting all future cash flows by the market yield curve at the balance sheet date. |
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| | Certain derivatives have been designated under IAS 39 as cash flow hedges of underlying commodity price exposures, with gainsand losses attributable to these instruments deferred in equity and recognised in the income statement when the underlying hedgetransaction occurs. The Group applies hedge accounting to commodity instruments under FAS 133 when the documentation andeffectiveness testing performed under IAS 39 also satisfies the requirements of FAS 133. When additional documentation or testing isrequired, the Group does not apply hedge accounting under US GAAP and recognises all movements in the fair value of the respectivecommodity instruments in the income statement. |
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| | Certain long-term gas contracts operating in the UK gas market have terms within the contract that constitute written options andaccordingly they fall within the scope of IAS 39. They are recognised on the balance sheet at fair value with movements in fair valuerecognised in the income statement. These contracts are also considered derivatives under FAS 133, along with certain other contractsthat do not qualify for the ‘normal sale’ exception under US GAAP as their terms were assessed at the date of adoption of FAS 133 ratherthan the date of inception of the contract. |
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| | A reconciliation of the opening and closing differences in respect of the liability for commodity instruments is as follows: |
| | | | 2006 | | 2005 | |
| | | | £m | | £m | |
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| | As at 1 January | | 547 | | 547 | |
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| | Impact of adoption of IAS 39 | | – | | (380 | ) |
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| | Fair value movements in the income statement | | (594 | ) | 380 | |
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| | Fair value movements derecognised from equity under US GAAP | | 89 | | – | |
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| | As at 31 December | | 42 | | 547 | |
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| | Under IAS 39, BG Group applies hedge accounting for certain currency and interest rate derivatives. The hedge accounting requirementsunder IAS 39 and FAS 133 are not identical. Certain hedges utilised by the Group’s treasury operations would not qualify as effective hedgesunder FAS 133, without additional designations and documentation. Accordingly, under US GAAP the Group does not apply hedge accountingfor any treasury hedging relationships existing under IAS 39, and all movements in fair value on the associated derivative instruments arerecognised in the income statement within finance costs. Basis adjustments to non-current borrowings required by IAS 39 in respect ofhighly effective fair value adjustments have not been recognised under US GAAP. In addition, amounts recognised in respect of derivativefinancial instruments classified within non-current assets of £273m (2005 £84m) or non-current liabilities of £90m (2005 £2m) under IFRSwould be shown within current assets or current liabilities respectively under US GAAP. |
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| | During 2006 and 2005, energy trading activities within the scope of EITF 02-03, comprised forward based physical- and cash-settledcommodity contracts consisting of forwards, futures and options. The activity surrounding certain contracts which are distinct fromBG Group’s ordinary commercial marketing arrangements involves the frequent buying and selling of commodities with the objectiveof generating profit on the short-term differences in price. The fair value, based on external market quotes, of such commodity contractsincluded within net assets under both IFRS and US GAAP includes an asset of £7m (2005 £9m liability) relating to energy trading contracts.Movements in fair value are shown within revenue and other operating income in the income statement. The table below shows thereconciliation between the opening and closing values of BG Group’s energy trading contracts: |
| | | 2006 | | 2005 | |
| | | £m | | £m | |
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| | Value of energy trading contracts as at 1 January | (9 | ) | 1 | |
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| | Realised gains/(losses) | 4 | | (1 | ) |
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| | Unrealised gains/(losses) arising in year | 12 | | (9 | ) |
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| | Value of energy trading contracts as at 31 December | 7 | | (9 | ) |
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| | The 2006 closing balance includes assets of £8m attributable to energy trading contracts maturing in 2007. Gross transaction volumes of 3 727 mmbtu have been physically settled in the year. |
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| i) | Under IFRS, as set out in note 6, page 91, BG Group concluded it no longer had control of GASA (and therefore MetroGAS) on signing of the Master Restructuring Agreement with the other shareholder and creditors of GASA, the parent company of MetroGAS, in December 2005. In light of the requirements of IAS 27, ‘Consolidated and Separate Financial Statements’, BG Group has deconsolidated GASA and MetroGAS. As at 31 December 2005 and 31 December 2006 these companies are accounted for under the equity method and recognised at nil value in the Financial Statements. IAS 28, ‘Investments in Associates’, sets an explicit requirement that credit balances in an associate are not recognised if the investor has no obligation to make payments on behalf of the associate. |
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| 31 | US GENERALLY ACCEPTED ACCOUNTING PRINCIPLEScontinued |
| |
| | Under US GAAP, an entity should not be consolidated where control does not rest with the majority owners, either because the subsidiary is in legal reorganisation or bankruptcy, or in other circumstances where control does not exist, such as where the rights of minority interest holders effectively allow the minority the ability to participate in significant decisions concerning the entity in the ordinary course of business (also referred to as substantive participating rights). Accordingly, under US GAAP, BG Group considered that having entered into the Master Restructuring Agreement in December 2005, it no longer controlled GASA (and MetroGAS). |
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| | A reconciling difference exists in respect of the timing of the gain on disposal. Under IFRS, the gain is recognised on the date that control is lost. US GAAP requires the entity to be deconsolidated, but also requires a parent to carry a negative net investment as a liability until all precedent conditions to a restructuring plan are resolved. The Master Restructuring Agreement is subject to regulatory approval. |
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| | The gain on disposal (£56m) was therefore recognised as a difference in net income under US GAAP in 2005, £6m of the gain under IFRS related to transfer of currency translation differences previously recognised in equity and these were transferred back to equity in 2005 under US GAAP. The remaining £50m was recognised as an additional current liability under US GAAP and constituted the difference in shareholders’ funds. Immediately prior to deconsolidation, the Group’s balance sheet contained the following balances in respect of GASA and MetroGAS: goodwill £3m; other non-current assets £139m; current assets £127m; current liabilities £(373)m; non-current liabilities £(1)m; minority interest £55m. The current liability as at 31 December 2006 was £43m (2005 £50m). The movement in the current liability of £7m relates to foreign exchange movements and has been recognised in other comprehensive income. |
| |
| j) | Under IFRS prior to the adoption of IAS 39, certain currency translation adjustments on borrowings were taken to reserves to offset the foreign exchange exposure on foreign investments. Under US GAAP, the currency translation adjustment on those borrowings would be expensed through the income statement. In 2006 and 2005 there is no adjustment as the treatment under IAS 39 is similar to that under US GAAP. |
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| k) | BG Group has taken advantage of the exemption available under IFRS 1 not to restate the fair value of assets and liabilities acquired in business combinations under IFRS 3, ‘Business Combinations’, prior to the date of transition to IFRS. This has resulted in a difference with the amount recognised under US GAAP in respect of a fair value adjustment on the acquisition of the Group’s interest in the Panna/Mukta and Tapti fields, offshore India, in 2002. Under US GAAP, there is an increase in non-current assets of £19m (2005 £24m), stated net of accumulated depreciation of £8m (2005 £7m). |
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| | The adjustment is released to the income statement in line with the depreciation of the related assets. No reconciling difference between IFRS and US GAAP arises in respect of fair value adjustments on acquisitions which have occurred subsequent to the transition to IFRS on 1 January 2003. |
| |
| l) | Under IFRS, provision for deferred income tax is required on a full provision basis in accordance with IAS 12, ‘Income Taxes’. Under US GAAP, FAS 109, ‘Accounting for Income Taxes’, similarly requires deferred tax to be provided on a full liability basis. The balance sheet adjustment calculated under FAS 109 and the deferred tax balances carried forward under US GAAP are shown below: |
| |
| | as at 31 December | | | 2006 | | | | | | 2005 | | | |
| | |
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| | | | | | | Net | | | | | | Net | |
| | | | | | | Deferred | | | | | | Deferred | |
| | | Assets | | Liabilities | | Tax | | Assets | | Liabilities | | Tax | |
| | | £m | | £m | | £m | | £m | | £m | | £m | |
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| | Net deferred tax recognised under IFRS (restated)(a) | (74 | ) | 1 146 | | 1 072 | | (91 | ) | 733 | | 642 | |
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| | Temporary differences in respect of US GAAP adjustments, excluding tax(b) | (14 | ) | (62 | ) | (76 | ) | 27 | | (256 | ) | (229 | ) |
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| | Differences between IFRS and US GAAP in respect of tax treatments(c)(d) | 23 | | (15 | ) | 8 | | 10 | | (43 | ) | (33 | ) |
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| | Total US GAAP adjustment in respect of tax | 9 | | (77 | ) | (68 | ) | 37 | | (299 | ) | (262 | ) |
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| | Net deferred tax under US GAAP | (65 | ) | 1 069 | | 1 004 | | (54 | ) | 434 | | 380 | |
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| | a) | Further details are set out in note 24 on page 106. |
| | b) | Deferred tax assets and liabilities related to adjustments in the reconciliation between shareholders’ equity under IFRS and shareholders’ funds under US GAAP. |
| | c) | IAS 12 requires deferred tax to be provided for all taxable temporary differences associated with investments in subsidiaries, branches, joint ventures and associates except where the parent is able to control the timing of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. US GAAP also requires deferred tax to be provided for such taxable temporary differences but makes an exception for temporary differences associated with investments in foreign subsidiaries and corporate joint ventures which are essentially permanent in duration. Accordingly, under US GAAP, no deferred tax has been provided in respect of the Group’s investments in foreign corporate joint ventures, resulting in an increase to shareholders’ funds of £14m (2005 £43m). The aggregate amount of temporary differences associated with undistributed earnings of subsidiaries and corporate joint ventures for which deferred tax liabilities have not been recognised is £1 461m (2005 £1 193m). No liability has been recognised in respect of these differences because the Group is in a position to control the timing of the reversal of the temporary differences and it is probable that such differences will not reverse in the foreseeable future. |
| | d) | Deferred tax is recognised under both IFRS and US GAAP in respect of share-based payments. Under IFRS, deferred tax is recognised in respect of the estimated future tax deduction based on the intrinsic value at the balance sheet date. To the extent that the estimated future tax deduction exceeds the related compensation cost, the excess deferred tax is recognised in equity. Under US GAAP, deferred tax is only recognised on compensation cost charged to the income statement. This has resulted in a reduction to shareholders’ funds under US GAAP of £22m (2005 £10m). |
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| 124 | Notes to the accounts continued |
| 31 | US GENERALLY ACCEPTED ACCOUNTING PRINCIPLEScontinued |
| |
| | The deferred tax asset of £65m (2005 £54m) is expected to be recovered after more than 12 months. Details of deductible temporary differences, unutilised tax losses and unutilised tax credits which have not been recognised as deferred tax assets under IFRS are set out in note 24, page 106. Under US GAAP, these would be presented as assets, fully offset by an equivalent valuation allowance. There were no other valuation allowances against deferred tax assets in 2006 or 2005. |
| |
| | The deferred tax liability of £1 069m (2005 £434m) is shown after the offset of certain deferred tax assets relating to the same fiscal authority; the liability prior to such offset is £1 428m (2005 £1 138m). The net amount expected to be settled after more than 12 months is £1 063m (2005 £445m). |
| |
| m) | BG Group adopted IFRIC 4 ‘Determining whether an Arrangement contains a Lease’ on 1 January 2006 which provides guidance for determining whether an arrangement for the right of use of property, plant and equipment contains a lease. BG Group has concluded that the contract for the provision of capacity at Lake Charles contains a finance lease and comparative information has been amended to reflect this arrangement. In addition, BG Group identified an operating lease within one of its power purchase agreements, where BG Group is the lessor. This guidance is similar to the guidance under EITF 01-8 ‘Determining whether an Arrangement contains a Lease’ but EITF 01-8 was effective for all arrangements from 1 January 2004. Therefore there is a difference in the treatment of arrangements initiated, modified or acquired in reporting periods beginning before 1 January 2004. This results in an increase in non-current assets, deferred tax assets, short-term borrowings and long-term borrowings of £257m (2005 £263m), £8m (2005 £7m), £10m (2005 £10m) and £270m (2005 £273m) respectively, compared to the balance sheet under US GAAP. The increase in non-current assets is net of accumulated depreciation of £52m (2005 £43m). |
| |
| n) | In accordance with FAS 115, ‘Accounting for Certain Investments in Debt and Equity Securities’, BG Group’s listed investments are revalued at each period end, with differences charged or credited to Other Comprehensive Income. Similar treatment is required under IAS 39, ‘Financial Instruments: Recognition and Measurement’, which BG Group adopted with effect from 1 January 2005. Prior to the adoption of IAS 39, investments were held at cost less any provision for impairment. |
| |
| o) | IFRS 5, ‘Non-current Assets Held for Sale and Discontinued Operations’, requires that the results and the profits or losses on disposal of operations which represent a separate major line of business or geographical area of operations, and which meet other specific criteria, be reported as discontinued operations. Operations not satisfying all these conditions are classified as continuing. Under US GAAP, FAS 144, ‘Accounting for the Impairment or Disposal of Long-Lived Assets’, requires a different set of conditions to be fulfilled, and classifies as discontinuing smaller components of a group than would constitute a separate major line of business under IFRS. |
| |
| | In 2006, BG Group committed to a plan to dispose of its interests in Mauritania Holdings B.V. an operation classified within the E&P segment and Microgen Energy, a business classified within the Other activities segment. |
| |
| | In 2005, BG Group disposed of its telecoms businesses in Brazil. In addition, management committed to a plan to dispose of the Group’s telecoms businesses in India. The disposal was completed in 2006. These businesses were classified within the Other activities segment. |
| |
| | In 2004, BG Group disposed of its interests in the Muturi Production Sharing Contract (within the E&P segment) and Tangguh LNG project (within the LNG segment). In addition, management committed to a plan to dispose of Premier Transmission Limited, a UK joint venture within the T&D segment. The disposal was completed in 2005. |
| |
| | These are all classified as discontinued operations under US GAAP and the comparative figures have been restated accordingly; IFRS treats them as continuing operations as they do not represent a major line of business or geographical operation. Further details on disposals are given in note 6, page 91. There is no material difference between the total net income analysed as discontinued operations under US GAAP and gains and losses on disposal of the assets listed above. |
| |
| | Aggregate assets and liabilities disposed during the year were as follows: |
| |
| | during the year ended 31 December | 2006 | | 2005 | |
| | | £m | | £m | |
| |
|
|
|
|
|
| | Non-current assets | 7 | | 598 | |
| |
|
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|
|
|
| | Current assets | 1 | | 16 | |
| |
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| | Current liabilities | (1 | ) | (59 | ) |
| |
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| | Non-current liabilities | – | | (3 | ) |
| |
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| | Net assets disposed | 7 | | 552 | |
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| | Details of assets and liabilities classified as held for sale are set out in note 19, page 99. | | | | |
| p) | A reconciliation of basic and diluted earnings per ordinary share is arrived at by adjusting both the numerator and denominator with the adjustments given in note 10, page 94. One ADS is equivalent to five ordinary shares. |
| |
| q) | On 1 January 2002, BG Group adopted FAS 142, ‘Goodwill and Other Intangible Assets’, under which goodwill is not amortised but is instead reviewed annually for impairment. Under IFRS, a similar treatment is required. Prior to the adoption of IFRS on 1 January 2003, BG Group amortised goodwill in line with UK GAAP. In addition, BG Group has taken advantage of the exemption in IFRS 1 not to restate business combinations which occurred prior to the date of transition to IFRS. This results in a reconciling difference with US GAAP within shareholders’ funds in respect of amortisation charged prior to 1 January 2003. |
Back to Contents
| 31 | US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued |
| | |
| EXPLANATION OF RECONCILING DIFFERENCES NOT QUANTIFIED BETWEEN IFRS AND US GAAP |
| A) | Under IFRS, the Group’s Financial Statements include a consolidated income statement, presented in accordance with the Companies Act 1985 and IAS 1, ‘Presentation of Financial Statements’. Under US GAAP, certain items are included in different lines on the income statement than under IFRS. Set out below, for illustrative purposes, is a consolidated income statement in a US GAAP format, but using IFRS figures: |
| |
| | | 2006 | | 2005 | | 2004 | |
| | | | | Restated | | Restated | |
| | | £m | | £m | | £m | |
| |
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|
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|
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| | Total revenue | 7 661 | | 5 407 | | 4 063 | |
| |
|
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| | Operating costs | (4 506 | ) | (3 514 | ) | (2 748 | ) |
| |
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| | (Loss)/profit on disposal of property, plant and equipment | (49 | ) | 446 | | 87 | |
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| | Operating income | 3 106 | | 2 339 | | 1 402 | |
| |
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| | Net interest | 40 | | 7 | | (33 | ) |
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| | Profit before income taxes | 3 146 | | 2 346 | | 1 369 | |
| |
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| | Income taxes | (1 461 | ) | (939 | ) | (583 | ) |
| |
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| | Share of net income of affiliates | 139 | | 158 | | 125 | |
| |
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| | Minority interests in income of consolidated entities | (45 | ) | (40 | ) | (28 | ) |
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|
|
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| | Net income | 1 779 | | 1 525 | | 883 | |
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| | The income statement above includes an increase in operating costs and a reduction in interest to reclassify the charge to finance costs on the unwinding of the Group’s decommissioning provisions and the charge to finance costs in respect of the Group’s pension schemes. In addition, it reflects a reduction in operating costs and a reduction in revenue to reclassify certain royalty payments. Under IFRS, BG Group accounts for revenue net of indirect taxes. |
| |
| | As permitted under IFRS, BG Group has presented the balance sheets in ascending order of liquidity, analysed between net assets and equity. Under US GAAP, assets and liabilities would be presented in descending order of liquidity and the analysis would be between total assets and total liabilities plus shareholders’ funds. Certain items that are disclosed in the notes under IFRS would be disclosed on the face of the balance sheet under US GAAP. |
| |
| B) | BG Group’s Financial Statements include a cash flow statement prepared in accordance with IAS 7, ‘Cash Flow Statements’ and no separate cash flow statement is prepared under FAS 95, ‘Statement of Cash Flows’. Financing cash flows for interest paid and received under IAS 7 would be classified as operating cash flows under FAS 95. Operating cash flows from tax benefits on share option exercises under IAS 7 would be classified as financing cash flows under FAS 95. |
| |
| C) | FIN 45, ‘Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others’, addresses the disclosure to be made by a guarantor in its financial statements about its obligations under guarantees. FIN 45 also requires the recognition of a liability by a guarantor at the inception of certain guarantees. It requires the guarantor to recognise a liability for the non-contingent component of the guarantee. This is the obligation to stand ready to perform in the event that specified triggering events or conditions occur. The initial measurement of this liability is the fair value of the guarantee at inception. The recognition of the liability is required even if it is not probable that payment will be required under the guarantee or if the guarantee was issued with a premium payment or as part of a transaction with multiple elements. |
| |
| | Since 1 January 2003, BG Group has issued or modified guarantees to joint ventures and associates with a maximum exposure as at 31 December 2006 of £431m (2005 £428m). Their fair value as at 31 December 2006 was £2m (2005 £2m). The guarantees relate to the Group’s Egyptian LNG facilities and the fair value is recognised within provisions and the carrying value of the investment. |
| |
| | BG Group adopted the IASB’s amendments to IAS 39 in respect of financial guarantee contracts and credit insurance on 1 January 2006. The provisions of the amended standard are similar to those of FIN 45, although full retrospective application is required. As a result the fair value recognised under IFRS at 31 December 2006 exceeds that under FIN 45 by £2m (2005 £3m). Further disclosures about BG Group’s guarantees, commitments and contingencies, including those required under IAS 37 and the Companies Act 1985 in the UK, are given in note 27, page 108. There is no impact on net income or shareholders’ funds. |
| |
| D) | On 21 June 2005, BG Group acquired the remaining 50% of Brindisi LNG S.p.A that it did not already own for a cash consideration of £11m plus a deferred contingent sum of £18m, subsequently paid in full in 2006. IFRS 3 requires that, when a business combination agreement provides for an adjustment to the cost of the combination contingent on future events, the acquirer shall include the amount of the adjustment in the cost of the combination at the acquisition date if the adjustment is probable and can be measured reliably. Under US GAAP, contingent consideration may not be recorded as a liability unless the outcome of the contingency is determinable beyond reasonable doubt. The difference in 2005 resulted in a lower balance on intangible assets, offset by lower provisions under US GAAP. The GAAP difference was removed in 2006 on payment of the contingent consideration. It did not impact net income or shareholders’ funds as the assets were still under construction and not subject to amortisation. |
Back to Contents
| 126 | Notes to the accounts continued |
| 31 | US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES continued |
NEW US GAAP ACCOUNTING STANDARDS
In February 2006, the FASB issued FAS 155, ‘Accounting for Certain Hybrid Financial Instruments’, which provides entities with relief from having to separately determine the fair value of an embedded derivative that would otherwise be required to be bifurcated from its host contract in accordance with FAS 133. It is effective for fiscal periods beginning after 15 September 2006 and was adopted by BG Group on 1 January 2007. It is not expected to have a material impact on the Group’s consolidated Financial Statements.
