BG Group Annual Report and Accounts 2015 BG Group Annual report and accounts 2015

NON-GAAP MEASURES looking statements. For a description of certain factors American Association of , World BG Group publishes certain additional information in a that may affect BG Group’s business, financial performance Petroleum Council and the Society of Petroleum Evaluation non-statutory format. Business Performance financial or results of operations, we urge you to look at the Principal Engineers, known as the SPE-PRMS, in accordance with information excludes discontinued operations, disposals, risks and uncertainties included in this Annual Report and recommendations issued by the European Securities and certain re-measurements and impairments and certain Accounts, see pages 14 to 16. For a description of certain Markets Authority (ESMA) and to achieve greater consistency other exceptional items, and is published in order to provide factors that may affect the business, financial performance across its reporting of reserves and resources. Prior to this, a clear and consistent presentation of the underlying or results of operations of the Shell Group (of which BG Group BG Group had voluntarily used the SEC definition of proved operating performance of the Group’s ongoing business. is now part) please refer to Shell’s latest regulatory filings, reserves and of probable reserves (from 2009), to report Unless otherwise stated, financial information for the Group in particular, Shell’s Annual Report on Form 20-F for the proved gas and oil reserves and disclose certain unaudited and its business segments presented in the Strategic Report year ended 31 December 2015. The Company undertakes supplementary information. is based on BG Group’s Business Performance results. See no obligation to update any forward-looking statements. Presentation of non-GAAP measures, page 79. See also BG Group has used gas and crude oil price forecasts that note 1, page 42, and note 8, page 53, for a reconciliation of the References in this report to other reports or materials, such are based on its reference conditions to determine reserves differences between Business Performance and Total Results. as a website address, have been provided to direct the reader estimates for the years ended 31 December 2013, 2014 and to other sources of BG Group information which may be of 2015. Therefore reserves (proved and probable) as at 31 LEGAL NOTICE interest. Neither the content of BG Group’s website nor any December 2015 are measured in accordance with SPE-PRMS Certain statements included in this Annual Report and website accessible by hyperlinks from BG Group’s website definitions and guidelines. This report also contains additional Accounts may contain forward-looking statements nor any additional materials contained or accessible thereon, information about other BG Group gas and oil reserves concerning BG Group’s strategy, operations, financial are incorporated in, or form part of, this report. and resources that would not be permitted in SEC filings. performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in During the period to which this report relates, BG Group Gas and oil reserves cannot be measured exactly since which the Group operates. By their nature, forward-looking was subject to the regulatory requirements of the Financial estimation of reserves involves subjective judgement. statements involve risk and uncertainty because they depend Conduct Authority of the . Therefore, all estimates are subject to revision. Changes on future circumstances, and relate to events, not all of which in gas and oil prices in fields subject to Production Sharing EXPLANATORY NOTE FOR US INVESTORS RELATING Contracts (PSCs) may result in changes to entitlements are within the Company’s control or can be predicted TO GAS AND OIL RESERVES AND RESOURCES by the Company. Although the Company believes that the and therefore proved reserves. From the year ended 31 December 2013, BG Group adopted expectations reflected in such forward-looking statements the reserves definitions and guidelines consistent with the For an explanation of the terms used in connection with are reasonable, no assurance can be given that such internationally recognised Petroleum Resources Management the reserves and resources information, see the Glossary, expectations will prove to have been correct. Actual results System published by the Society of Petroleum Engineers, page 80. could differ materially from those set out in the forward- 1 Contents STRATEGIC REPORT STRATEGIC REPORT Performance and operating 2 Introduction 11 Financial review information, principal risks faced, 4 BG Group’s performance 14 Principal risks and an overview of the 2015 6 2015 Business model and strategy and uncertainties business model and strategy. 7 Operating review 7 – 10 – LNG Shipping &

CORPORATE GOVERNANCE CORPORATE GOVERNANCE The 17 Board of Directors and the Group’s approach 18 Remuneration report to remuneration. 19 – Annual remuneration report 27 Other disclosures 30 Disclosure statement

FINANCIAL STATEMENTS Financial statements, notes 31 Independent auditor’s report 38 – Balance sheets and other key data. 32 Principal accounting policies 40 – Statements of changes in equity FINANCIAL STATEMENTS 36 Financial statements 41 – Cash flow statements 36 – Consolidated income statement 42 Notes to the accounts 37 – Consolidated statement of comprehensive income

ADDITIONAL INFORMATION 79 Presentation of non-GAAP measures 80 Glossary of terms

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 2 Strategic report Introduction

