BG Group (Second quarter business highlights)


Bolivia
In July, BG Group sanctioned Phase II of the Margarita project. This follows on from the sanction of Phase I in 2010, where construction is underway and early production facilities are onstream. Production from the two phases and the early production facilities is expected to reach over 40 thousand barrels of oil equivalent per day net to BG Group by 2014. Net investment in Phase I is estimated at $164 million and Phase II at $250 million.

Brazil
In June 2011, BG Group issued a material reserves and resources upgrade for its interests in the pre-salt Santos Basin, offshore Brazil. Mean total reserves and resources are now estimated to amount to some 6 billion barrels of oil equivalent (boe) net to BG Group, with an upside potential of 8 billion boe net.

The mean total reserves and resources represents a doubling of BG Group's previous best estimate of 3 billion boe prevailing at the time of the Group's February 2010 Strategy Presentation. The aggregate range of total reserves and resources net to BG Group is from 4 billion boe (P90) to 8 billion boe (P10).

The Lula, Guará, Cernambi, Iara and Carioca fields account for 95% of BG Group's total reserves and resources in the Santos Basin.

The recent increase in BG Group's estimate of its reserves and resources in Brazil was based upon a wealth of drilling, appraisal and other new data. Importantly, this includes dynamic data showing much higher well deliverability and greater connectivity within the reservoirs allowing increased recovery per well.

In addition to improved reservoir characteristics and resource estimates, there has been significant progress on the cost front. Experience with tendering, construction progress and operations experience with FPSOs has given confidence in the cost and schedule for surface facilities. Meanwhile a substantial improvement in drilling performance in the first half of 2011 has provided greater confidence that anticipated drilling cost reductions will be achieved over future phases.

In summary, as a consequence of the above BG Group now expects:
· Higher flow rates and recovery per well;
· Earlier achievement of plateau production from fewer wells;
· Lower unit costs and higher unit value.

Significantly, BG Group expects that virtually all of the additional resources announced in June, contained within the Lula, Guará, Cernambi, Iara and Carioca fields, will be recovered from the same surface facilities envisaged in BG Group's field development plan prior to the resources upgrade. The incremental volumes are thus of a substantially higher value and result in significant unit cost reductions and higher unit value for the now increased total resources base.

Finally, during the quarter, BG Group took delivery of the oil tanker Windsor Knutsen which will be used to transport

BG Group's equity oil from Brazil. The Windsor Knutsen was converted from a conventional Suezmax tanker into the world's largest shuttle tanker, with the capacity to hold 1.1 million barrels of crude oil. First crude oil from the Lula FPSO has been lifted and is in transit to be delivered in August. BG Group has also committed to charter four further Suezmax shuttle tankers which are expected to be delivered in the period 2013 to 2014.

Egypt
In May, BG Group and its partner sanctioned Phase 8b, the next phase of investment in the West Delta Deep Marine Concession (WDDM) offshore the Nile Delta. This is one of a series of investments to maintain production from this concession that supplies gas for domestic and export needs. Phase 8b will bring seven additional wells onstream, allowing BG Group to meet its contracted gas commitments.

In 2011, BG Group, with its partners, also invested in WDDM development Phases 7 and 8a. The Phase 7 third pipeline came onstream in January with the compression project due onstream later this year. Phase 8a will bring onstream nine additional sub-sea wells. The first stage of drilling for Phase 8a has been completed with first gas expected in late 2011.

Kazakhstan
In June 2011, a fourth liquid stabilisation train at the Karachaganak Processing Complex was successfully put into operation. The start-up of the new oil processing facility raises the stabilisation and export capacity of the plant to 10.3 million tonnes of condensate per year.

Kenya
In May, BG Group announced it had signed Production Sharing Contracts with the Government of Kenya for two offshore exploration blocks - L10A and L10B. BG Group will be the operator of both blocks and will hold a 40% equity interest in block L10A and a 45% interest in block L10B. These blocks together cover an area of more than 10 400 square kilometres in the southern portion of the Lamu Basin. The initial work programme consists of a commitment to acquire seismic data during an initial two-year exploration period.

Norway
In June, the plan for development and operation of the Knarr field (previously known as Jordbær) was approved by the Norwegian Parliament. Production is scheduled to start in 2014. Knarr is an oil field in a water depth of 410 metres, situated in the Tampen North area in the Norwegian North Sea. Also in June, the lease and operate contract for the FPSO for the Knarr field was signed.

Tanzania
BG Group received approval from the Government of Tanzania to assume the role of Operator of Blocks 1, 3 and 4, offshore Tanzania, effective from 1 July 2011. To date, three successful exploration wells have been drilled. As part of the operatorship transition arrangements, BG Group has led a number of project activities over recent months in preparation for the next stage of the exploration and appraisal programme, scheduled to commence in late 2011.

USA
Progress in BG Group's shale gas operations continued to gather pace with production continuing to build-up and the 200th EXCO-operated Haynesville horizontal well being brought into production. During the quarter, 38 wells were spudded and 22 rigs were operating in the Haynesville, while 8 wells were drilled in the Marcellus shale.