In March 2006, the FASB issued FAS 156, ‘Accounting for Servicing of Financial Assets’. This Statement amends FAS 140, ‘Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities’, with respect to the accounting for separately recognised servicing assets and servicing liabilities. FAS 156 is effective for fiscal periods beginning after 15 September 2006 and was adopted by BG Group on 1 January 2007. It is not expected to have a material impact on the Group’s consolidated Financial Statements.
In September 2006, the FASB issued FAS 157, ‘Fair Value Measurements’ which provides guidance on the methodology to be followed when calculating fair values as required by other standards. It is effective for fiscal periods beginning after 15 November 2007. BG Group is currently assessing the impact on the Group’s consolidated Financial Statements.
In July 2006, the FASB issued FIN 48, ‘Accounting for Uncertainty in Income Taxes’. The Interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, disclosure and transition. It is effective for fiscal periods beginning after 15 December 2006. BG Group is currently assessing the impact on the Group’s consolidated Financial Statements.
In February 2007, the FASB issued FAS 159, ‘The Fair Value Option for Financial Assets and Financial Liabilities’, which provides the option to report selected financial assets and liabilities at fair value. It is effective for fiscal periods beginning after 15 November 2007. BG Group is currently assessing the impact on the Group’s consolidated Financial Statements.
Back to Contents
| 32 | PRINCIPAL SUBSIDIARY UNDERTAKINGS, JOINT VENTURES AND ASSOCIATES |
The principal subsidiary undertakings, joint ventures and associates listed are those which in the opinion of the Directors principally affect the figures shown in the Financial Statements. A full list of subsidiary undertakings, joint ventures and associates will be included in the Annual Return of BG Group plc to be filed with the Registrar of Companies during 2007.
| PRINCIPAL SUBSIDIARY UNDERTAKINGS | | | | |
| as at 31 December 2006 | Country of | | Group holding | |
| | incorporation | Activity | % | (a) |
|
|
|
|
|
| BG Delta Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Energy Holdings Limited* | England | Group holding company | 100.0 | |
|
|
|
|
|
| BG Gas Marketing Limited | England | LNG marketing | 100.0 | |
|
|
|
|
|
| | | Holding company | | |
| BG International Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| BG International (CNS) Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| BG International (NSW) Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| | | Holding company | | |
| BG Karachaganak Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| | | Holding company | | |
| BG North Sea Holdings Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Rosetta Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Trinidad and Tobago Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Tunisia Limited | England | Exploration and production | 100.0 | |
|
|
|
|
|
| Methane Services Limited | England | LNG shipping | 100.0 | |
|
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|
|
| BG E&P Brasil Ltda | Brazil | Exploration and production | 100.0 | |
|
|
|
|
|
| Companhia de Gás de São Paulo – (Comgas)(b) | Brazil | Gas distribution | 72.9 | |
|
|
|
|
|
| BG Canada Exploration and Production, Inc. | Canada | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Bolivia Corporation | Cayman Islands | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Egypt S.A. | Cayman Islands | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Exploration and Production India Limited | Cayman Islands | Exploration and production | 100.0 | |
|
|
|
|
|
| Gujarat Gas Company Limited | India | Gas distribution | 65.1 | |
|
|
|
|
|
| Mauritania Holdings B.V. | Netherlands | Exploration and production | 100.0 | |
|
|
|
|
|
| BG Exploration and Production Nigeria Limited | Nigeria | Exploration and production | 100.0 | |
|
|
|
|
|
| Premier Power Limited | Northern Ireland | Power generation | 100.0 | |
|
|
|
|
|
| BG Asia Pacific Pte Limited | Singapore | Exploration and production | 100.0 | |
|
|
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|
|
| BG Trinidad Central Block Limited | Trinidad and Tobago | Exploration and production | 100.0 | |
|
|
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|
|
| BG Energy Merchants, LLC | USA | LNG marketing | 100.0 | |
|
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|
| BG LNG Services, LLC | USA | LNG shipping and marketing | 100.0 | |
|
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|
| BG LNG Trading, LLC | USA | LNG marketing | 100.0 | |
|
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|
|
|
| BG North America, LLC | USA | Holding company | 100.0 | |
|
|
|
|
|
| * Shares are held by the Company; others are held by subsidiary undertakings. |
| |
| (a) | There is no difference between the Group holding of ordinary shares and the Group’s share of net assets attributable to equity shareholders, except for Comgas where the Group’s share of net assets is 60.1%. |
| | |
| (b) | BG Group holds its interest in Comgas indirectly through its wholly owned subsidiary undertaking BG Gas São Paulo Investments B.V. which holds a 95.8% interest in Integral Investments B.V. which, in turn, holds ordinary shares in Comgas. |
The distribution of the profits of Comgas are restricted by Corporation Law in Brazil and the company’s by-laws which require 5% of the profit for the year to be transferred to the Legal Reserve, until it reaches 20% of the subscribed capital. Distribution of the profits of BG Group’s other subsidiary undertakings are not materially restricted.
All principal subsidiary undertakings operate in their country of incorporation with the exception of BG Asia Pacific Pte Limited, which operates across several countries; BG Bolivia Corporation, which operates in Bolivia; BG Tunisia Limited, which operates in Tunisia; BG Trinidad and Tobago Limited, which operates in Trinidad and Tobago; BG Rosetta Limited, which operates in Egypt; BG Egypt S.A., which operates in Egypt; BG Delta Limited, which operates in Egypt; BG Karachaganak Limited, which operates in Kazakhstan; BG Exploration and Production India Limited, which operates in India; Mauritania Holdings B.V., which operates in Mauritania; BG Gas Marketing Limited, which operates across several countries; Methane Services Limited, which operates across several countries; and BG International Limited, which operates in the UK and several other countries worldwide.
Back to Contents
| 128 | Notes to the accounts continued |
| 32 | PRINCIPAL SUBSIDIARY UNDERTAKINGS, JOINT VENTURES AND ASSOCIATEScontinued |
| | |
| JOINT VENTURES AND ASSOCIATES | | | | | | |
| as at 31 December 2006 | Country of | | | | Group | |
| | incorporation | | | | holding | |
| | and operation | Activity | Issued share capital | | % | |
|
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|
| Joint ventures | | | | | | |
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|
| First Gas Holdings Corporation | Philippines | Power generation | 126 084 100 shares of Peso 10 | | 40.0 | |
|
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| Mahanagar Gas Limited | India | Gas distribution | 89 341 600 shares of Rupees 10 | | 49.75 | |
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| Seabank Power Limited | England | Power generation | 5 280 shares of £1 | (a) | 50.0 | |
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| | | | | | | |
| Associates | | | | | | |
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| | Trinidad and | | | | | |
| Atlantic LNG Company of Trinidad and Tobago | Tobago | LNG manufacture | 243 851 shares of $1 000 | | 26.0 | |
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| Atlantic LNG 2/3 Company of Trinidad and | Trinidad and | | | | | |
| Tobago Unlimited | Tobago | LNG manufacture | 139 253 shares of $1 000 | | 32.5 | |
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| Atlantic LNG 4 Company of Trinidad and Tobago | Trinidad and | | | | | |
| Unlimited | Tobago | LNG manufacture | 2 889 shares of $1 | | 28.89 | |
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| El Behera Natural Gas Liquefaction Company S.A.E. | Egypt | LNG manufacture | 30 000 shares of $100 | | 35.5 | |
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| Idku Natural Gas Liquefaction Company S.A.E. | Egypt | LNG manufacture | 30 000 shares of $100 | | 38.0 | |
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| Genting Sanyen Power Sdn Bhd | Malaysia | Power generation | 20 000 000 shares of Ringgit 1 | | 20.0 | |
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| Interconnector (UK) Limited | England | Gas transportation | 11 785 680 shares of £1 | (b) | 25.0 | |
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| (a) | Comprises 2 640 A ordinary and 2 640 B ordinary shares. The Group holding is 2 640 A ordinary shares. The rights attached to each class of share are the same. |
| (b) | Ordinary shares. Interconnector (UK) Limited also has 969 000 issued preference shares of £1 each of which the Group holds 26.3%. |
| | |
Back to Contents
| | | FINANCIAL STATEMENTS |
| | | |
| Supplementary information – gas and oil (unaudited) | | 129 |
| BG Group’s strategy aims to connect competitively priced gas to high value markets. Hydrocarbon reserves, and gas in particular, are developed in relation to the markets which they are intended to supply. Based on the above, the information below is disclosed on the basis of the following geographic areas: (i) the United Kingdom, (ii) Atlantic Basin, (iii) Asia and the Middle East, and (iv) Rest of the World. The countries in the Atlantic Basin and Asia and the Middle East geographic areas are grouped as shown below to reflect the nature of the markets for BG Group’s interests in these countries: |
| | Atlantic Basin – Canada, Egypt, Nigeria, Trinidad and Tobago, and the USA |
| | Asia and the Middle East – China, India, Kazakhstan, Oman, Thailand, Israel and areas of Palestinian Authority |
| | Rest of the World – Algeria, Bolivia, Brazil, Italy, Libya, Madagascar, Mauritania, Norway, Spain and Tunisia |
| | |
| A) | PROVED RESERVES |
| BG Group utilises SEC definitions of proved reserves and proved developed reserves in preparing estimates of its gas and oil reserves. |
Proved reserves are the estimated quantities of gas and oil which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped reserves are those quantities that are expected to be recovered from new wells on undrilled acreage or from existing wells where relatively major expenditure is required for completion. Proved undeveloped reserves comprise total proved reserves less total proved developed reserves.
The net movement in proved reserves during the year includes extensions, discoveries and reclassifications (24.7 mmboe), and revisions to previous estimates (159.5 mmboe). Included within these movements is the net effect of changes in year end prices (56.4 mmboe decrease). Production in the period was 218.4 mmboe (net of Canadian royalty production 0.8 mmboe).
Gas and oil reserves cannot be measured exactly since estimation of reserves involves subjective judgment. Therefore, all estimates are subject to revision. Increases in year end gas and oil prices in fields subject to Production Sharing Contracts (PSCs) may result in lower entitlements leading to reductions in proved reserves.
| ESTIMATED NET PROVED RESERVES OF NATURAL GAS | | | | | | | | | | |
| | | | | Atlantic | | Asia and | | Rest of | | | |
| | | UK | | Basin | | Middle East | | world | | Total | |
| | | bcf | | bcf | | bcf | | bcf | | bcf | |
|
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2003 | 1 116 | | 4 167 | | 2 286 | | 1 189 | | 8 758 | |
|
|
|
|
|
|
|
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|
|
|
|
| Movement during the year: | | | | | | | | | | |
| | Revisions of previous estimates(a) | 184 | | 162 | | 249 | | 75 | | 670 | |
|
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| | Extensions, discoveries and reclassifications | 8 | | – | | – | | – | | 8 | |
|
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|
|
|
|
|
|
|
|
|
| | Production | (269 | ) | (216 | ) | (149 | ) | (85 | ) | (719 | ) |
|
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|
|
|
|
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| | Purchase of reserves-in-place | – | | 359 | | – | | – | | 359 | |
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| | Sale of reserves-in-place | – | | – | | – | | – | | – | |
| | | (77 | ) | 305 | | 100 | | (10 | ) | 318 | |
|
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|
|
| As at 31 December 2004 | 1 039 | | 4 472 | | 2 386 | | 1 179 | | 9 076 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Movement during the year: | | | | | | | | | | |
| | Revisions of previous estimates(a) | 297 | | 392 | | 402 | | 209 | | 1 300 | |
|
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|
|
|
|
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| | Extensions, discoveries and reclassifications | 7 | | 16 | | – | | 74 | | 97 | |
|
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|
|
|
|
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| | Production | (219 | ) | (332 | ) | (158 | ) | (96 | ) | (805 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| | Purchase of reserves-in-place | – | | – | | – | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Sale of reserves-in-place | – | | (1 | ) | – | | – | | (1 | ) |
| | | 85 | | 75 | | 244 | | 187 | | 591 | |
|
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|
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|
|
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|
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|
|
|
| As at 31 December 2005 | 1 124 | | 4 547 | | 2 630 | | 1 366 | | 9 667 | (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| Movement during the year: | | | | | | | | | | |
| | Revisions of previous estimates(a) | 80 | | 583 | | 145 | | 20 | | 828 | |
|
|
|
|
|
|
|
|
|
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|
|
| | Extensions, discoveries and reclassifications | 87 | | – | | – | | – | | 87 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Production | (223 | ) | (515 | ) | (170 | ) | (92 | ) | (1 000 | ) |
|
|
|
|
|
|
|
|
|
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|
|
| | Purchase of reserves-in-place | – | | – | | – | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Sale of reserves-in-place | – | | – | | – | | – | | – | |
| | | (56 | ) | 68 | | (25 | ) | (72 | ) | (85 | ) |
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|
|
|
|
| As at 31 December 2006 | 1 068 | | 4 615 | | 2 605 | | 1 294 | | 9 582 | (b) |
|
|
|
|
|
|
|
|
|
|
|
|
| Proved developed reserves of natural gas: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2003 | 949 | | 1 484 | | 1 732 | | 789 | | 4 954 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2004 | 867 | | 1 393 | | 2 038 | | 665 | | 4 963 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2005 | 937 | | 2 267 | | 2 139 | | 929 | | 6 272 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2006 | 846 | | 2 232 | | 2 006 | | 844 | | 5 928 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Note: Conversion factor of 6 bcf of gas to 1 mmboe. |
| (a) | Includes effect of oil and gas price changes on PSCs. |
| (b) | Estimates of proved natural gas reserves at 31 December 2006 include fuel gas of 640 bcf (31 December 2005 534 bcf). |
Back to Contents
| 130 | Supplementary information – gas and oil (unaudited) |
| A) | PROVED RESERVES CONTINUED |
ESTIMATED NET PROVED RESERVES OF OIL
‘Oil’ includes crude oil, condensate and natural gas liquids.
| | | | | Atlantic | | Asia and | | Rest of | | | |
| | | UK | | Basin | | Middle East | | world | | Total | |
| | | mmbbl | | mmbbl | | mmbbl | | mmbbl | | mmbbl | |
|
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2003 | 162.7 | | 9.8 | | 440.6 | | 31.5 | | 644.6 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Movement during the year: | | | | | | | | | | |
| | Revisions of previous estimates(a) | 21.7 | | – | | (3.1 | ) | 6.1 | | 24.7 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Extensions, discoveries and reclassifications | 1.3 | | – | | – | | 9.8 | | 11.1 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Production | (21.2 | ) | (0.3 | ) | (23.3 | ) | (2.2 | ) | (47.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| | Purchase of reserves-in-place | – | | 1.4 | | – | | – | | 1.4 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Sale of reserves-in-place | – | | – | | – | | – | | – | |
| | | 1.8 | | 1.1 | | (26.4 | ) | 13.7 | | (9.8 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2004 | 164.5 | | 10.9 | | 414.2 | | 45.2 | | 634.8 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Movement during the year: | | | | | | | | | | |
| | Revisions of previous estimates(a) | 12.3 | | 7.7 | | (46.9 | ) | 4.5 | | (22.4 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| | Extensions, discoveries and reclassifications | 1.5 | | – | | – | | 7.4 | | 8.9 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Production | (18.3 | ) | (0.5 | ) | (27.4 | ) | (2.8 | ) | (49.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| | Purchase of reserves-in-place | – | | – | | – | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Sale of reserves-in-place | – | | – | | – | | – | | – | |
| | | (4.5 | ) | 7.2 | | (74.3 | ) | 9.1 | | (62.5 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2005 | 160.0 | | 18.1 | | 339.9 | | 54.3 | | 572.3 | |
|
|
|
|
|
|
|
|
|
|
|
|
| Movement during the year: | | | | | | | | | | |
| | Revisions of previous estimates(a) | 10.0 | | (1.5 | ) | 18.4 | | (5.4 | ) | 21.5 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Extensions, discoveries and reclassifications | 10.2 | | – | | – | | – | | 10.2 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Production | (18.4 | ) | (1.8 | ) | (28.1 | ) | (3.4 | ) | (51.7 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| | Purchase of reserves-in-place | – | | – | | – | | – | | – | |
|
|
|
|
|
|
|
|
|
|
|
|
| | Sale of reserves-in-place | – | | – | | – | | – | | – | |
| | | 1.8 | | (3.3 | ) | (9.7 | ) | (8.8 | ) | (20.0 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2006 | 161.8 | | 14.8 | | 330.2 | | 45.5 | | 552.3 | |
|
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|
|
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|
|
|
|
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| | | | | | | | | | | |
| Proved developed reserves of oil: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2003 | 86.3 | | 0.9 | | 404.8 | | 18.5 | | 510.5 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2004 | 87.1 | | 1.6 | | 382.3 | | 20.4 | | 491.4 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2005 | 80.9 | | 9.4 | | 313.8 | | 26.3 | | 430.4 | |
|
|
|
|
|
|
|
|
|
|
|
|
| | As at 31 December 2006 | 116.2 | | 7.6 | | 282.2 | | 26.1 | | 432.1 | |
|
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|
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|
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|
|
|
| (a) | Includes effect of oil and gas price changes on PSCs. | | | | | | | | | | |
Back to Contents
B) STANDARDISED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
The following tables set out the standardised measure of discounted future net cash flows relating to proved gas and oil reserves and report the causes of changes in the standardised measure of the cash flows relating to reserves. Future cash inflows have been computed by reference to the Group’s estimate of third-party prices ruling at the year end and estimates of future production of net proved gas and oil reserves at the end of each year.
The standardised measure of discounted future net cash flow information presented below is not intended to represent the replacement cost or fair market value of the Group’s gas and oil properties. The disclosures shown are based on estimates of proved reserves, future production schedules and costs which are inherently imprecise and subject to revision. The standardised measure is as follows:
| | | | Atlantic | | Asia and | | Rest of | | | |
| | UK | | Basin | | Middle East | | world | | Total | |
| | £bn | | £bn | | £bn | | £bn | | £bn | |
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2004: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Future cash inflows | 7.06 | | 7.06 | | 7.69 | | 2.74 | | 24.55 | |
|
|
|
|
|
|
|
|
|
|
|
| Future production and development costs | (2.54 | ) | (1.33 | ) | (2.57 | ) | (0.98 | ) | (7.42 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Future income tax expenses | (1.91 | ) | (2.41 | ) | (1.73 | ) | (0.79 | ) | (6.84 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Future net cash flows | 2.61 | | 3.32 | | 3.39 | | 0.97 | | 10.29 | |
|
|
|
|
|
|
|
|
|
|
|
| 10% annual discount for estimated timing of cash flows | (0.65 | ) | (1.42 | ) | (1.60 | ) | (0.42 | ) | (4.09 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | 1.96 | | 1.90 | | 1.79 | | 0.55 | | 6.20 | |
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2005: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Future cash inflows | 13.46 | | 12.89 | | 11.37 | | 5.12 | | 42.84 | |
|
|
|
|
|
|
|
|
|
|
|
| Future production and development costs | (2.86 | ) | (1.76 | ) | (4.06 | ) | (1.57 | ) | (10.25 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Future income tax expenses | (5.61 | ) | (5.13 | ) | (2.52 | ) | (1.48 | ) | (14.74 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Future net cash flows | 4.99 | | 6.00 | | 4.79 | | 2.07 | | 17.85 | |
|
|
|
|
|
|
|
|
|
|
|
| 10% annual discount for estimated timing of cash flows | (1.34 | ) | (2.36 | ) | (2.14 | ) | (0.92 | ) | (6.76 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | 3.65 | | 3.64 | | 2.65 | | 1.15 | | 11.09 | |
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2006: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Future cash inflows | 8.44 | | 7.23 | | 9.81 | | 4.75 | | 30.23 | |
|
|
|
|
|
|
|
|
|
|
|
| Future production and development costs | (3.13 | ) | (1.86 | ) | (3.54 | ) | (1.91 | ) | (10.44 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Future income tax expenses | (2.77 | ) | (2.25 | ) | (2.15 | ) | (1.08 | ) | (8.25 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Future net cash flows | 2.54 | | 3.12 | | 4.12 | | 1.76 | | 11.54 | |
|
|
|
|
|
|
|
|
|
|
|
| 10% annual discount for estimated timing of cash flows | (0.57 | ) | (1.26 | ) | (2.01 | ) | (0.78 | ) | (4.62 | ) |
|
|
|
|
|
|
|
|
|
|
|
| | 1.97 | | 1.86 | | 2.11 | | 0.98 | | 6.92 | |
|
|
|
|
|
|
|
|
|
|
|
The following were the main sources of change in the standardised measure of discounted cash flows in the three accounting years preceding 31 December 2006:
| | 2006 | | 2005 | | 2004 | |
| | £bn | | £bn | | £bn | |
|
|
|
|
|
|
|
| Standardised measure at the beginning of the year | 11.09 | | 6.20 | | 5.16 | |
|
|
|
|
|
|
|
| Sale of gas and oil produced net of production costs and other operating costs(a) | (3.40 | ) | (2.67 | ) | (1.82 | ) |
|
|
|
|
|
|
|
| Net changes in prices and production costs(b) | (7.33 | ) | 9.35 | | 0.79 | |
|
|
|
|
|
|
|
| Extensions, discoveries, reclassifications and improved recovery less related costs | 0.06 | | 0.06 | | 0.07 | |
|
|
|
|
|
|
|
| Changes in estimated future development costs | (1.09 | ) | (1.02 | ) | (0.34 | ) |
|
|
|
|
|
|
|
| Development costs incurred in the period | 0.72 | | 0.68 | | 0.62 | |
|
|
|
|
|
|
|
| Purchase of reserves-in-place | – | | – | | 0.19 | |
|
|
|
|
|
|
|
| Revisions to previous estimates | 1.07 | | 2.40 | | 1.35 | |
|
|
|
|
|
|
|
| Accretion of discount | 1.85 | | 0.96 | | 0.80 | |
|
|
|
|
|
|
|
| Net change in income taxes | 3.94 | | (4.95 | ) | (0.66 | ) |
|
|
|
|
|
|
|
| Other | 0.01 | | 0.08 | | 0.04 | |
|
|
|
|
|
|
|
| Standardised measure at the end of the year(c) | 6.92 | | 11.09 | | 6.20 | |
|
|
|
|
|
|
|
| | | | | | | | |
| (a) | Production costs and other operating costs include lifting, tariff, insurance and royalty costs but not depreciation costs. | | | | | | |
| (b) | Includes the effect of foreign exchange movements. | | | | | | |
| (c) | Based on the following: | 2006 | | 2005 | | 2004 | |
| |
|
|
|
|
|
|
|
| | Brent oil price ($/bbl) | 59 | | 58 | | 40 | |
| |
|
|
|
|
|
|
|
| | Henry Hub ($/mmbtu) | 5.64 | | 11.23 | | 6.15 | |
| |
|
|
|
|
|
|
|
| | UK Spot Gas (p/therm) | 24.05 | | 73.40 | | 28.37 | |
| |
|
|
|
|
|
|
|
| | US$/UK£ exchange rate | 1.96 | | 1.72 | | 1.92 | |
| |
|
|
|
|
|
|
|
| | Standardised measure at the end of the year ($bn) | 13.55 | | 19.06 | | 11.90 | |
| |
|
|
|
|
|
|
|
Back to Contents
| 132 | Supplementary information – gas and oil (unaudited) continued |
C) CAPITALISED COSTS
Capitalised costs incurred using the successful efforts method and net of depreciation were as follows:
| | | | Atlantic | | Asia and | | Rest of | | | |
| | UK | | Basin | | Middle East | | world | | Total | |
| | £m | | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2004: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Proved gas and oil properties | 3 114 | | 1 092 | | 1 332 | | 636 | | 6 174 | |
|
|
|
|
|
|
|
|
|
|
|
| Unproved gas and oil properties(a) | 29 | | 289 | | 512 | | 187 | | 1 017 | |
|
|
|
|
|
|
|
|
|
|
|
| | 3 143 | | 1 381 | | 1 844 | | 823 | | 7 191 | |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation | (2 037 | ) | (105 | ) | (186 | ) | (232 | ) | (2 560 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Net Capitalised Costs | 1 106 | | 1 276 | | 1 658 | | 591 | | 4 631 | |
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2005: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Proved gas and oil properties | 3 361 | | 1 533 | | 1 592 | | 860 | | 7 346 | |
|
|
|
|
|
|
|
|
|
|
|
| Unproved gas and oil properties | 49 | | 271 | | 21 | | 191 | | 532 | |
|
|
|
|
|
|
|
|
|
|
|
| | 3 410 | | 1 804 | | 1 613 | | 1 051 | | 7 878 | |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation | (2 210 | ) | (229 | ) | (287 | ) | (290 | ) | (3 016 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Net Capitalised Costs | 1 200 | | 1 575 | | 1 326 | | 761 | | 4 862 | |
|
|
|
|
|
|
|
|
|
|
|
| As at 31 December 2006: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Proved gas and oil properties(a) | 3 631 | | 1 585 | | 1 601 | | 842 | | 7 659 | |
|
|
|
|
|
|
|
|
|
|
|
| Unproved gas and oil properties(b) | 60 | | 324 | | 37 | | 266 | | 687 | |
|
|
|
|
|
|
|
|
|
|
|
| | 3 691 | | 1 909 | | 1 638 | | 1 108 | | 8 346 | |
|
|
|
|
|
|
|
|
|
|
|
| Accumulated depreciation(c) | (2 395 | ) | (377 | ) | (362 | ) | (332 | ) | (3 466 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Net Capitalised Costs | 1 296 | | 1 532 | | 1 276 | | 776 | | 4 880 | |
|
|
|
|
|
|
|
|
|
|
|
| (a) | The 2006 balance includes an amount of £45m for Mauritania Holdings B.V. assets classified as held for sale. In 2004 there was a balance of £498m for the North Caspian Sea PSA which was classified as assets held for sale. |
| (b) | The 2006 balance includes an amount of £39m for Mauritania Holdings B.V. assets classified as held for sale. |
| (c) | The 2006 balance includes an amount of £11m for Mauritania Holdings B.V. assets classified as held for sale. |
| |
D) COSTS INCURRED IN GAS AND OIL ACTIVITIES
Aggregate costs incurred under the historical cost convention, comprising amounts capitalised to exploration and development and amounts charged to the income statement in respect of exploration and appraisal, were as follows:
| | | | Atlantic | | Asia and | | Rest of | | | |
| | UK | | Basin | | Middle East | | world | | Total | |
| | £m | | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
|
|
| Year ended 31 December 2004: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Acquisition of properties: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Proved | – | | 188 | | – | | – | | 188 | |
|
|
|
|
|
|
|
|
|
|
|
| Unproved | – | | 163 | | – | | 87 | | 250 | |
|
|
|
|
|
|
|
|
|
|
|
| Exploration(a) | 47 | | 58 | | 163 | | 55 | | 323 | |
|
|
|
|
|
|
|
|
|
|
|
| Development | 165 | | 271 | | 131 | | 53 | | 620 | |
|
|
|
|
|
|
|
|
|
|
|
| Year ended 31 December 2005: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Acquisition of properties: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Unproved | – | | – | | – | | 12 | | 12 | |
|
|
|
|
|
|
|
|
|
|
|
| Exploration(a) | 70 | | 89 | | 83 | | 82 | | 324 | |
|
|
|
|
|
|
|
|
|
|
|
| Development | 228 | | 259 | | 104 | | 92 | | 683 | |
|
|
|
|
|
|
|
|
|
|
|
| Year ended 31 December 2006: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Acquisition of properties: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Unproved | 19 | | 2 | | – | | 40 | | 61 | |
|
|
|
|
|
|
|
|
|
|
|
| Exploration(a) | 86 | | 207 | | 39 | | 162 | | 494 | |
|
|
|
|
|
|
|
|
|
|
|
| Development | 234 | | 215 | | 174 | | 98 | | 721 | |
|
|
|
|
|
|
|
|
|
|
|
| (a) | The 2006 exploration costs include an amount of £4m in respect of Mauritania Holdings B.V. which was classified as held for sale. 2005 included an amount of £60m (2004 £150m) in respect of the Group’s interest in the North Caspian Sea PSA. |
| | | |
The proportion of exploration costs capitalised in the period was 71.4% (2005 67.0%; 2004 77.9%) .
The above table does not include additions to decommissioning provisions which amounted to £49m in 2006 (2005 £5m; 2004 £5m).
Back to Contents
E) RESULTS OF OPERATIONS
The results of operations under the historical cost convention and in accordance with IFRS for the gas and oil producing activities (excluding general office overheads and interest costs) were as follows:
| | | | Atlantic | | Asia and | | Rest of | | | |
| | UK | | Basin | | Middle East | | world | | Total | |
| | £m | | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
|
|
| Year ended 31 December 2004: | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
| Revenues | 1 136 | | 362 | | 466 | | 184 | | 2 148 | |
|
|
|
|
|
|
|
|
|
|
|
| Production costs | (173 | ) | (22 | ) | (70 | ) | (21 | ) | (286 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Other operating costs | – | | (12 | ) | (26 | ) | (11 | ) | (49 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Exploration expenses | (31 | ) | (34 | ) | (13 | ) | (48 | ) | (126 | ) |
|
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|
|
|
|
|
|
|
|
|
| Depreciation and amortisation | (228 | ) | (50 | ) | (69 | ) | (26 | ) | (373 | ) |
|
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|
|
|
|
|
|
|
|
|
| Other costs | (14 | ) | (15 | ) | (17 | ) | (18 | ) | (64 | ) |
|
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|
|
|
|
|
|
|
|
|
| | 690 | | 229 | | 271 | | 60 | | 1 250 | |
|
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|
|
|
|
|
|
|
|
| Taxation | (270 | ) | (114 | ) | (111 | ) | (30 | ) | (525 | ) |
|
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|
|
|
|
|
|
|
|
|
| Results of operations | 420 | | 115 | | 160 | | 30 | | 725 | |
|
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|
|
|
|
|
|
|
|
|
| Year ended 31 December 2005: | | | | | | | | | | |
|
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|
|
|
|
|
|
|
|
| Revenues | 1 296 | | 669 | | 826 | | 276 | | 3 067 | |
|
|
|
|
|
|
|
|
|
|
|
| Production costs | (168 | ) | (37 | ) | (98 | ) | (29 | ) | (332 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Other operating costs | – | | (18 | ) | (32 | ) | (25 | ) | (75 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Exploration expenses | (25 | ) | (72 | ) | (20 | ) | (64 | ) | (181 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortisation | (173 | ) | (112 | ) | (84 | ) | (31 | ) | (400 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Other costs | (16 | ) | (25 | ) | (40 | ) | (30 | ) | (111 | ) |
|
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|
|
|
|
|
|
|
|
|
| | 914 | | 405 | | 552 | | 97 | | 1 968 | |
|
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|
|
|
| Taxation | (384 | ) | (209 | ) | (203 | ) | (35 | ) | (831 | ) |
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|
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|
| Results of operations | 530 | | 196 | | 349 | | 62 | | 1 137 | |
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|
|
|
| Year ended 31 December 2006: | | | | | | | | | | |
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|
|
|
|
| Revenues | 1 532 | | 968 | | 1 045 | | 357 | | 3 902 | |
|
|
|
|
|
|
|
|
|
|
|
| Production costs | (198 | ) | (60 | ) | (117 | ) | (41 | ) | (416 | ) |
|
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|
|
|
|
|
|
|
|
| Other operating costs | – | | (14 | ) | (38 | ) | (33 | ) | (85 | ) |
|
|
|
|
|
|
|
|
|
|
|
| Exploration expenses | (71 | ) | (99 | ) | (17 | ) | (85 | ) | (272 | ) |
|
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|
|
|
|
|
|
|
|
|
| Depreciation and amortisation | (185 | ) | (174 | ) | (95 | ) | (43 | ) | (497 | ) |
|
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|
|
|
|
|
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|
|
|
| Other costs | (42 | ) | (17 | ) | (47 | ) | (33 | ) | (139 | ) |
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|
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|
|
|
|
| | 1 036 | | 604 | | 731 | | 122 | | 2 493 | |
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| Taxation(a) | (539 | ) | (315 | ) | (270 | ) | (46 | ) | (1 170 | ) |
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| Results of operations | 497 | | 289 | | 461 | | 76 | | 1 323 | |
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| (a) | Taxation for the UK does not include a charge of £38m in respect of the restatement of the opening deferred tax balance arising from the effect of an increase in the supplementary charge on UK North Sea profits from 10% to 20% (see note 8 on page 93 for further details). |
Revenues comprise all invoiced sales. Net royalty payments are classified as other operating costs in the table above.
Revenues, representing gas and oil sold, include intra-group sales at contract prices of £233m for the year ended 31 December 2006 (2005 £91m; 2004 £22m).
The accretion interest expense resulting from changes in the liability for decommissioning due to the passage of time, which is not included in the above table, was £13m (2005 £11m; 2004 £10m).
Back to Contents
| 134 | Historical production (unaudited) |
| | Gas production | | Oil & liquids production | |
| | (net) bcf | | (net) 000 barrels | |
| |
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|
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| | 2006 | | 2005 | | 2004 | | 2006 | | 2005 | | 2004 | |
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|
| UKCS | | | | | | | | | | | | |
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|
|
| Armada and Seymour(a) | 42.3 | | 38.1 | | 59.2 | | 2 037 | | 1 880 | | 2 910 | |
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|
|
| Atlantic/Cromarty | 13.4 | | – | | – | | 354 | | – | | – | |
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| Blake(a) | 0.8 | | 0.8 | | 1.7 | | 3 841 | | 4 088 | | 4 997 | |
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|
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| Easington Catchment Area(b) | 38.6 | | 51.3 | | 69.5 | | 123 | | 204 | | 249 | |
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| Elgin/Franklin | 24.4 | | 26.5 | | 25.5 | | 5 290 | | 5 996 | | 6 236 | |
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| Everest | 18.8 | | 25.1 | | 30.9 | | 494 | | 720 | | 988 | |
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|
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| J-Block and Jade(c) | 48.5 | | 43.5 | | 42.4 | | 5 413 | | 4 800 | | 4 761 | |
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| Lomond | 29.4 | | 28.9 | | 35.8 | | 539 | | 569 | | 979 | |
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| Other | 6.6 | | 4.7 | | 3.8 | | 346 | | 54 | | 32 | |
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|
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| UKCS sub-total | 222.8 | | 218.9 | | 268.8 | | 18 437 | | 18 311 | | 21 152 | |
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| International | | | | | | | | | | | | |
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|
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| Bolivia | 26.5 | | 30.7 | | 21.6 | | 918 | | 1 063 | | 517 | |
|
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|
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|
|
| Canada | 19.8 | | 19.0 | | 15.8 | | 162 | | 176 | | 208 | |
|
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|
|
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| Egypt(a) | 365.4 | | 209.9 | | 84.7 | | 1 530 | | 259 | | 89 | |
|
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| India(a) | 37.5 | | 35.5 | | 31.7 | | 4 050 | | 3 504 | | 2 854 | |
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| Kazakhstan(d) | 82.3 | | 75.7 | | 70.0 | | 22 585 | | 22 399 | | 18 991 | |
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| Mauritania | 0.2 | | – | | – | | 949 | | – | | – | |
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| Thailand | 50.3 | | 47.0 | | 47.6 | | 1 440 | | 1 440 | | 1 501 | |
|
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|
|
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| Trinidad and Tobago(a) | 134.7 | | 107.4 | | 114.5 | | 121 | | 111 | | 36 | |
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| Tunisia(a) | 65.4 | | 64.9 | | 63.8 | | 1 527 | | 1 717 | | 1 675 | |
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| International sub-total | 782.1 | | 590.1 | | 449.7 | | 33 282 | | 30 669 | | 25 871 | |
|
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| Total | 1 004.9 | | 809.0 | | 718.5 | | 51 719 | | 48 980 | | 47 023 | |
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| | | | | | | | | | | | | |
| | | | | | | | 2006 | | 2005 | | 2004 | |
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| Total mmboe gas, oil & liquids(e) | | | | | | | 219.2 | | 183.8 | | 166.8 | |
|
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|
| (a) | Operated by BG Group at 31 December 2006. |
| (b) | Easington Catchment Area includes Mercury, Minerva, Neptune and Wollaston & Whittle fields. |
| (c) | J-Block includes Judy and Joanne fields. |
| (d) | Jointly operated in partnership with Eni. |
| (e) | Conversion factor of 6 bcf of gas to 1 mmboe. |
| |
Back to Contents
| | | FINANCIAL STATEMENTS |
| | | |
| Four year financial summary (unaudited) | | 135 |
CONSOLIDATED INCOME STATEMENT(a)
for the year ended 31 December
| | 2006 | | 2005 | | 2004 | | 2003 | |
| | | | Restated | | Restated | | Restated | |
| | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
| Group revenue and other operating income | 7 674 | | 5 424 | | 4 063 | | 3 564 | |
|
|
|
|
|
|
|
|
|
| Operating costs | (4 504 | ) | (3 517 | ) | (2 736 | ) | (2 472 | ) |
|
|
|
|
|
|
|
|
|
| Profit/(loss) on disposal of non-current assets | (49 | ) | 446 | | 87 | | 116 | |
|
|
|
|
|
|
|
|
|
| Operating profit before share of results from joint ventures and associates | 3 121 | | 2 353 | | 1 414 | | 1 208 | |
|
|
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|
|
|
|
|
|
| Finance income | 127 | | 105 | | 42 | | 44 | |
|
|
|
|
|
|
|
|
|
| Finance costs | (102 | ) | (112 | ) | (87 | ) | (87 | ) |
|
|
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|
|
|
|
|
|
| Share of post-tax results from joint ventures and associates | 139 | | 158 | | 125 | | 132 | |
|
|
|
|
|
|
|
|
|
| Profit before tax | 3 285 | | 2 504 | | 1 494 | | 1 297 | |
|
|
|
|
|
|
|
|
|
| Taxation | (1 461 | ) | (939 | ) | (583 | ) | (498 | ) |
|
|
|
|
|
|
|
|
|
| Profit for the year | 1 824 | | 1 565 | | 911 | | 799 | |
|
|
|
|
|
|
|
|
|
| Profit attributable to: | | | | | | | | |
| Minority interests | 45 | | 40 | | 28 | | 28 | |
| Shareholders (earnings) | 1 779 | | 1 525 | | 883 | | 771 | |
|
|
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|
|
|
|
|
|
| | 1 824 | | 1 565 | | 911 | | 799 | |
|
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|
|
|
|
| Earnings per ordinary share (pence) | | | | | | | | |
|
|
|
|
|
|
|
|
|
| Basic | 51.4 | | 43.1 | | 25.0 | | 21.9 | |
| Diluted | 51.0 | | 42.9 | | 24.9 | | 21.9 | |
|
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|
|
|
|
|
|
|
| (a) | 2006 and 2005 include the impact of non-cash re-measurements following the adoption of IAS 39 on 1 January 2005. | | | | | | | | |
CONSOLIDATED BALANCE SHEET
as at 31 December
| | 2006 | | 2005 | | 2004 | | 2003 | |
| | | | Restated | | Restated | | Restated | |
| | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
| Non-current assets | 8 464 | | 8 210 | | 6 709 | | 5 729 | |
|
|
|
|
|
|
|
|
|
| Current assets | 4 139 | | 3 385 | | 1 629 | | 1 151 | |
|
|
|
|
|
|
|
|
|
| Assets classified as held for sale | 85 | | 10 | | 530 | | 449 | |
|
|
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|
|
|
|
|
|
| Total assets | 12 688 | | 11 605 | | 8 868 | | 7 329 | |
|
|
|
|
|
|
|
|
|
| Current liabilities | (2 819 | ) | (2 509 | ) | (1 827 | ) | (1 346 | ) |
|
|
|
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|
|
|
|
|
| Non-current liabilities | (3 370 | ) | (2 826 | ) | (2 395 | ) | (2 018 | ) |
|
|
|
|
|
|
|
|
|
| Liabilities associated with assets classified as held for sale | (34 | ) | (3 | ) | (67 | ) | (56 | ) |
|
|
|
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|
|
|
|
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| Total liabilities | (6 223 | ) | (5 338 | ) | (4 289 | ) | (3 420 | ) |
|
|
|
|
|
|
|
|
|
| | 6 465 | | 6 267 | | 4 579 | | 3 909 | |
|
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|
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| Equity | | | | | | | | |
|
|
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|
|
| Total shareholders’ equity | 6 363 | | 6 169 | | 4 559 | | 3 918 | |
|
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|
|
|
|
|
|
| Minority interest in equity | 102 | | 98 | | 20 | | (9 | ) |
|
|
|
|
|
|
|
|
|
| | 6 465 | | 6 267 | | 4 579 | | 3 909 | |
|
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|
|
|
|
|
|
|
Back to Contents
| 136 | Four year financial summary (unaudited) |
| CONSOLIDATED CASH FLOW STATEMENT | | | | | | | | |
| for the year ended 31 December | 2006 | | 2005 | | 2004 | | 2003 | |
| | | | Restated | | Restated | | Restated | |
| | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
| Cash generated by operations | 3 360 | | 2 509 | | 1 599 | | 1 463 | |
|
|
|
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|
|
|
|
|
| Income taxes paid | (979 | ) | (883 | ) | (387 | ) | (332 | ) |
|
|
|
|
|
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|
|
|
| Net cash inflow from operating activities | 2 381 | | 1 626 | | 1 212 | | 1 131 | |
|
|
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|
|
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|
|
| Cash flows from investing activities | | | | | | | | |
|
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|
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|
|
| Dividends received | 193 | | 93 | | 81 | | 88 | |
|
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|
|
| Proceeds from disposal of subsidiary undertakings and investments | 9 | | (67 | ) | 32 | | 119 | |
|
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|
|
|
|
|
| Proceeds from disposal of property, plant and equipment and intangible assets | 49 | | 950 | | 142 | | 72 | |
|
|
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|
|
|
|
|
|
| Purchase of property, plant and equipment and intangible assets | (1 313 | ) | (1 064 | ) | (1 022 | ) | (855 | ) |
|
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|
|
| Loans (to)/from joint ventures and associates | (66 | ) | 65 | | (4 | ) | (232 | ) |
|
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|
|
| Business combinations and investments | (67 | ) | (39 | ) | (364 | ) | (3 | ) |
|
|
|
|
|
|
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|
|
| Net cash outflow from investing activities | (1 195 | ) | (62 | ) | (1 135 | ) | (811 | ) |
|
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|
|
|
|
|
| Cash flows from financing activities | | | | | | | | |
|
|
|
|
|
|
|
|
|
| Net interest received/(paid) | 14 | | (25 | ) | (24 | ) | (37 | ) |
|
|
|
|
|
|
|
|
|
| Dividends paid | (246 | ) | (142 | ) | (124 | ) | (112 | ) |
|
|
|
|
|
|
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|
|
| Dividends paid to minority | (36 | ) | (29 | ) | (3 | ) | (6 | ) |
|
|
|
|
|
|
|
|
|
| Net proceeds from issue of new borrowings | 214 | | 334 | | 416 | | 239 | |
|
|
|
|
|
|
|
|
|
| Repayment of borrowings | (192 | ) | (555 | ) | (322 | ) | (365 | ) |
|
|
|
|
|
|
|
|
|
| Issue of shares | 26 | | 34 | | 13 | | 7 | |
|
|
|
|
|
|
|
|
|
| Purchase of own shares | (972 | ) | (37 | ) | – | | – | |
|
|
|
|
|
|
|
|
|
| Net cash outflow from financing activities | (1 192 | ) | (420 | ) | (44 | ) | (274 | ) |
|
|
|
|
|
|
|
|
|
| Net (decrease)/increase in cash and cash equivalents | (6 | ) | 1 144 | | 33 | | 46 | |
|
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|
|
|
|
|
| OTHER INFORMATION | | | | | | | | | | |
| for the year ended 31 December | | | 2006 | | 2005 | | 2004 | | 2003 | |
| | | | | | Restated | | Restated | | Restated | |
| | | | £m | | £m | | £m | | £m | |
|
|
|
|
|
|
|
|
|
|
|
| Average capital employed(a) | £m | | 6 651 | | 6 227 | | 5 201 | | 4 695 | |
|
|
|
|
|
|
|
|
|
|
|
| Return on average capital employed (before taxation)(b) | % | | 46.5 | | 37.9 | | 28.8 | | 26.9 | |
|
|
|
|
|
|
|
|
|
|
|
| Return on average capital employed (after taxation)(b) | % | | 26.2 | | 22.6 | | 17.3 | | 16.2 | |
|
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| | | | | | | | | | | |
| as at 31 December | | | | | | | | | | |
|
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|
|
|
|
|
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|
|
| Net borrowings(c) | £m | | (103 | ) | (30 | ) | (1 186 | ) | (927 | ) |
|
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|
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|
|
| Gearing ratio(d) | % | | 1.6 | | 0.4 | | 20.6 | | 19.2 | |
|
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|
|
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|
|
| Debt/equity ratio(e) | % | | 1.6 | | 0.5 | | 25.9 | | 23.7 | |
|
|
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|
|
|
|
|
|
|
|
| Employee numbers (headcount) | thousands | | 4.8 | | 5.4 | | 5.2 | | 4.5 | |
|
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|
|
|
|
|
|
|
| (a) | Average capital employed consists of total shareholders’ funds plus commodity financial instruments (including associated deferred tax) and net borrowings, averaged between the start and the end of the year. |
| (b) | Return on average capital employed represents profit before tax (excluding disposals, re-measurements and impairments) plus net finance costs payable on net borrowings as a percentage of average capital employed. The above table presents this before and after taxation applied at the Group’s effective tax rate. |
| (c) | Net borrowings comprise cash and cash equivalents, finance leases, currency and interest rate derivative financial instruments and short- and long-term borrowings. |
| (d) | Gearing ratio represents net borrowings as a percentage of total shareholders’ funds (excluding the re-measurement of commodity financial instruments and associated deferred tax) plus net borrowings. |
| (e) | Debt/equity ratio represents net borrowings as a percentage of total shareholders’ funds (excluding the re-measurement of commodity financial instruments). |
Back to Contents
| Five year financial summary (unaudited) | 137 |
| SELECTED US GAAP INFORMATION | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| for the year ended 31 December | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating income | £m | | 3 631 | | 2 059 | | 1 027 | | 868 | | 695 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net income | £m | | 2 103 | | 1 138 | | 731 | | 766 | | 393 | |
|
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|
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|
|
|
|
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|
|
|
|
| Comprehensive income | £m | | 1 556 | | 1 643 | | 521 | | 620 | | 1 | |
|
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| Net income – continuing operations (restated) | £m | | 2 173 | | 901 | | 718 | | 680 | | 395 | |
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| Earnings per ordinary share | £ | | 0.61 | | 0.32 | | 0.21 | | 0.22 | | 0.11 | |
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| Earnings per ADS | £ | | 3.04 | | 1.61 | | 1.03 | | 1.09 | | 0.56 | |
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| Earnings per ordinary share – continuing operations (restated) | £ | | 0.63 | | 0.25 | | 0.20 | | 0.19 | | 0.11 | |
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| Earnings per ADS – continuing operations (restated) | £ | | 3.14 | | 1.27 | | 1.01 | | 0.96 | | 0.56 | |
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| as at 31 December | | | | | | | | | | | | |
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| Gross assets | £m | | 12 551 | | 11 438 | | 8 790 | | 7 239 | | 6 854 | |
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| Long-term obligations | £m | | (3 388 | ) | (2 229 | ) | (2 471 | ) | (1 859 | ) | (1 848 | ) |
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| BG Group shareholders’ funds | £m | | 6 251 | | 5 983 | | 4 408 | | 3 972 | | 3 458 | |
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| Number of allotted and fully paid up equity shares | m | | 3 558 | | 3 549 | | 3 536 | | 3 530 | | 3 530 | |
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| Nominal value of allotted and fully paid up equity shares | £m | | 356 | | 355 | | 354 | | 353 | | 353 | |
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The details of the differences between the Group’s reported results under IFRS and those reported under US GAAP are set out in note 31, page 118.
ANNUAL DIVIDENDS
The table below sets out the amounts of interim, final and total dividends paid in respect of each of the years in the five years ended 31 December 2006 in pound Sterling per ordinary share. These amounts are also shown translated, solely for convenience (with the associated UK tax credit included, but after deduction of withholding tax), into US$ per ADS (each representing five ordinary shares) at the Noon Buying Rate on each of the respective payment dates for such interim and final dividends.
| for the year ended 31 December | | | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
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| Interim dividend per ordinary share | £ | | 0.0300 | | 0.0191 | | 0.0173 | | 0.0160 | | 0.0155 | |
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| Final dividend per ordinary share(a) | £ | | 0.0420 | | 0.0409 | | 0.0208 | | 0.0186 | | 0.0155 | |
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| Total dividend per ordinary share | £ | | 0.0720 | | 0.0600 | | 0.0381 | | 0.0346 | | 0.0310 | |
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| Interim dividend per ADS | $ | | 0.2817 | | 0.1721 | | 0.1545 | | 0.1305 | | 0.1232 | |
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| Final dividend per ADS(a) | $ | | | | 0.3867 | | 0.1924 | | 0.1712 | | 0.1247 | |
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| Total dividend per ADS | $ | | | | 0.5588 | | 0.3469 | | 0.3017 | | 0.2479 | |
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| (a) | 2006 final dividend to be paid on 25 May 2007 to shareholders of record on 13 April 2007. ADS holders will be entitled to receive the US$ equivalent of £0.21 per ADS on 4 June 2007. |
The Company is not subject to any laws or agreements that materially restrict its ability to pay dividends from distributable reserves other than those disclosed in note 32, page 127. The Directors have proposed a final dividend of 4.2p, bringing the total for the year to 7.2p. Future dividends will be dependent on the cash flow, earnings and financial condition of the Company and other factors.
EXCHANGE RATE INFORMATION
The following table sets out for the periods and the dates indicated certain information concerning the Noon Buying Rate certified by the Federal Reserve Bank of New York expressed in US$ per £1.00.
| for the year ended 31 December | 2006 | | 2005 | | 2004 | | 2003 | | 2002 | |
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| High | 1.9794 | | 1.9292 | | 1.9482 | | 1.7842 | | 1.6095 | |
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| Low | 1.7256 | | 1.7138 | | 1.7572 | | 1.5500 | | 1.4074 | |
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| Year end | 1.9586 | | 1.7188 | | 1.9160 | | 1.7842 | | 1.6095 | |
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| Average(a) | 1.8582 | | 1.8147 | | 1.8356 | | 1.6452 | | 1.5084 | |
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| | October | | November | | December | | January | | February | | March | |
| | 2006 | | 2006 | | 2006 | | 2007 | | 2007 | | 2007 | |
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| High | 1.9084 | | 1.9693 | | 1.9794 | | 1.9847 | | 1.9699 | | 1.9694 | |
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| Low | 1.8548 | | 1.8883 | | 1.9458 | | 1.9305 | | 1.9443 | | 1.9235 | |
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| (a) | The average of the Noon Buying Rates on the last business day of each month during the year. The Noon Buying Rate on 2 April 2007 was $1.9786 per £1.00. |
Dividends are paid by the Company in pounds Sterling and exchange rate fluctuations will affect the US$ amounts received by ADS holders on conversion by JPMorgan Chase Bank as depositary of such cash dividends paid. Moreover, fluctuations in the US$/UK£ exchange rate will affect the US$ equivalent of the pound Sterling price of the ordinary shares on the London Stock Exchange and, as a result, are likely to affect the market price of the ADSs in the USA.
Back to Contents
| 138 | Shareholder information |
ANALYSIS OF REGISTERED HOLDINGS AS AT 31 DECEMBER 2006
| | Number | | Shares | |
| Distribution of ordinary shares by type of shareholder | of holdings | | m | |
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| Nominees and institutional investors | 9 907 | | 3 175 | |
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| Individuals | 768 730 | | 383 | |
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| | 778 637 | | 3 558 | |
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| | Number | | Shares | |
| Range analysis of register | of holdings | | m | |
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| 1 – 500 | 557 878 | | 140 | |
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| 501 – 1 000 | 144 988 | | 97 | |
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| 1 001 – 5 000 | 69 271 | | 117 | |
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| 5 001 – 10 000 | 3 739 | | 25 | |
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| 10 001 – 50 000 | 1 503 | | 28 | |
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| 50 001 – 100 000 | 268 | | 19 | |
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| 100 001 – 1 000 000 | 669 | | 249 | |
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| 1 000 001 and above | 321 | | 2 883 | |
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| | 778 637 | | 3 558 | |
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| | | | | |
| Headquarters and Registered | | Registrar and Transfer Office | | American Depositary Receipts |
| Office Address | | Lloyds TSB Registrars | | ADR Depositary, JPMorgan Chase Bank |
| 100 Thames Valley Park Drive | | The Causeway, Worthing | | JPMorgan Service Center, PO Box 3408, |
| Reading, Berkshire RG6 1PT | | West Sussex BN99 6DA | | South Hackensack, NJ 07606-3408, USA |
| 0118 935 3222 | | 0870 600 3951 | | +1 800 990 1135 (US toll-free) |
| www.bg-group.com | | www.shareview.co.uk | | +1 201 680 6630 (outside USA) |
| | | Email: bg@lloydstsb-registrars.co.uk | | www.adr.com/shareholder |
| | | | | Email: adr@jpmorgan.com |
| | | | | |
AGENT FOR SERVICE OF PROCESS IN THE USA
The Corporation Trust Company
Corporation Trust Center, 1209 Orange Street,
Wilmington, DE 19801 USA
BG GROUP PLC CORPORATE INDIVIDUAL SAVINGS ACCOUNTS (ISAS)
Rensburg Sheppards Investment Management Ltd
The Plaza, 100 Old Hall Street, Liverpool, L3 9AB
0151 237 2160
ELECTRONIC COMMUNICATIONS
Shareview, an electronic shareholder communications service from Lloyds TSB Registrars, gives you access to more information about your shareholding including balance movements, indicative share prices and information on recent dividend payments. It also allows you to change your registered address details, set up a dividend mandate or change your existing mandate details. To register for this free service, visit www.shareview.co.uk and follow the simple instructions. You will need your shareholder reference number, which can be found on your dividend tax voucher. Through Shareview you can also register to receive Company communications electronically.
VOTING ELECTRONICALLY
All shareholders can submit proxies for the Annual General Meeting electronically at www.sharevote.co.uk
Alternatively, shareholders who have already registered with Shareview can appoint a proxy by logging on to Shareview and then clicking on ‘Company Meetings’.
CONSOLIDATED TAX VOUCHERS
Shareholders who have elected to have their dividends paid direct into their bank account receive just one tax voucher each year
covering both the interim and final dividend payments. The consolidated tax voucher enclosed with this Annual Report covers all dividends paid during the 2006/2007 tax year. If you have more than one shareholder account in the same name(s) you will receive a separate letter in respect of the shareholdings in addition to the one shown on the consolidated tax voucher enclosed with this Annual Report. Shareholders wishing to receive a tax voucher in respect of each dividend payment should contact Lloyds TSB Registrars.
OVERSEAS DIVIDEND PAYMENTS
A service has been established to provide shareholders in over 30 countries with the opportunity to receive BG Group dividends in their local currency. For a small flat rate fee, shareholders can have their dividends automatically converted from pounds Sterling and paid into their bank account, normally within five working days of the dividend payment date. For further details, please contact Lloyds TSB Registrars at the above address or call +44 (0)121 415 7029.
GIFTING YOUR SHARES
To transfer your shares to another member of your family as a gift, please ask the Registrar for a gift transfer form. The completed transfer form with the relevant share certificate(s) should be returned to the Registrar to record the change in ownership. If you have a small number of shares and would like to donate them to charity, please ask the Registrar for a ShareGift (charity donation scheme) transfer form. Information is also available on the ShareGift website at www.sharegift.org
LOW COST SHARE DEALING SERVICES
Information on a range of low cost share dealing services is available from Lloyds TSB Registrars on 0870 600 3951 or at www.bg-group.com/dealing
Back to Contents
| | | SHAREHOLDERINFORMATION |
| | | |
| Additional shareholder information | | 139 |
THIS ANNUAL REPORT AND ACCOUNTS INCORPORATES THE US FORM 20-F
BG Group plc is the legal and commercial name of the SEC registrant. BG Group plc is a public limited company listed on the London and New York Stock Exchanges and registered in England. This is the Annual Report and Accounts for the year ended 31 December 2006. It complies with UK regulations and includes information for the Group’s annual report on Form 20-F (see cross-reference to Form 20-F, page 150) to meet US regulations. The US Report of Registered Public Accounting Firm is included separately in the Group’s Form 20-F filing with the US Securities and Exchange Commission. An Annual Review including the Summary Financial Statement for the year ended 31 December 2006 has been issued to all shareholders who have not elected to receive this Annual Report and Accounts.
HISTORY AND DEVELOPMENT OF THE COMPANY
The Company is a public limited company incorporated in England and Wales on 30 December 1998 under the Companies Act 1985.
The UK gas industry was nationalised in 1948 and the British Gas Corporation was established in 1973. In April 1986, British Gas was incorporated as a public limited company and in December 1986 the UK Government sold substantially all its shareholdings in British Gas to the public.
Investment in the Exploration and Production (E&P) business resulted in expansions in the UK and overseas, including developments in Trinidad and Tobago, Thailand, Tunisia, Egypt and Karachaganak in Kazakhstan. Investment in the Liquefied Natural Gas (LNG) business overseas also began with the start of construction work in Trinidad and Tobago at Atlantic LNG in 1996.
With effect from 17 February 1997, Centrica plc demerged from BG plc. Following the Centrica demerger, BG plc retained the gas transportation and storage businesses, the majority of the exploration and production business, the international downstream business, the research and technology business and the property division of British Gas plc. In connection with the Centrica demerger, British Gas plc’s gas sales, services and retail businesses, together with the gas production business of the North and South Morecambe gas fields and its direct interest in Accord Energy Limited, were transferred to Centrica plc.
Investment in the gas value-chain continued and in April 1999 a controlling share in the Brazilian gas distribution business Companhia de Gas de São Paulo was acquired.
With effect from 1 May 1999, BG plc combined its exploration and production and international downstream businesses which principally engaged in gas and oil exploration and production and the integrated development and supply of gas markets.
With effect from 13 December 1999, the Group was restructured so that the Company, a newly incorporated company, became the new parent company of the Group. The Company held the gas transportation business carried out by Transco plc (Transco business) in a separate sub-group, including BG Transco plc (now called National Grid Gas plc), ring-fenced for regulatory purposes, from the sub-group containing the other Group businesses. The restructuring was accompanied by a refinancing under which BG Transco Holdings plc (now called National Grid Gas Holdings plc) issued around £1.5bn of bonds which were transferred together with new shares in the Company to shareholders in exchange for their existing shares in BG plc (now called National Grid Gas plc). The UK Secretary of State for Trade and Industry held a special rights redeemable preference share in the Company.
On 16 October 2000, the Company’s shareholders approved the demerger of certain businesses (principally Transco) to Lattice Group plc, effective on 23 October 2000. This demerger created a new listed company, Lattice Group plc (which has since merged with National Grid plc and is now called National Grid plc). The principal business demerged to Lattice Group was the gas transportation business carried out by Transco, which owned, operated and developed the substantial majority of the gas transportation system and all the LNG storage facilities in Great Britain at the time. Following demerger, the Company continued to own BG Energy Holdings Limited and its subsidiary undertakings consolidated with its share of joint ventures and associated undertakings, principally comprising the activities of E&P, LNG and the development, management and supply of existing and newly emerging gas markets around the world. The special rights redeemable preference share in the Company held by the UK Secretary of State for Trade and Industry was redeemed.
On 28 November 2001, BG Group’s Storage segment was sold to Dynegy Inc. of the USA for a consideration of £421m.
The Group’s principal activities are now focused on the E&P, LNG, Transmission and Distribution (T&D) and Power business segments. In E&P ongoing exploration activity and investment in the existing asset-base has been supplemented by the acquisition of new assets such as the Panna Mukta and Tapti fields in India in February 2002.
In LNG, there have been expansions at Atlantic LNG and the construction of new liquefaction facilities at Egyptian LNG in Egypt. The acquisition of capacity rights at the Lake Charles and Elba Island regasification terminals in the USA, which became effective from 2002 and 2003 respectively, secured access to a key gas market. The Group also operates a shipping fleet to service its LNG business and has long-term contracts to purchase LNG from Egypt, Equatorial Guinea and Nigeria.
In T&D, the Group develops markets for natural gas and provides them with supplies from its and others’ reserves.
In Power, the Group develops, owns and operates gas-fired power generation plants in the UK and overseas, including Italy, Malaysia, the Philippines and, with effect from 2006, in the USA.
Back to Contents
| 140 | Additional shareholder information continued |
LISTING AND PRICE HISTORY
The principal trading market for the Company’s ordinary shares is the London Stock Exchange. American Depositary Shares (ADSs), each representing five ordinary shares and evidenced by ADRs, have been issued by JPMorgan Chase Bank as depositary and are listed on the New York Stock Exchange.
The table below sets out, for the periods indicated, the reported high and low quoted prices for the Company’s ordinary shares on the London Stock Exchange and the high and low quoted prices for the shares in the form of ADSs on the New York Stock Exchange. Past performance of the Company’s ordinary shares cannot be relied on as a guide to future performance.
| | | | London Stock Exchange | | New York Stock Exchange | |
| | | | (Price per share) | | (Price per ADS) | |
| | | |
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| | | | High | | Low | | High | | Low | |
| | | | (pence) | | (pence) | | ($) | | ($) | |
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| 2002 | | | 313 | | 230.75 | | 23.8 | | 18.45 | |
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| 2003 | | | 286.75 | | 222 | | 26.05 | | 18.43 | |
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| 2004 | | | 380 | | 273.75 | | 35.19 | | 25.48 | |
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| 2005 | First Quarter | | 422 | | 346.5 | | 41.16 | | 32.98 | |
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| | Second Quarter | | 472 | | 402.5 | | 42.94 | | 37.6 | |
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| | Third Quarter | | 540.5 | | 450.25 | | 49.24 | | 39.84 | |
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| | Fourth Quarter | | 577 | | 471 | | 49.73 | | 42.27 | |
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| | Full Year | | 577 | | 346.5 | | 49.73 | | 32.98 | |
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| 2006 | First Quarter | | 734 | | 594.5 | | 63.90 | | 49.73 | |
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| | Second Quarter | | 782.5 | | 635 | | 71.62 | | 59.17 | |
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| | Third Quarter | | 741.5 | | 622.5 | | 69.33 | | 59.85 | |
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| | September | | 694 | | 622.5 | | 65.92 | | 59.85 | |
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| | October | | 705.5 | | 625 | | 66.53 | | 59.10 | |
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| | November | | 719.5 | | 667 | | 67.61 | | 64.75 | |
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| | December | | 706 | | 674 | | 68.45 | | 66.30 | |
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| | Fourth Quarter | | 719.5 | | 625 | | 68.45 | | 59.10 | |
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| | Full Year | | 782.5 | | 594.5 | | 71.62 | | 49.73 | |
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| 2007 | January | | 708.5 | | 632.5 | | 68.44 | | 61.04 | |
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| | February | | 739 | | 683 | | 72.20 | | 67.45 | |
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| | March | | 737 | | 670 | | 72.65 | | 65.05 | |
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| | First Quarter | | 739 | | 632.5 | | 72.65 | | 61.04 | |
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MAJOR SHAREHOLDERS
The Company’s authorised share capital consists of ordinary shares with a nominal value of 10p each. So far as the Company is aware, other than as set out in the Directors’ report – Substantial Shareholders, see page 57, no person is the beneficial owner of 5% or more of the Company’s ordinary shares.
As at 26 March 2007, 18 223 973 ADSs (equivalent to 91 119 865 ordinary shares or approximately 2.68% of the total outstanding ordinary shares) were outstanding and held of record by 220 registered holders in the USA. The Company is aware that many ADSs are held of record by brokers and other nominees and, accordingly, the above numbers are not necessarily representative of the actual number of persons who are beneficial holders of ADSs or the number of ADSs beneficially held by such persons.
As at 26 March 2007, there were about 772 396 holders of record of BG Group plc ordinary shares. Of these holders, around 2 522 had registered addresses in the USA and held a total of some 174 692 BG Group plc ordinary shares, approximately 0.03% of the total outstanding ordinary shares. In addition, certain accounts of record with registered addresses other than in the USA hold BG Group plc ordinary shares, in whole or in part, beneficially for US persons.
As far as is known to the Company, it is not directly or indirectly owned or controlled by another company or by any government or any other natural or legal person, and there are no arrangements known to the Company, the operation of which may result in a change of control.
MEMORANDUM AND ARTICLES OF ASSOCIATION
The Company is incorporated in England and Wales under Company Number 3690065.
The Memorandum of the Company provides that the Company has general commercial objects including to act as a holding company or an investment holding company and to carry on the business of transporting, manufacturing, processing, storing and dealing in different forms of energy including natural gases, petroleum and electricity.
The Articles of Association (Articles) of the Company and applicable English law contain, among others, provisions to the following effect:
Directors
1. General
Unless otherwise determined by ordinary resolution of the Company, there must be at least four Directors. A Director need not be a shareholder, but a Director who is not a shareholder can still attend and speak at shareholders’ meetings.
At each Annual General Meeting (AGM), any Director who was elected or last re-elected a Director at or before the AGM held in the third calendar year before the current year shall automatically retire from office. A retiring Director is eligible for re-election by the shareholders. No maximum age limit for Directors applies.
Back to Contents
| | | SHAREHOLDER INFORMATION |
| | | |
| | | 141 |
2. Directors’ interests
Unless otherwise provided in the Articles, a Director cannot cast a vote on any contract, arrangement or any other kind of proposal in which he knows he has a material interest. For this purpose, interests of a person who is connected with a Director under Section 346 of the Companies Act 1985 are added to the interests of the Director himself. Interests purely as a result of an interest in the Company’s shares, debentures or other securities are disregarded. In relation to an alternate Director, an interest of his appointor shall be treated as an interest of the alternate Director, in addition to any interest which the alternate Director has in his own right. A Director may not be included in the quorum of a meeting in relation to any resolution on which he is not allowed to vote.
3. Borrowing powers
So far as the relevant English law allows, the Directors can exercise all the powers of the Company to (a) borrow money, (b) issue debentures and other securities, and (c) give any form of guarantee and security for any debt, liability or obligation of the Company or of any third party.
The Directors must limit the Borrowings (as defined in the Articles) of the Company and exercise all voting and other rights or powers of control exercisable by the Company in relation to its subsidiary undertakings, so as to ensure that the total amount of all Borrowings by the Group (as defined in the Articles) outstanding at any time will not exceed twice the Adjusted Total Capital and Reserves (as defined in the Articles) at such time. This limit may be exceeded if the Company’s consent has been given in advance by an ordinary resolution passed at a general meeting.
4. Director indemnity
So far as the relevant English law and the Listing Rules of the UK Listing Authority allow, every Director, Company Secretary or other officer of the Company shall be indemnified by the Company out of its own funds against (a) liability incurred by or attaching to him in connection with any negligence, default, breach of duty, or breach of trust by him in relation to the Company or any associated company other than (i) any liability to the Company or any associated company and (ii) any liability of the kind referred to in Sections 309B(3) or (4) of the Companies Act 1985; and (b) any other liability incurred by or attaching to him in the actual or purported exercise of his powers and/or otherwise in relation to or in connection with his duties, powers or office. Such indemnity shall extend to all costs, charges, losses and expenses and liabilities incurred by the Director.
Shareholder meetings
There are two types of meetings of shareholders, AGMs and Extraordinary General Meetings (EGMs). The Company must hold an AGM in each calendar year, not more than 15 months from the previous AGM. The Directors will decide when and where to hold the AGM. Any other general meeting is known as an EGM.
The Directors can decide to call an EGM at any time. In addition, an EGM must be called by the Directors promptly in response to a requisition by shareholders under the relevant English law. When an EGM is called, the Directors must decide when and where to hold it. At least 21 clear days’ notice in writing (or, where the relevant legislation permits, by electronic mail) must be given for every AGM and for any other meeting where it is proposed to pass a special resolution or to pass some other resolution of which special notice under the Companies Act 1985 has been given to the Company. For every other general meeting, at least 14 clear days’ notice in writing (or, where the relevant legislation permits, by electronic mail) must be given.
There must be a quorum present at every general meeting. Unless provided otherwise in the Articles, a quorum is two people who are entitled to vote.
Unless a poll is demanded, a resolution that is put to the vote at a general meeting will be decided by a show of hands.
Transfer of shares
Unless otherwise provided in the Articles or the terms of issue of any shares, any shareholder may transfer any or all of his shares. However, the Directors can refuse to register a transfer (a) in certificated form, if such shares are not fully paid up or the evidence of entitlement to such shares is missing, (b) if it is in respect of more than one class of share, (c) if it is in favour of more than four persons jointly, or (d) if it is not properly stamped where required. However, if any of those shares have been admitted to the Official List of the London Stock Exchange, the Directors cannot refuse to register a transfer if this would stop dealings in the shares from taking place on an open and proper basis.
If the Directors decide not to register a transfer, they must notify the person to whom the shares were to be transferred within two months.
The Directors can decide to suspend the registration of transfers by closing the Register, but the Register cannot be closed for more than 30 days per year. In the case of shares in uncertificated form, the Register must not be closed without the consent of the operator of a relevant system (currently CRESTCo Limited, the operator of a relevant system under the UK CREST Regulations).
Share capital
The Company’s authorised share capital is £500 000 001, consisting of 5 000 000 010 ordinary shares of 10p each.
Shareholders’ rights
1. Voting rights
When a shareholder is entitled to attend a general meeting and vote, he has only one vote on a show of hands. A proxy cannot vote on a show of hands. Where there is a poll, subject to any special rights or restrictions attaching to any class of shares, a shareholder who is entitled to be present and to vote has one vote for every share that he holds.
To decide who can attend or vote at a general meeting, the notice of the meeting can give a time by which people must be entered on the Register which must not be more than 48 hours before the meeting. Unless provided otherwise in the Articles, the only people who can attend or vote at general meetings are shareholders who have paid the Company all calls, and all other sums, relating to the shares that are due at the time of the meeting.
2. Restrictions on shareholders’ rights
If a shareholder has been properly served with a notice under Section 793 of the Companies Act 2006 requiring information about interests in shares, and has failed to supply such information within 14 days of the notice, then (subject to the Articles and unless the Directors otherwise decide) the shareholder is not (for so long as the default continues) entitled to attend or vote at a shareholders’ meeting or to exercise any other right in relation to a meeting as holder of any shares held by the shareholder in default.
Any person who acquires shares in relation to which a default has occurred (Default Shares) is subject to the same restrictions unless:
| • | the transfer was an approved transfer pursuant to a takeoveror one which, to the Directors’ satisfaction, is a bona fide saleto a person unconnected with the shareholder; or |
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| 142 | Additional shareholder information continued |
| • | the transfer was by a shareholder who was not himself in defaultin supplying the information required by the notice and (a) thetransfer is of only part of his holding and (b) the transfer isaccompanied by a certificate in a form satisfactory to theDirectors stating that, after due and careful enquiries, theshareholder is satisfied that none of the shares included in thetransfer are Default Shares. |
Where the Default Shares represent 0.25% or more of the existing shares of a class, the Directors can, in their absolute discretion, by notice to the shareholder direct that (a) any dividend or other money which would otherwise be payable on the Default Shares shall be retained by the Company (without any liability to pay interest when that dividend or money is finally paid to the shareholder) and/or (b) the shareholder will not be allowed to choose to receive shares in place of dividends and/or (c) no transfer of any of the shares held by the shareholder will be registered unless one of the provisos specified above is satisfied.
3. Variation of rights
If the Company’s share capital is split into different classes of shares, subject to the relevant English law and unless the Articles or rights attaching to any class of shares provide otherwise, the special rights which are attached to any of these classes can be varied or abrogated as provided by those rights or approved by an extraordinary resolution passed at a separate meeting of that class. Alternatively, the holders of at least three-quarters of the existing shares of the class (by nominal value) can give their consent in writing.
Alteration of share capital
The shareholders can by ordinary resolutions (a) increase the Company’s authorised share capital, (b) consolidate, or consolidate and then divide, all or any of the Company’s share capital into shares of a larger nominal amount than the existing shares, (c) cancel any shares which have not been taken, or agreed to be taken, by any person at the date of the resolution, and reduce the amount of the Company’s share capital by the amount of the cancelled shares, and (d) subject to the relevant English law divide some or all of the Company’s shares into shares which are of a smaller nominal amount than is fixed in the Memorandum.
The shareholders can, subject to the relevant English law, pass a special resolution to (a) reduce the Company’s authorised share capital in any way or (b) reduce any capital redemption reserve, share premium account or other undistributable reserve in any way.
The Company can, subject to the relevant English law, buy back, or agree to buy back in the future, any shares of any class. However, if the Company has existing shares which are admitted to the Official List of the London Stock Exchange and which are convertible into equity shares, then the Company can only buy back equity shares of that class if either the terms of issue of the convertible shares permit the Company to buy back equity shares or the buy back or agreement to buy back has been approved by an extraordinary resolution passed by such holders.
Dividends
The shareholders can declare final or interim dividends by ordinary resolution. No dividend can exceed the amount recommended by the Directors. No interim dividend shall be paid on shares which carry deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. Unless the rights attaching to shares or the terms of any shares provide otherwise, dividends are paid based on the amounts which have been paid up on the shares in the relevant period.
The Directors can recommend the shareholders to pass an ordinary resolution to direct all or part of a dividend to be paid by distributing specific assets. The Directors must give effect to such a resolution.
If a dividend has not been claimed for one year, the Directors may invest the dividend or use it in some other way for the benefit of the Company until the dividend is claimed. Any dividend which has not been claimed for 12 years may be forfeited and belong to the Company if the Directors so decide.
Winding up
If the Company is wound up, the liquidator can, with the authority of an extraordinary resolution and any other sanction required by relevant law, divide among the shareholders all or part of the assets of the Company or transfer any part of the assets to trustees on trust for the benefit of the shareholders. No past or present shareholder can be compelled to accept any shares or other property under the Articles which carries a liability.
Rights of foreign shareholders
There are no limitations imposed by the relevant English law or the Articles on the rights to own securities, including the rights of nonresident or foreign shareholders to hold or exercise voting rights on the securities.
Notification of interest in shares
Section 198 of the Companies Act 1985 requires any shareholder, subject to exceptions, who acquires an interest of 3% or more or, in the case of certain interests, 10% or more in the shares to notify the Company of their interest within two business days following the day on which the obligation to notify arises. After the 3% or 10%, as the case may be, level is exceeded, similar notification must be made in respect of the whole percentage figure increases or decreases.
MATERIAL CONTRACTS
No contract other than those entered into in the ordinary course of business has been entered into in the two years preceding the date of this document by the Company or its subsidiary undertakings and is, or may be, material to the Company or the Group or has been entered into by the Company or its subsidiary undertakings and contains obligations or entitlements which are, or may be, material to the Group.
EXCHANGE CONTROLS
There are currently no UK exchange control laws, decrees or regulations that restrict or would affect the transfer of capital or payments of dividends, interest or other payments to US citizens or residents who are holders of the Company’s securities except as otherwise set out under ‘Taxation’ below.
TAXATION
The taxation discussion set out below is intended only as a general summary of the principal US federal and UK tax consequences to US holders (as described below) of ADSs and does not purport to be a complete analysis or listing of all potential tax consequences of owning ADSs. A ‘US holder’ is a beneficial owner of ADSs who holds the ADSs as capital assets and is one of the following: (a) a citizen or individual resident of the United States, (b) a corporation (or certain other entities taxable as corporations for US federal income tax purposes) organised under the laws of the United States or any state thereof, (c) an estate whose income is subject to US federal income tax regardless of its source, or (d) a trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more US persons have the
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authority to control all substantial decisions of the trust. If a partnership (or other entity treated as a partnership for US tax purposes) holds ADSs, the tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. Investors are advised to consult their tax advisers with respect to the tax consequences of their holdings and sales, including the consequences under applicable US state and local law. The statements of US and UK tax laws set out below, except as otherwise stated, are based on the laws in force, and the published practice of the UK tax authorities, as of the date of this report and accounts and are subject to any changes (which may have retrospective effect) occurring after that date in US or UK law or relevant practice.
The discussion is also based on the US-UK Income Tax Convention that entered into force on 31 March 2003, as amended by a Protocol signed on 19 July 2002 (the ‘Income Tax Convention’). US holders should note that certain articles in the Income Tax Convention limit or restrict the ability of a US holder to claim benefits under the Income Tax Convention. US holders should consult their own tax advisers concerning the applicability of the Income Tax Convention.
This discussion does not address all aspects of US federal income taxation that may apply to holders subject to special tax rules, including US expatriates, insurance companies, tax-exempt organisations, banks and other financial institutions, regulated investment companies, securities broker-dealers, traders in securities who elect to apply a mark-to-market method of accounting, persons subject to the alternative minimum tax, investors that own (directly, indirectly or by attribution) 10% or more of the outstanding share capital or voting stock of the Company, persons holding their ADSs as part of a straddle, hedging transaction or conversion transaction, persons who acquired their ADSs pursuant to the exercise of options or similar derivative securities or otherwise as compensation, or persons whose functional currency is not the US Dollar, among others. Those holders may be subject to US federal income tax consequences different from those set forth below.
For the purposes of the Income Tax Convention and the convention between the USA and UK for the avoidance of double taxation with respect to estate and gift taxes (the ‘Estate Tax Convention’) and for the purposes of the US Internal Revenue Code of 1986 as amended, as discussed below, a US holder of ADSs will be treated as the beneficial owner of the underlying ordinary shares represented thereby. Furthermore, deposits or withdrawals by a US holder of ordinary shares for ADSs, or of ADSs for shares, will not be subject to US federal income tax.
Taxation of dividends
UK taxation of dividends
Under current UK tax legislation, no UK tax will be withheld from dividend payments made by the Company.
US federal income taxation of dividends
The gross amount of dividends paid to a US holder of ADSs will be taxable as ordinary income. The amount to be included in gross income will be the US Dollar value of the payment at the time the distribution is actually or constructively received by the ADS Depositary. For foreign tax credit limitation purposes, dividends paid by the Company will be income from sources outside the United States. Pounds Sterling received by a US holder of ADSs will have a tax basis equal to the value at the time of the distribution. Any gain or loss realised on a subsequent sale or other disposition of the pounds Sterling will be US source ordinary income or loss. Special rules govern and specific elections are available to accrual method
taxpayers to determine the US Dollar amount to be included in income in the case of taxes withheld in a foreign currency. Accrual basis taxpayers therefore are urged to consult their own tax advisers regarding the requirements and elections applicable in this regard.
For purposes of computing allowable foreign tax credits for US federal income tax purposes, dividends paid will be treated as ‘passive income’ or for certain US holders, as ‘financial services’ income. For taxable years beginning 1 January 2007, dividend income generally will constitute ‘passive category income’, or in the case of certain US holders, ‘general category income’. Certain US holders (including individuals and some trusts and estates) are eligible for reduced rates of US federal income tax of a maximum rate of 15% in respect of ‘qualified dividend income’ received in taxable years beginning before 1 January 2011, provided that the US holder meets certain holding period and other requirements. The Company currently believes that dividends paid with respect to its ADSs will constitute qualified dividend income for US federal income tax purposes, however, this is a factual matter and subject to change. The Company anticipates that its dividends will be reported as qualified dividends on Form S1099–DIV delivered to US holders. US holders of ADSs are urged to consult their own tax advisers regarding the availability to them of the reduced dividend rate in light of their own particular situation and the computations of the foreign tax credit limitation with respect to any qualified dividends paid to them, as applicable.
The US Treasury has expressed concern that parties to whom ADSs are released may be taking actions inconsistent with the claiming of reduced rates in respect of qualified dividend incomes by US holders of ADSs. Accordingly, the analysis above of the availability of qualified dividend treatment could be affected by future actions that may be taken by the US Treasury.
TAXATION OF CAPITAL GAINS
A holder of ADSs will be liable for UK tax on capital gains accruing on a disposal of ADSs only if such holder is resident or ordinarily resident for tax purposes in the UK or if such holder carries on a trade, profession or vocation in the UK through a branch, agency or permanent establishment and the ADSs are used, held or acquired for the purposes of the trade, profession or vocation of the branch, agency or permanent establishment. Special rules can also impose UK capital gains tax on disposals by individuals who recommence UK residence after a period being non-resident or not ordinarily resident in the UK. US citizens or corporations who are so liable for UK tax may be liable for both UK and US tax in respect of a gain on the disposal of ADSs. However, such persons will generally be entitled to a tax credit against their US federal tax liability for the amount of the UK tax paid in respect of such gain (subject to applicable credit limitations).
For US federal income tax purposes, a US holder generally will recognise a capital gain or loss on the sale or other disposition of ADSs held as capital assets, in an amount equal to the difference between the US Dollar value of the amount realised on the disposition and the US holder’s adjusted tax basis, determined in US Dollars, in the ADSs. Such gain or loss generally will be treated as US source gain or loss, and will be treated as a long-term capital gain or loss if the US holder’s holding period in the ADSs exceeds one year at the time of disposition. In the case of a US holder who is an individual, capital gains, if any, will generally be subject to US federal income tax at preferential rates if specified minimum holding periods are met. The deductibility of capital losses is subject to significant limitations.
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US INFORMATION REPORTING AND BACKUP WITHHOLDING
A US holder who holds ADSs may in certain circumstances be subject to information reporting to the Internal Revenue Service (the IRS) and possible US backup withholding at a current rate of 28% with respect to dividends on ADSs and proceeds from the sale, exchange or other disposition of ADSs unless such holder furnishes a correct taxpayer identification number or certificate of foreign status and makes any other required certification, or is otherwise exempt from backup withholding. US persons who are required to establish their exempt status generally must provide IRS Form W-9 (Request for Taxpayer Identification Number and Certification). Non-US holders generally will not be subject to US information reporting or backup withholding. However, such holders may be required to provide certification of non-US status (generally on IRS Form W-8BEN) in connection with payments received in the US or through certain US-related financial intermediaries. Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against a holder’s US federal income tax liability. A holder may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS and furnishing any required information.
INHERITANCE TAX
ADSs held by an individual, who is domiciled in the US for the purposes of Estate Tax Convention and is not for the purposes of the Estate Tax Convention a national of the UK, will not be subject to UK inheritance tax on the individual’s death or on a transfer of the ADSs during the individual’s lifetime unless the ADSs form part of the business property of a permanent establishment situated in the UK or pertain to a fixed base in the UK used for the performance of independent personal services. In the exceptional case where ADSs are subject both to UK inheritance tax and to US federal gift or estate tax, the Estate Tax Convention generally provides for the tax paid in the UK to be credited against tax payable in the US or for the tax paid in the US to be credited against tax payable in the UK based on priority rules set forth in the Estate Tax Convention.
UK STAMP DUTY AND STAMP DUTY RESERVE TAX
No UK stamp duty will be payable on the acquisition or transfer of ADSs if there is no instrument of transfer. If there is an instrument of transfer then provided that the instrument of transfer is not executed in the UK and remains at all times outside the UK then in practice no UK stamp duty will be payable. An agreement to transfer ADSs in the form of ADRs will not give rise to a liability to stamp duty reserve tax.
The transfer of, and an agreement to purchase, ordinary shares, as opposed to ADSs, will normally give rise to a charge to UK stamp duty or UK stamp duty reserve tax at the rate of 0.5% of the price. Stamp duty and stamp duty reserve tax is generally the liability of the purchaser. If such ordinary shares are thereafter transferred to a depositary, further stamp duty or stamp duty reserve tax will normally be payable at the rate of 1.5% of the price payable for the ordinary shares so transferred.
A transfer of ordinary shares by a depositary by means of an instrument of transfer to the relevant ADS holder without transfer of beneficial ownership will in principle give rise to UK stamp duty at the rate of £5 per transfer. Transfers that are not sales will generally be exempt from the £5 stamp duty charge if made under the CREST system for paperless share transfers.
DOCUMENTS ON DISPLAY
All reports and other information that BG Group files with the SEC may be inspected at their public reference facilities at Room 1580, 100 F Street, N.E., Washington, DC 20549, USA. These reports may also be accessed via the SEC’s website at www.sec.gov
AUDIT COMMITTEE PRE-APPROVAL POLICY AND PROCEDURES
The Audit Committee annually agrees on a framework of non-audit activities, which are described with sufficient specificity to enable the Committee to ensure that the proposed activity will not compromise the independence of the external Auditors. For each activity, the Committee approves a budget for the financial year.
Accordingly, the Audit Committee is deemed to have given its pre-approval in respect of individual assignments where the fees fall within the agreed framework and agreed budget for that service. Pre-approval of assignments which are either outside the agreed framework, or are within the agreed framework but not within the agreed budget is delegated to the Audit Committee Chairman or, in his absence, any other member of the Committee. At each meeting, the Committee receives a list of all the non-audit services provided by the external Auditors, the specific nature of the work and the fees involved, for their review.
During 2006, 100% of Audit fees, 100% of Audit-related fees, 100% of Tax fees and 100% of all other fees for services provided to BG Group by PricewaterhouseCoopers LLP were approved by the Audit Committee pursuant to the pre-approval policy and procedures.
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| Notice of eighth Annual General Meeting of BG Group plc | | 145 |
The eighth Annual General Meeting (AGM) of BG Group plc (the ‘Company’) will be held in Hall 1 of the International Convention Centre, Birmingham B1 2EA on Monday, 14 May 2007 at 2.00pm for the transaction of the business set out below.
This Notice contains the resolutions to be voted on at the Company’s AGM. Resolutions 1 to 13 below are ordinary resolutions that will be passed if more than 50% of the votes cast are in favour of the resolutions. Resolutions 14 to 16 are special resolutions that will be passed if not less than 75% of the votes cast are in favour of the resolutions.
A poll will be called on each of the resolutions set out below.
Further details are set out in the explanatory notes.
ORDINARY RESOLUTIONS
Resolution 1
To receive the accounts and reports of the Directors and the Auditors for the year ended 31 December 2006.
Resolution 2
To approve the Remuneration report as set out on pages 59 to 69 of the BG Group Annual Report and Accounts for the year ended 31 December 2006.
Resolution 3
To declare a final dividend in respect of the year ended 31 December 2006 of 4.20 pence per ordinary share payable on 25 May 2007 to holders of ordinary shares on the register of shareholders of the Company at the close of business on 13 April 2007.
Resolution 4
To elect Philippe Varin as a Director of the Company.
Resolution 5
To re-elect William Friedrich as a Director of the Company.
Resolution 6
To re-elect Peter Backhouse as a Director of the Company.
Resolution 7
To re-elect Sir John Coles as a Director of the Company.
Resolution 8
To re-elect Paul Collins as a Director of the Company.
Resolution 9
To re-elect Lord Sharman as a Director of the Company.
Resolution 10
To re-appoint PricewaterhouseCoopers LLP as Auditors of the Company, to hold office until the conclusion of the next general meeting at which accounts are laid before the Company.
Resolution 11
To authorise the Audit Committee to determine the remuneration of the Auditors.
Resolution 12
That in accordance with Part XA of the Companies Act 1985 as amended (the ‘Act’), the Company and its wholly owned subsidiary BG International Limited each be and is hereby authorised:
| a) | to make donations to EU political organisations not exceeding £25 000 in total; and |
| |
| b) | to incur EU political expenditure not exceeding £25 000 in total; |
during the period commencing on the date of this resolution and ending on the date of the AGM of the Company in 2008.
For the purpose of this resolution, ‘donations’, ‘EU political organisations’ and ‘EU political expenditure’ have the meanings given to them in Section 347A of the Act.
Resolution 13
That the authority conferred on the Directors by Article 12.2 of the Company’s Articles of Association be renewed and for this purpose:
| a) | the Section 80 amount be £119 379 862; and |
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| b) | the prescribed period be the period ending on the date of the AGM of the Company in 2008. |
SPECIAL RESOLUTIONS
Resolution 14
That the Directors be empowered to allot equity securities (as defined in Section 94 of the Companies Act 1985 as amended (the ‘Act’)), entirely paid for in cash:
| a) | of an unlimited amount in connection with a rights issue (as defined in the Company’s Articles of Association); and |
| |
| b) | otherwise than in connection with a rights issue, of an amount up to £17 004 965, free of the restrictions in Section 89(1) of the Act provided that: |
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| | 1 | This document is important. If you are in any doubt about its content, you should consult an appropriate independent adviser. If you have sold or transferred all of your shares in BG Group plc, please send this document and all accompanying documents to the purchaser or transferee, or to the stockbroker, bank or other agent through or to whom the sale or transfer was effected so that they can be passed on to the person who now owns the shares. | | | (i) | copies of all Directors’ service contracts and letters of appointment; |
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| | | | | (ii) | the register of interests of the Directors in the share capital of the Company; and |
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| | | | | (iii) | the Memorandum and Articles of Association of the Company and the Articles of Association amended to reflect the changes proposed by Resolution 16. |
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| | 2 | The following documents, which are available for inspection during normal business hours at the registered office of the Company and at the offices of Herbert Smith LLP, Exchange House, Primrose Street, London, EC2A 2HS on any weekday (Saturdays, Sundays and public holidays excluded), will also be available for inspection at the place of the AGM from 1.00pm on the day of the Meeting until its conclusion: | | 3 | The Company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2001, specifies that only those holders of ordinary shares registered in the register of members of the Company as at 6.00pm on 12 May 2007 shall be entitled to attend or vote at the AGM in respect of the number of ordinary shares registered in their name at that time. Changes to entries on the register of members after 6.00pm on 12 May 2007 shall be disregarded in determining the rights of any person to attend or vote at the Meeting. |
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| 146 | Notice of eighth Annual General Meeting of BG Group plc continued |
| | (i) | this power shall expire on the date of the AGM of the Company in 2008 and is in substitution for all previous such powers, which shall cease to have effect from the date of this Resolution, without affecting the validity of any allotment of securities already made under them; and |
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| | (ii) | during that period, the Directors can make offers and enter into agreements that would, or might, require equity securities to be allotted after that period. |
In working out the maximum amount of equity securities for the purposes of paragraph (b) above, the nominal value of rights to subscribe for shares or to convert any securities into shares will be taken as the nominal value of the shares that would be allotted if the subscription or conversion takes place.
For the purposes of this Resolution:
| a) | | references (except in paragraph (b) below) to an allotment of equity securities shall include a sale of Treasury shares; and |
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| b) | | the power granted by this Resolution, insofar as it relates to the allotment of equity securities rather than the sale of Treasury shares, is granted pursuant to the authority under Section 80 of the Act conferred by Resolution 13. |
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Resolution 15
That the Company be generally and unconditionally authorised to make market purchases (within the meaning of Section 163(3) of the Companies Act 1985) of ordinary shares of 10 pence each of the Company (‘ordinary shares’) provided that:
| a) | | the maximum number of ordinary shares hereby authorised to be acquired is 340 099 309; |
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| b) | | the minimum price that may be paid for any such ordinary share is 10 pence, the nominal value of that share; |
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| c) | | the maximum price that may be paid for any such ordinary share is an amount equal to 105% of the average of the middle market quotations for an ordinary share as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which the share is contracted to be purchased; and |
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| d) | | the authority hereby conferred shall expire on the date of the AGM of the Company in 2008; but a contract for purchase may be made before such expiry, that will or may be executed wholly or partly thereafter, and a purchase of ordinary shares may be made in pursuance of any such contract. |
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Resolution 16
That the Articles of Association contained in the document produced to the meeting and signed by the Chairman for the purposes of identification be approved and adopted as the new Articles of Association of the Company in substitution for, and to the exclusion of, the existing Articles of Association, with effect from the conclusion of the 2007 AGM.
| Registered Office: | By order of the Board |
| 100 Thames Valley Park Drive | Ben Mathews |
| Reading | Company Secretary |
| Berkshire RG6 1PT | |
| | |
| Registered in England & Wales No. 3690065 | 3 April 2007 |
A shareholder entitled to attend and vote is entitled to appoint a proxy or proxies to attend and, on a poll, to vote instead of him/her. A proxy need not be a shareholder of the Company. Further details on how to appoint a proxy are given on page 149.
EXPLANATORY NOTES
In line with the recommendations by Paul Myners and the Shareholder Voting Working Group issued in January 2004 (the ‘Myners Report’), which the Company has met in full since 2004, voting at the Meeting will be by poll rather than by show of hands. The Chairman will invite each shareholder and proxy present at the meeting to complete a poll card indicating how they wish to cast their votes in respect of each resolution. In addition, the Chairman will cast the votes for which he has been appointed as proxy. Poll cards will be collected at the end of the meeting and the preliminary results declared. Once the results have been verified by the Company’s Registrar, they will be notified to the UK Listing Authority and published on the Company’s website.
Annual Report and Accounts (Resolution 1)
The Directors are required to lay before the Meeting the accounts of the Company for the financial year ended 31 December 2006, the Directors’ report, the Remuneration report and the Auditors’ report on the accounts and the auditable part of the Remuneration report.
Remuneration report (Resolution 2)
UK listed companies must put an ordinary resolution to shareholders at the AGM seeking approval of the Remuneration report. The vote is advisory in nature, in that payments made or promised to Directors will not have to be repaid in the event that the resolution is not passed.
Declaration of a dividend (Resolution 3)
A final dividend for the year ended 31 December 2006 of 4.20 pence per ordinary share is recommended by the Directors. A final dividend can be paid only after it has been declared by the shareholders at a general meeting. It is proposed that shareholders declare this dividend by passing Resolution 3. If so declared, the final dividend will be paid on 25 May 2007 to ordinary shareholders who were on the register of the Company at the close of business on 13 April 2007. ADS holders will be entitled to receive the US Dollar equivalent of £0.21 per ADS on 4 June 2007.
An interim dividend for the year ended 31 December 2006 of 3.0 pence per ordinary share was paid on 15 September 2006.
Election of Directors (Resolution 4)
The Company’s Articles of Association require any Director newly appointed by the Board to retire at the first AGM following their appointment.
Philippe Varin was appointed to the Board as a non-executive Director on 2 May 2006. He is a member of the Audit Committee and the Remuneration Committee. Biographical details of Philippe Varin are given on page 53. In reviewing the recommendation of the Nominations Committee concerning this election, the Board has concluded that Philippe Varin is independent in character and judgment, makes an effective and valuable contribution to the Board and demonstrates commitment to the role. The Board unanimously recommends his election.
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Re-election of Directors (Resolutions 5 to 9)
Directors are normally subject to re-election by shareholders every three years. Sir John Coles was first elected to the Board of BG plc at its AGM in April 1998 and therefore will have served on the Board for more than nine years at the date of the 2007 AGM. In accordance with provision A.7.2 of the Combined Code, he is subject to re-election on an annual basis. He was last re-elected at the 2006 AGM.
Biographical details of the Directors proposed to be re-elected, namely William Friedrich, Peter Backhouse, Sir John Coles, Paul Collins and Lord Sharman are shown on page 53. In reviewing the recommendation of the Nominations Committee concerning these re-elections, the Board has concluded that Peter Backhouse, Sir John Coles, Paul Collins and Lord Sharman are independent in character and judgment. In addition and, following its annual evaluation exercise conducted during the year, the Board considers that each of the Directors proposed for re-election continues to make an effective and valuable contribution and demonstrates commitment to the role. Accordingly, the Board unanimously recommends their re-election.
Re-appointment and remuneration of Auditors
(Resolutions 10 and 11)
The Company is required to appoint auditors at each general meeting at which accounts are laid before the Company, to hold office until the next such meeting. Following the recommendation of the Audit Committee, the Directors propose that PricewaterhouseCoopers LLP be re-appointed as Auditors of the Company. Resolution 11 proposes that the Audit Committee be authorised to determine the level of the Auditors’ remuneration.
Political donations (Resolution 12)
In accordance with its Business Principles, it is the Company’s policy not to make contributions to political parties. There is no intention to change this policy. Section 347A of the Companies Act 1985 (the ‘Act’) includes very broad definitions of ‘donations’ to ‘EU political organisations’ and of ‘EU political expenditure’ that may have the effect of covering a number of normal business activities that would not be thought to be political donations in the usual sense. To avoid any possibility of inadvertently contravening the Act, the Directors consider that it would be prudent to follow the procedure specified in the Act to obtain shareholder approval for the Company and BG International Limited each to make donations to EU political organisations of up to £25 000 and to incur EU political expenditure of up to £25 000 in the forthcoming year. BG International Limited is a wholly owned subsidiary of the Company and is the largest employer in the Group. This authority will not be used to make any political donations as that expression would have been understood before Part XA of the Act became law.
Authority to allot shares (Resolution 13)
The Directors are currently authorised to allot relevant securities. However, this authority terminates on the date of the 2007 AGM. This resolution proposes that such authority be renewed and that the Directors be authorised to allot up to 1 193 798 628 ordinary shares for the period ending on the date of the Company’s AGM in 2008. The authority represents 33 1/3% (excluding Treasury shares) of the share capital of the Company in issue at 26 March 2007 together with shares outstanding under BG Group’s option schemes. This amount complies with guidelines issued by investor bodies. The Directors have no present intention of issuing any relevant securities other than pursuant to employee share schemes.
Disapplication of pre-emption rights (Resolution 14)
The Directors are currently authorised to allot unissued shares for cash without first offering them to existing shareholders in
proportion to their holdings (a pre-emptive offer). However, this authority terminates on the date of the 2007 AGM. This resolution proposes that such authority be renewed and that the Directors be authorised to allot up to 170 049 654 ordinary shares for cash without a pre-emptive offer being made for the period ending on the date of the Company’s AGM in 2008. This authority will also cover the sale of Treasury shares for cash. The authority represents approximately 5% of the share capital in issue at 26 March 2007. BG Group does not intend to issue more than 7.5% of the issued share capital of the Company in any rolling three-year period. These amounts comply with guidelines issued by investors bodies.
Authority to make market purchases of own ordinary shares
(Resolution 15)
In certain circumstances, it may be advantageous for the Company to purchase its own ordinary shares and Resolution 15 seeks authority from shareholders to do so. The resolution specifies the maximum number of shares that may be acquired (10% of the Company’s issued ordinary share capital) and the maximum and minimum prices at which they may be bought.
Any shares purchased in this way will, unless the Directors determine that they are to be held as Treasury shares, be cancelled and the number of shares in issue will be reduced accordingly. Shares held in Treasury will not automatically be cancelled and will not be taken into account in future calculations of earnings per share (unless they are subsequently resold or transferred out of Treasury).
During September 2006, the Company completed the share repurchase programme announced in November 2005, repurchasing 149 million shares at an average price of £6.71 per share, and returning approximately £1 billion to shareholders. On 8 February 2007, the Company announced its intention to make market purchases of up to £750 million of shares and to hold these in Treasury. During the period 8 February 2007 to 26 March 2007, the Company purchased 13 280 000 shares representing 0.39% of the total share capital of the Company at a cost of £93 million (including dealing costs).
These shares are held in Treasury in accordance with Section 162(A) of the Companies Act 1985 and used to satisfy awards under the Long Term Incentive Scheme and Share Incentive Plan pursuant to Section 162(D) of that Act. No dividends are paid on and no voting rights attach to Treasury shares. Any Treasury shares sold by the Company will count towards the number of shares that, if Resolution 14 is passed, may be issued without offering them first to existing shareholders.
As the existing shareholder approval to purchase shares expires at the 2007 AGM, purchases after that date are subject to renewed shareholder approval at the AGM. The Directors will use the authority to purchase shares only after careful consideration, taking into account market conditions, other investment opportunities, appropriate gearing levels and the overall financial position of the Company. The Directors will only purchase such shares after taking into account the effects on earnings per share and the benefit for shareholders.
The total number of options to subscribe for ordinary shares outstanding at 26 March 2007 is 60.0 million. This represents 1.77% of the issued share capital at that date (excluding Treasury shares). If the Company bought back the maximum number of shares
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| 148 | Notice of eighth Annual General Meeting of BG Group plc continued |
permitted pursuant to the existing authority as well as the authority being sought by the passing of this resolution and cancelled them, then the total number of options to subscribe for ordinary shares outstanding at that date would represent 2.1 % of the issued share capital (excluding Treasury shares) as reduced following those repurchases. At 26 March 2007, there are no warrants to subscribe for ordinary shares outstanding. Adoption of new Articles of Association (Resolution 16)
The proposed new Articles of Association reflect those provisions of the Companies 2006 Act (the ‘2006 Act’) which have now been brought into force. In addition to the modifications following from the 2006 Act, it is also proposed that some amendments to the Articles of Association be adopted to reflect previous changes in legislation or to ensure consistency with the 2006 Act. Set out below is a summary of the main differences between the current and the proposed new Articles of Association. This summary has been prepared in order to assist shareholders in understanding the rationale for and substance of the proposed amendments. Although the new Articles of Association are in many respects largely unchanged from the current Articles of Association, the Directors recommend that shareholders pass a resolution to adopt new Articles of Association rather than to pass resolutions detailing each individual amendment in accordance with the Guidance on Electronic Communications with Shareholders 2007 issued by the Institute of Chartered Secretaries and Adminstrators. |
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| 1. | Definitions (Article 2) |
| Article 2.1 is amended to insert definitions of ‘the 1985 Act’, ‘the 2006 Act’ and ‘the Acts’ to cater for the fact that the 2006 Act is being brought into force, and the Companies 1985 Act (the ‘1985 Act’) is being repealed in stages between January 2007 and October 2008. Consequential amendments are made across the Articles of Association to reflect the inclusion of these new definitions. The definitions of ‘electronic communication’ and ‘electronic mail’ are deleted as they relate to provisions in the 1985 Act which were repealed in January 2007. Instead, the definitions of ‘electronic form’ and ‘electronic means’ are inserted to reflect the new terms under the 2006 Act. Article 2.19 in the proposed new Articles of Association clarifies that for the purposes of the Articles of Association information which is sent electronically or placed on a website by the Company is ‘in writing’. This clarification has led to certain consequential amendments to the Articles of Association. The meaning of hard copy is also set out for ease of reference. |
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| 2. | Notice of general meetings (New Articles 53.5, 53.6 and 53.7) |
The 2006 Act provides that when a company gives an electronic address in a notice of meeting or proxy, shareholders can automatically use that address for communications relating to that meeting or proxy. To reflect this, Article 53.5 in the proposed new Articles of Association has been added to permit this, subject to any conditions or limitations as are contained in the notice itself. The addition of Article 53.6 and the amendment to 53.7 in the proposed new Articles of Association deal with situations where, because of a postal strike or similar situation beyond the control of the Company, the Company is unable to send out hard copies of the notice of meeting or the hard copy notification that the notice of meeting has been placed on its website. This is to ensure that such failure to give notice does not invalidate the proceedings of the meeting. Similar wording has been added to proposed new Articles 54, 60.3, 138.1, and 147.7. |
| 3. | Requisition by Shareholders (New Article 53.8) |
| This Article has been amended to make clear that relevant requisitions by shareholders are to be made in hard copy. |
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| 4. | Disclosure of interests in shares (Article 71) |
| The provisions relating to the disclosure of interests in shares contained in the 1985 Act, including Section 212 on company investigation powers, were repealed in January 2007. Section 793 and related sections in Part 22 of the 2006 Act, which contain the corresponding company investigation powers previously contained in Section 212, were brought into force simultaneously. Article 71 is amended to reflect the replacement of Section 212 of the 1985 Act with Section 793 of the 2006 Act. |
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| The definition of ‘approved transfer’ in Article 71.9 is amended to refer to the definition of ‘takeover bid’ set out in Part 28 of the 2006 Act to replace the definition in the 1985 Act. This is because the definition in the 1985 Act is being repealed and replaced by that in the 2006 Act in April 2007. |
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| 5. | Electronic proxies (Articles 74.1 and 75.1) |
| As noted above, the 2006 Act provides that when a company has given an electronic address in a notice of meeting or proxy, the company is treated as having accepted that communications in relation to that meeting or proxy can be sent to that address. Article 74.1 is amended to enable the Company to receive appointments of proxies in electronic form, subject to any conditions or limitations which are specified in the notice of meeting. |
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| Article 75.1 has been amended to cater for the acceptance of electronic proxies. The old Article 75.2 has been deleted accordingly. |
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| 6. | Directors’ retirement age limit (Article 87) |
| The provisions relating to the 70 year age limit for directors in the 1985 Act are to be repealed in April 2007. Accordingly, Article 87 which deals with this is no longer necessary and is therefore being deleted. |
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| 7. | Accounts (New Articles 135.1 and 135.4) |
| The proposed new Article 135.1 has been amended to take account of the fact that the Company now reports under IFRS. |
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| The proposed new Article 135.4 has been amended to allow for copies of the accounts to be made available on the Company’s website. |
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| 8. | Breadth of information (New Articles 138 to 141) |
| The proposed new Articles of Association use the broad phrase ‘offer, notice, information or other document’ to make clear that the company can send anything to shareholders by the various methods set out in proposed new Article 138. |
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| 9. | Sending of notices, documents and information (New Articles 138.1, 138.2, 138.5 and 139) |
| The proposed new Article 138.1 updates the references to electronic mail to electronic form while clarifying that the method of delivery adopted by the Company on any one occasion shall not affect how it chooses to deliver information in future. It has also been amended to provide that documents may be made available on a website, provided the requirements in proposed new Article 138.2 are satisfied. |
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| As provided under the 2006 Act, the proposed new Article 138.2 allows the Company to ask each individual shareholder for his or her consent to receive communications from the Company via a website. This request for consent is being sent out to shareholders as part of the mailing containing this notice (see the enclosed Shareholder Consultation Card). If the shareholder does not respond to the request for consent within 28 days, the Company is entitled to take that as |
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| | | SHAREHOLDER INFORMATION |
| | | |
| | | 149 |
consent by the shareholder to receive communications in this way. When the Company makes a document available on its website, it must notify each shareholder who has consented (or is deemed to have consented) to receive documents via the website that the document is available on the website either by post or by email (if the shareholder has already agreed to receive documents electronically). A shareholder who has received a document electronically can request a hard copy of any document at any time. Shareholders can also revoke their consent to receive electronic communications at any time.
The proposed new Article 138.5 allows the Company to send hard copies of any notices, documents or information to any shareholder if it decides to do so. The reason for this is to allow the Company to send hard copies if it needs to restrict the circulation of information in certain circumstances, such as for US securities law reasons.
The proposed new Article 139 deals with the case of joint holders of shares and has been amended to provide that the agreement of the first-named holder on the register of members to accept notices, documents or information electronically or via a website will be binding on the other joint holders.
| 10. | Provisions about notices and deemed delivery (Articles 141.3, 141.4, 142, 144, and 145) |
| New Article 141.3 clarifies when information made available by electronic means is to be treated as delivered. |
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| New Article 141.4 has been added to clarify when information made available on a website is to be treated as delivered. |
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| The proposed new Article 142 has been amended to clarify that address includes postal addresses only and not electronic addresses. |
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| The proposed new Article 144, which deals with communications from the Company which are rejected, has been extended to cover communications in electronic form. The right for a shareholder to supply a new electronic address is without prejudice to Article 140, relating to shareholders with foreign addresses. |
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| Proposed new Article 145 is inserted to deal with the validation of documents supplied in electronic form by shareholders where those documents are required to be signed. |
Recommendation
Your Directors unanimously recommend that you vote in favour of all the above resolutions as they intend to do so themselves in respect of their own beneficial holdings.
Appointing a proxy
A proxy form is enclosed with this Notice and instructions for its use are shown on the form. Proxies must be submitted by 2.00pm on 12 May 2007 to Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6UT. Details of how to submit your proxy electronically are given below.
Electronic proxy voting
Shareholders may register the appointment of a proxy for the AGM electronically at www.sharevote.co.uk, a website operated by the Company’s Registrar, Lloyds TSB Registrars. Shareholders are advised to read the terms and conditions, shown on the website, relating to the use of this facility before appointing a proxy. Any electronic communication sent by a shareholder that is found to contain a computer virus will not be accepted. Electronic communication facilities are available to all shareholders and those who use them will not be disadvantaged in any way.
Electronic proxy appointment through CREST
CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the AGM to be held on 14 May 2007 and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf.
In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with CRESTCo’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID 7RA01) by 2.00pm on 12 May 2007. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means.
CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings.
The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001.
Summary of AGM business
A summary of the business carried out at the Meeting will be published on the Group’s website, www.bg-group.com
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| 150 | Cross-reference to Form 20-F |
| Item | | | | | Page |
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| 1 | | Identity of Directors, Senior Management and Advisers | | |
| | | Not applicable | | – |
| 2 | | Offer Statistics and Expected Timetable | | |
| | | Not applicable | | – |
| 3 | | Key Information | | |
| | | Four year financial summary (unaudited) | | 135 - 136 |
| | | Five year financial summary (unaudited) | | 137 |
| | | Risk factors | | 41 - 44 |
| 4 | | Information on the Company | | |
| | | Business Review | | |
| | | – | Operating review* | | 16 - 26 |
| | | Financial review | | |
| | | – | Summary | | 27 |
| | | – | Disposals, Re-measurements and Impairments | | 30 - 31 |
| | | – | Finance Costs | | 31 |
| | | – | Capital investment | | 31 - 32 |
| | | – | Financing | | 33 - 34 |
| | | Notes to the accounts | | |
| | | – | Note 2 (Segmental Analysis and Results Presentation-Capital Investment) | | 80 - 84 |
| | | – | Note 6 (Disposals, Re-measurements and Impairments) | | 91 - 92 |
| | | – | Note 10 (Earnings per Ordinary Share) | | 94 |
| | | – | Note 11 (Goodwill) | | 94 |
| | | – | Note 27(A) (Commitments and Contingencies – Capital Expenditure) | | 108 |
| | | Shareholder information | | |
| | | – | Headquarters andRegistered Office Address | | 138 |
| | | – | Agent for Service of Process in the USA | | 138 |
| | | Additional shareholder information | | |
| | | – | This Annual Report and Accounts Incorporates the US Form 20-F to History and Development of the Company | | 139 |
| | | Cautionary Note to Shareholders in Relation to Certain Forward-Looking Statements | | 153 |
| | | Business Review | | |
| | | – | Group overview to Operating Review | | 6 - 26 |
| | | – | Risk Factors | | 41 - 44 |
| | | Remuneration Report | | |
| | | – | Remuneration Policy | | 60 |
| | | – | Components of Remuneration – Long Term Incentive Scheme | | 61 - 62 |
| | | – | Performance Graph | | 64 |
| | | Additional Shareholder Information – Memorandum and Articles of Association | | 140 - 142 |
| | | Presentation of non-GAAP measures | | 152 |
| | | Cautionary note to shareholders in relation to certain forward-looking statements | | 153 |
| | | Notes to the accounts | | |
| | | – | Note 32 (Principal Subsidiary Undertakings, Joint Ventures and Associates) | | 127 - 128 |
| | | Corporate Responsibility | | |
| | | – | Environment | | 40 |
| | | Risk Factors – HSSE | | 43 |
| | | Notes to the accounts | | |
| | | – | Note 13 (Property, Plant and Equipment) | | 96 - 97 |
| | | – | Note 27(E) Lease Commitments | | 109 |
| | | Supplementary information – gas and oil (unaudited) | | 129 - 133 |
| | | Historical production (unaudited) | | 134 |
| 4A | | Unresolved Staff Comments | | |
| | | Not applicable | | – |
| 5 | | Operating and Financial Review and Prospects | | |
| | | Business Review | | |
| | | – | Financial review | | 27 - 36 |
| | | – | Risk Factors — Exchange Rate | | 42 - 43 |
| Item | | | | | Page |
|
|
|
|
|
|
| | | Notes to the accounts | | |
| | | – | Note 21 (Financial Instruments) | | 102 - 104 |
| | | – | Note 29 (Pensions and Post-Retirement Benefits) | | 111 - 116 |
| | | Presentation of non-GAAP measures | | 152 |
| | | Cautionary Note to Shareholders in Relation to Certain Forward-Looking Statements | | 153 |
| | | Business Review | | |
| | | – | Financial Review–Capital Investment to Financing | | 31 - 34 |
| | | Critical Accounting Policies | | 34 - 36 |
| | | Risk Factors—Commodity Prices to Credit | | 42 - 43 |
| | | Cash Flow Statements | | 78 |
| | | Notes to the accounts | | |
| | | – | Note 20 (Borrowings) | | 100 - 101 |
| | | – | Note 21 (Financial Instruments) | | 102 - 104 |
| | | – | Note 27 (Commitments and Contingencies) | | 108 - 110 |
| | | – | Note 30 (Cash Generated by Operations) | | 117 |
| | | – | Note 4 (Operating Costs) | | 85 - 86 |
| | | Business Review – Strategy and Future Prospects* | | 10 - 15 |
| | | Business Review — Operating Review | | 16 - 26 |
| | | Contractual Obligations — payments due by period | | 33 |
| 6 | | Directors, Senior Management and Employees | | |
| | | Corporate Governance | | |
| | | – | Board of Directors | | 52 - 53 |
| | | – | Group Executive Committee and Company Secretary | | 54 - 55 |
| | | Directors’ report | | 56 - 58 |
| | | Remuneration report | | 59 - 69 |
| | | Notes to the accounts | | |
| | | – | Note 5 (Directors and Employees) | | 86 - 90 |
| | | – | Note 29 Pensions and Post-Retirement Benefits | | 111 - 116 |
| | | Corporate Governance | | |
| | | – | Governance Framework | | 45 - 51 |
| | | – | Board of Directors | | 52 - 53 |
| | | – | Group Executive Committee and Company Secretary | | 54 - 55 |
| | | Business Review — Corporate Responsibility | | |
| | | – | Employees by location | | 38 |
| | | – | Employees by region | | 38 |
| | | – | Our people | | 38 - 39 |
| | | Notes to the accounts | | |
| | | – | Note 5(D) (Directors and Employees — Average Number of Employees During the Year) | | 87 |
| 7 | | Major Shareholders and Related Party Transactions | | |
| | | Directors’ Report | | |
| | | Substantial Shareholders | | 57 |
| | | Additional shareholder information | | |
| | | – | Major Shareholders | | 140 |
| | | Business Review – Financial review | | |
| | | – | Related Party Transactions | | 36 |
| | | Notes to the accounts | | |
| | | – | Note 14 (Investments) | | 97 - 98 |
| | | – | Note 28 (Related Party Transactions) | | 110 |
| 8 | | Financial Information | | |
| | | US Report of Independent Accountants – see item 18 of the Company’s Form 20-F filed with the US Securities and Exchange Commission | | |
| | | Financial review – Dividend and Return of Capital to Shareholders | | 34 |
| | | Consolidated income statements | | 74 - 75 |
| | | Consolidated statement of recognised income and expense | | 75 |
| | | Balance sheets | | 76 - 77 |
| | | Cash flow statements | | 78 |
| | | Notes to the accounts | | 79 - 128 |
| | | Five year financial summary (unaudited) | | |
| | | – | Annual Dividends | | 137 |
| Item | | | | | Page |
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| | | Directors’ report | | |
| | | – | Significant Events Subsequent to 31 December 2006 | | 56 |
| 9 | | The Offer and Listing | | |
| | | Additional shareholder information | | |
| | | – | Listing and Price History | | 140 |
| 10 | | Additional Information | | |
| | | Additional shareholder information | | |
| | | – | Memorandum and Articles of Association | | 140 - 142 |
| | | – | Material Contracts | | 142 |
| | | – | Exchange Controls | | 142 |
| | | – | Taxation | | 142 - 144 |
| | | – | Documents on Display | | 144 |
| 11 | | Quantitative and Qualitative Disclosures about Market Risk | | |
| | | Business Review – Financial review – Critical Accounting Policies – Financial Instruments to Commodity Instruments | | 35 - 36 |
| | | Risk factors – Commodity Prices to Credit | | 42 - 43 |
| | | Notes to the accounts | | |
| | | – | Note 21 (Financial Instruments) | | 102 - 104 |
| 12 | | Description of Securities Other than Equity Securities | | |
| | | Not applicable | | – |
| 13 | | Defaults, Dividend Arrearages and Delinquencies | | |
| | | None | | – |
| 14 | | Material Modifications to the Rights of Security Holders and Use of Proceeds | | |
| | | None | | – |
| 15 | | Controls and Procedures | | |
| | | Corporate Governance – Governance framework-Statements of Compliance | | |
| | | – | US Sarbanes-Oxley Act 2002 | | 46 |
| 16A | | Audit Committee Financial Expert | | |
| | | Corporate Governance – Governance framework – Board committee Reports – Audit Committee | | 48 |
| 16B | | Code of Ethics | | |
| | | Corporate Responsibility | | 37 |
| 16C | | Principal Accountant Fees and Services | | |
| | | See item 16C of the Company’s Form 20-F filed with the US Securities and Exchange Commission | | |
| | | Additional shareholder information | | |
| | | – | Audit Committee Pre-Approval Policy and Procedures | | 144 |
| 16D | | Exemptions from the Listing Standards for Audit Committees | | |
| | | Not applicable | | – |
| 16E | | Purchases of Equity Securities by the Issuer and Affiliated Purchasers | | |
| | | See item 16E of the Company’s Form 20-F filed with the US Securities and Exchange Commission | | |
| 17 | | Financial Statements | | |
| | | Not applicable | | – |
| 18 | | Financial Statements | | |
| | | US Report of Independent Accountants | | |
| | | – | see item 18 of the Company’s Form 20-F filed with the US Securities and Exchange Commission | | |
| | | Principal accounting policies | | 71 - 73 |
| | | Consolidated income statement | | 74 - 75 |
| | | Consolidated statement of recognised income and expense | | 75 |
| | | Balance sheets | | 76 - 77 |
| | | Cash flow statements | | 78 |
| | | Notes to the accounts | | 79 - 128 |
| 19 | | Exhibits | | |
| | | See item 19 of the Company’s Form 20-F filed with the US Securities and Exchange Commission | | |
| * | Disclosure relating to proved reserves replacement rates has been redacted and excluded from our Form 20-F filed with the US Securities and Exchange Commission. |
Back to Contents
| | | SHAREHOLDER INFORMATION |
| | | |
| Index | | 151 |
| Item | Page |
|
|
| Accountants’ fees and services | 85 |
| Additional shareholder information | 139 - 144 |
| American Depositary Receipts | 94, 138, 140 |
| American Depositary Shares | 34, 45, 68, 118, 121, 137, 144 |
| Annual General Meeting | 47 |
| Assets | 76 |
| Total | 76, 135 |
| Net | 76 |
| Assets held for sale | 99 - 100 |
| Associates | 82 - 83, 97, 127 - 128, 152 |
| Audit fees | 85 |
| Balance sheets | 76-77 |
| Four year financial summary | 135 |
| Basis of consolidation | 71 |
| Basis of preparation | 71 |
| Borrowings | 76, 100 - 101 |
| Business Combinations | 98 |
| Capital investment/expenditure | 31 - 32, 84 |
| Cash flow | 32 - 33, 78, 117 |
| Four year financial summary | 136 |
| Chairman’s statement | 2-3 |
| Charitable donations | 58 |
| Chief Executive’s statement | 4-5 |
| Commitments and contingencies | 108 - 110 |
| Committees | 48 |
| Community | 58 |
| Corporate governance | 45 - 55 |
| Corporate Responsibility | 37 - 40 |
| Cross-reference to Form 20-F | 150 |
| Debt/equity ratio | 136 |
| Decommissioning | 35, 71, 72 |
| Deferred taxation | 72, 76, 106 |
| Definitions | 153 |
| Depreciation and amortisation | 35, 71, 83 - 84, 85, 95 - 96, 117 |
| Derivatives | 76, 102 - 104 |
| Directors | 52 - 53, 86 |
| Directors’ report | 56 - 58 |
| Disposals, re-measurementsand impairments | 30 - 31, 74, 75, 91 - 92, 152 |
| Dividends | 34, 94 |
| Earnings per ordinary share | 31, 74, 75, 94, 135, 137 |
| Employees | 85, 86 - 90 |
| Equity | 77, 107 - 108 |
| Exchange rate information | 137 |
| Exploration and Production (E&P) | 6, 13 - 14, 16 - 19, |
| | 27 - 28, 80 - 81, 83 - 84 |
| Exploration expenditure | 28, 34 - 35, 72, 85 |
| Finance income and costs | 31, 74, 75, 92 |
| Financial instruments | 35 - 36, 72 - 73, 102 - 104 |
| Financial review | 27 - 36 |
| Five year financial summary | 137 |
| Foreign currencies | 72 |
| Four year financial summary | 135 - 136 |
| Future prospects | 12 - 13 |
| Gearing | 136 |
| Going concern | 58 |
| Item | Page |
|
|
| Goodwill | 71, 76, 94 |
| Governance framework | 45 - 51 |
| Group Executive Committee | 54 - 55 |
| Guarantees | 108 |
| Health, Safety, Security and Environment | 39 - 40 |
| Historical production | 134 |
| Independent Auditors’ report | 70 |
| Income statement | 74 - 75 |
| Five year financial summary | 137 |
| Four year financial summary | 135 - 136 |
| Internal Control Framework | 45, 50 - 51 |
| Impairments | 35 |
| Investments | 76, 97 |
| Accounted for using the equity method | 76, 97 |
| In subsidiary undertakings | 76 |
| Other | 76, 97 |
| Joint ventures | 82 - 83, 127 - 128 |
| Leases | 72, 101, 109 |
| Legal proceedings | 109 |
| Listing and Price History | 140 |
| Liquefied Natural Gas (LNG) | 7, 13 - 15, 20 - 22, 28 - 29, 80 - 84 |
| New accounting standards | 79 |
| Notice of AGM | 145 - 149 |
| Operating review | 16 - 26 |
| Operating costs | 85 - 86 |
| Operating profit/(loss) | 27 - 30, 74 - 75, 81 - 82 |
| Other activities | 25 - 26, 30, 80 - 81, 83 - 84 |
| Other intangible assets | 95 - 96 |
| Other operating income | 74 - 75, 81 - 82, 84 |
| Petroleum revenue tax | 93, 106 |
| Power | 7, 25 - 26, 29, 80 - 84 |
| Principal accounting policies | 71 - 73 |
| Property, plant and equipment | 76, 96 - 97 |
| Provisions for other liabilities and charges | 76, 105 |
| Related party transactions | 36, 110 |
| Remuneration report | 59 - 69 |
| Research and development | 73, 85 |
| Reserves | 77, 107 - 108 |
| Retirement benefit obligations | 76, 111 - 116 |
| Return on average capital employed | 136, 153 |
| Risk factors | 41 - 44 |
| Segmental analysis | 80 - 84 |
| Share capital | 77, 107 - 108 |
| Shareholder information | 138 - 144 |
| Statement of total recognised income and expense | 75 |
| Inventories | 72, 76, 98 |
| Strategy | 10-15 |
| Subsidiary undertakings | 127 |
| Substantial shareholders | 57 |
| Supplementary information – gas and oil | 129 - 133 |
| Suppliers | 58 |
| Taxation | 31, 74, 75, 93 |
| Trade and other payables | 76, 105 |
| Trade and other receivables | 76, 99 |
| Transmission and Distribution (T&D) | 7, 23 - 24, 29, 80 - 84 |
| US GAAP | 114 - 116, 118 - 126, 137 |
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| 152 | Presentation of non-GAAP measures |
BG Group gives certain additional information in a non-statutory format in order to provide readers with an increased insight into the underlying performance of the business. The measures BG Group uses are explained below.
Business Performance
‘Business Performance’ excludes disposals, certain re-measurements and impairments (see below) and is presented as exclusion of these items provides readers with a clear and consistent presentation of the underlying operating performance of the Group’s ongoing business.
BG Group uses commodity instruments to manage price exposures associated with its marketing and optimisation activity in the UK and US. This activity enables the Group to take advantage of commodity price movements. It is considered more appropriate to include both unrealised and realised gains and losses arising from the mark-to-market of derivatives associated with this activity in ‘Business Performance’.
Disposals, re-measurements and impairments
BG Group’s commercial arrangements for marketing gas include the use of long-term gas sales contracts. Whilst the activity surrounding these contracts involves the physical delivery of gas, certain UK gas sales contracts are classified as derivatives under the rules of International Accounting Standard (IAS) 39, ‘Financial Instruments: Recognition and Measurement’, issued by the International Accounting Standards Board and are required to be measured at fair value at the balance sheet date. Unrealised gains and losses on these contracts reflect the comparison between current market gas prices and the actual prices to be realised under the gas sales contract.
BG Group also uses commodity instruments to manage certain price exposures in respect of optimising the timing of its gas sales associated with contracted UK storage and pipeline capacity. These instruments are also required to be measured at fair value at the balance sheet date under IAS 39. However, IAS 39 does not allow the matching of these fair values to the economically hedged value of the related gas in storage (taking account of gas prices based on the forward curve or expected delivery destination and the associated storage and capacity costs).
BG Group also uses financial instruments, including derivatives, to manage foreign exchange and interest rate exposure. These instruments are required to be recognised at fair value or amortised cost on the balance sheet in accordance with IAS 39. Most of these instruments have been designated either as hedges of foreign exchange movements associated with the Group’s net investments in foreign operations, or as hedges of interest rate risk. Where these instruments represent effective economic hedging activities but cannot be designated as hedges under IAS 39, unrealised movements in fair value are recorded in the income statement.
Unrealised gains and losses in respect of long-term gas sales contracts, commodity instruments used to optimise the timing of gas sales associated with contracted UK storage and pipeline facilities and interest rate and foreign exchange exposure in respect of financial instruments which cannot be designated as hedges under IAS 39 are disclosed separately within ‘disposals, remeasurements and impairments'. Realised gains and losses relating to these instruments are included in Business Performance. This presentation best reflects the underlying performance of the business since it distinguishes between the temporary timing differences associated with re-measurements under IAS 39 rules and actual realised gains and losses.
BG Group has also separately identified profits and losses associated with the disposal of non-current assets and impairments of non-current assets as they require separate disclosure in order to provide a clearer understanding of the results for the period. For a reconciliation between the overall results and Business Performance and details of disposals, re-measurements and impairments, see note 2, page 80.
Joint ventures and associates
Under IFRS the results from jointly controlled entities (joint ventures) and associates, accounted for under the equity method, are required to be presented net of finance costs and tax on the face of the income statement. Given the relevance of these businesses within BG Group, the results of joint ventures and associates are presented before interest and tax, and after tax. This approach provides additional information on the source of BG Group’s operating profits. For a reconciliation between operating profit and earnings including and excluding the results of joint ventures and associates, see note 2, page 80, and note 10, page 94.
Exchange rates and prices
BG Group also discloses certain information, as indicated, at constant US$/UK£ exchange rates and upstream prices. The presentation of results in this manner is intended to provide additional information to explain further the underlying trends in the business. The disclosure recalculates the current year profit on the basis that the US$/UK£ exchange rate and the upstream commodity prices were the same as in the previous year – so providing a comparable base in respect of these two factors.
Net borrowings/funds
BG Group provides a reconciliation of net borrowings/funds and an analysis of the amounts included within net borrowings/funds as this is an important liquidity measure for the Group.
Return on average capital employed (ROACE) represents profit before tax (excluding disposals, re-measurements and impairments) plus net interest payable on net borrowings, as a percentage of average capital employed.
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| | | SHAREHOLDER INFORMATION |
| | | |
| Definitions | | 153 |
| For the purpose of this report the following definitions apply: |
| ‘$’ | US Dollars |
| ‘£’ | UK pounds Sterling |
| ‘ABI’ | Association of British Insurers |
| ‘ADR’ | American Depositary Receipt |
| ‘ADS’ | American Depositary Share |
| ‘AGM’ | Annual General Meeting |
| ‘Annual unit operating cost’ | Total production and operating costs for the yeardivided by net production for the year |
| ‘backfill’ | Resources that will refill or replace existingcapacity or resources, or satisfy existingcommitments |
| ‘bcf’ | Billion cubic feet |
| ‘bcfd’ | Billion cubic feet per day |
| ‘bcma’ | Billion cubic metres per annum |
| ‘BG’ or ‘BG Group’ | BG Group plc and/or any of its subsidiaryundertakings, joint ventures or associatedundertakings |
| ‘BG Energy Holdings | BG Energy Holdings Limited, a subsidiary of |
| Limited’ or ‘BGEH’ | BG Group plc |
| ‘billion’ or ‘bn’ | One thousand million |
| ‘boe’ | Barrels of oil equivalent |
| ‘boed’ | Barrels of oil equivalent per day |
| ‘bopd’ | Barrels of oil per day |
| ‘CPC’ | Caspian Pipeline Consortium |
| ‘CCGT’ | Combined Cycle Gas Turbine |
| ‘Combined Code’ | The 2003 Combined Code on Corporate Governanceissued by the UK Financial Reporting Council |
| ‘Company’ | BG Group plc |
| ‘CR’ | Corporate Responsibility |
| ‘CSOS’ | Company Share Option Scheme |
| ‘demerger’ | The demerger of certain businesses described inmore detail on page 139 (Additional shareholderinformation) |
| ‘DCQ’ | Daily Contracted Quantity |
| ‘EC’ | European Communities |
| ‘E&P’ | Exploration and Production |
| ‘EITF’ | Emerging Issues Task Force |
| ‘EPC’ | Engineer Procure Construct |
| ‘EPS’ | Earnings per Share is calculated by dividing theearnings for the financial year (excluding disposals,re-measurements and impairments) by theweighted average number of ordinary shares inissue and ranking for dividend during the year |
| ‘EPV’ | Estimated Present Value |
| ‘EU’ | European Union |
| ‘FAS’ | Financial Accounting Standard issued by the FASB |
| ‘FASB’ | Financial Accounting Standard Board |
| ‘FEED’ | Front End Engineering Design |
| ‘Financial Statements’ | The Group and parent company financial statements of BG Group plc for the year ended 31 December 2006 which comprise the consolidated income statement, the balance sheets, the cash flow statements, the consolidated statement of recognised income and expense, and the related notes |
| ‘GAAP’ | Generally Accepted Accounting Principles |
| ‘GASA’ | Gas Argentino S.A. |
| ‘Group’ | BG Group plc and/or any of its subsidiaryundertakings, joint ventures or associatedundertakings |
| ‘GW’ | Gigawatt |
| ‘HSSE’ | Health, Safety, Security and the Environment |
| ‘IAS’ | International Accounting Standard issued by theIASB |
| ‘IASB’ | International Accounting Standards Board |
| ‘IFRS’ | International Financial Reporting Standards issuedby the IASB and endorsed by the European Union |
| ‘km’ | Kilometres |
| ‘LNG’ | Liquefied Natural Gas |
| ‘LTIS’ | Long-Term Incentive Scheme |
| ‘m’ | Million |
| ‘Managed Volumes’ | Comprises all LNG volumes contracted forpurchase and having related revenue andother operating income recognised in theapplicable period |
| ‘mcmd’ | Thousand cubic metres per day |
| ‘mmbbl’ | Million barrels |
| ‘mmboe’ | Million barrels of oil equivalent |
| ‘mmbtu’ | Million British thermal units |
| ‘mmcm’ | Million cubic metres |
| ‘mmcmd’ | Million cubic metres per day |
| ‘mmscfd’ | Million standard cubic feet per day |
| ‘mmscm’ | Million standard cubic metres |
| ‘mmscmd’ | Million standard cubic metres per day |
| ‘mtpa’ | Million tonnes per annum |
| ‘MW’ | Megawatt |
| ‘NGV’ | Natural Gas Vehicle |
| ‘NYSE’ | New York Stock Exchange |
| ‘OECD’ | Organisation for Economic Co-operation andDevelopment |
| ‘PSA’ | Production Sharing Agreement |
| ‘PSC’ | Production Sharing Contract |
| ‘ROACE’ | Return on Average Capital Employed |
| ‘T&D’ | Transmission and Distribution |
| ‘three year proved reservesreplacement rate’ or ‘RRR’ | The three year average proved reservesreplacement rate is the total net proved reserveschanges over the three year period includingpurchases and sales (excluding production)divided by the total net production for that period |
| ‘underlying three yearproved reservesreplacement rate’ | The RRR excluding the impact of the 2006 yearend price adjustment on total net proved reserves |
| ‘Unit lifting costs per boe’ | ‘Unit lifting costs per boe’ is calculated by dividing‘unit operating expenditure’ as defined below,excluding royalty, tariff and insurance costsincurred over the period by the net production forthe period. Unit lifting costs as used in this ratiodo not represent “Production (Lifting) Costs” asdefined by FAS 19 and FAS 69 |
| ‘Unit operatingexpenditure per boe’ | ‘Unit operating expenditure per boe’ is calculatedby dividing Production costs (as defined by FAS 19and FAS 69) and royalties (Other operating costs inthe Supplementary information – Oil and Gasdisclosures) incurred over the period by the netproduction for the period. This measure does notinclude the impact of depreciation andamortisation costs and exploration costs as theyare not considered to be costs associated with theoperation of producing assets |
| ‘RPIX’ | Retail Price Index excluding mortgage interestrepayments |
| ‘SEC’ | The United States Securities and ExchangeCommission |
| ‘SID’ | Senior Independent Director |
| ‘SIP’ | Share Incentive Plan |
| ‘UKCS’ | United Kingdom Continental Shelf |
| ‘WDDM’ | West Delta Deep Marine |
| | | |
| | CAUTIONARY NOTE TO SHAREHOLDERS IN RELATION TO CERTAIN FORWARD-LOOKING STATEMENTS
This Annual Report and Accounts includes ‘forward-looking information’ within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. Certain statements included in this Annual Report and Accounts, including, without limitation, those concerning (a) strategies, outlook and growth opportunities, (b) positioning to deliver future plans and to realize potential for growth, (c) delivery of the performance required to meet other targets, (d) expectations regarding gas and oil prices, (e) development new markets, (f) the development and commencement of commercial operations of new projects, (g) liquidity and capital resources, (h) gas demand growth, (i) plans for capital and investment expenditure, (j) the economic outlook for the gas and oil industries, (k) regulation, (l) qualitative and quantitative disclosures about market risk and (m) statements preceded by ‘believed’, ‘due’, ‘expected’, intended’, ‘likely to’, ‘scheduled’, ‘targeted’, ‘planned’, ‘proposed’, or similar statements, contain certain forward-looking statements concerning the Group’s operations, economic performance and financial condition. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward-looking statements as a result of, among other factors, (a) changes in economic, market and competitive conditions, including gas and oil prices, (b) success in implementing business and operating initiatives, (c) changes in the regulatory environment and other government actions, including UK and international corporation tax rates, (d) a major recession or significant upheaval in the major markets in which the Group operates, (e) the failure to ensure the safe operation of the Group’s assets worldwide, (f) implementation risk, being the challenges associated with delivering capital intensive projects on time and on budget, including the need to retain and motivate staff, (g) commodity risk, being the risk of a significant fluctuation in gas and/or oil prices from those assumed, (h) fluctuations in exchange rates, in particular the UK£/US$ exchange rate being significantly different from that assumed, (i) risks encountered in gas and oil exploration and production sector in general and (j) business risk management. | |
| | | |
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