OVERVIEW DIVIDENDS LNG MARKETS In 2015, Exploration and Production (E&P) The final dividend of 14.37 cents per ordinary During 2015, LNG demand growth slowed in China, production volumes increased 16% primarily share ($499 million) in respect of the year ended and declined year-on-year in Asian markets. Europe as a result of the ramp-up of production in 31 December 2014 was paid on 22 May 2015 to (led by the UK), India and the new markets of Egypt, Australia, Brazil and Norway, and a higher share shareholders on the register at the close of business Jordan and Pakistan all increased shipments in 2015. of production in Kazakhstan, partly offset by lower on 24 April 2015. The interim dividend of 14.38 cents LNG supply in 2015 was up by around 7.5 million production in Egypt, , and the per ordinary share ($483 million) in respect of tonnes from 2014, coming in particular from UK. The LNG business increased delivered volumes the year ending 31 December 2015 was paid on Australia. LNG prices under long-term contracts by 63%, despite challenging market conditions. 11 September 2015 to shareholders on the register fell rapidly during 2015, given common linkages as at 14 August 2015. SHELL OFFER to lagged oil prices. Spot prices also declined over On 8 April 2015, the Boards of As the Effective Date of the Combination with 2015, driven by mild weather in North Asia and plc (Shell) and BG Group plc announced that Shell occurred prior to the record date for Shell’s Europe early in the year, the fall in oil prices, the they had reached agreement on the terms of a fourth quarter dividend (being 19 February 2016), economic slowdown in Asia and expansion recommended cash and share offer to be made BG Group shareholders were entitled to receive of supply. by Shell for the entire issued and to be issued share that Shell dividend and would not receive a further capital of BG Group plc (the Combination) to be BG Group plc dividend for 2015. On 4 February 2016, Sustainability effected by way of a court-sanctioned scheme of Shell announced a fourth quarter dividend of 47.00 arrangement under Part 26 of the Companies Act cents per Shell share (equivalent to 20.93 cents per In 2015, BG Group consolidated its core sustainability 2006 (the Scheme). BG Group share, based on the default consideration approach and activities under a single corporate of 383 pence in cash and 0.4454 Shell B shares for function, ‘Safety and Sustainability’. The Group Under the terms of the Combination, BG Group plc each BG Group plc share held). amended all of its sustainability policies to align with shareholders were entitled to receive, for each the new structure. The Safety and Sustainability BG Group plc share, 383 pence in cash and 0.4454 Market trends function reported to the Chief Executive, with Shell B Shares. additional oversight from the Board’s Sustainability On 27 January 2016, Shell shareholders voted to For market trends and factors that are likely to Committee. Reference is made to the GLossary approve the Combination and on 28 January 2016, affect the future performance of BG Group as part of terms on page 80 for the explanation of BG Group plc shareholders voted to approve of the Shell Group following the Effective Date, definitions applied. please refer to Shell’s latest regulatory filings, in the Scheme at a court-convened meeting and BG Group Life Savers continue to apply from Day 1 particular, Shell’s Annual Report on Form 20-F for to approve a special resolution to implement of the Combination as transition to Shell Life Saving the year ended 31 December 2015. the Scheme, including amendments to the Rules will be completed within one year. BG Group BG Group plc articles, at a general meeting GLOBAL ECONOMY assets and ventures continue to deliver to existing of BG Group plc. Modest – and less energy intensive – growth, BG Group Standards from Day 1, but all operated Following a court hearing on 11 February 2016, particularly among leading emerging markets assets should have risk-based ‘gap disclosure plans’ the Scheme became effective on 15 February 2016 such as China, was an important factor impacting against the Shell HSSE&SP Control Framework with (the Effective Date). energy markets during 2015. agreed, risk based dates to close the gaps within a year. These decisions were based on a high-level The USA experienced solid growth, particularly DELISTING AND RE-REGISTRATION gap assessment of the BG Group and Shell systems with respect to consumption, employment and the On 15 February 2016, the UK Listing Authority and standards. cancelled the listing of BG Group shares on the construction sector. However, industrial production premium listing segment of the Official List and weakened due to the lagged effects of the strong RESPONSIBLE OPERATOR the Stock Exchange cancelled the trading dollar and weaknesses in the wider global economy. Health, safety and security Safety remained BG Group’s highest priority in 2015. of BG Group shares on the ’s China endured a third year of slowing growth Safety performance improved, with the total main market for listed securities. – particularly in investment and manufacturing, recordable case frequency (TRCF) measure reducing despite a series of currency devaluations – as its On 30 March 2016, BG Group plc re-registered to 1.14 incidents per million work hours in 2015 from economy continued to rebalance. as a private limited company, BG Group Limited. 1.38 in 2014. However, five major (Tier 1) losses of Growth in Europe improved overall (from a primary containment were recorded. Three of these 2015 Operating performance low base), with employment and consumption incidents were considered high potential incidents. strengthening. However, industrial production These incidents were fully investigated with Through the course of 2015, BG Group continues to stagnate despite a weak euro. The lessons shared across the Group. commissioned each of the two LNG trains at crisis in Greece appears to have receded following QCLNG in Australia, assuming operational control The Group maintained its focus on the security a governmental agreement over the summer. and commencing full commercial operations of of employees and contractors, with enhanced Train 1 in May and Train 2 in November. The ramp OIL PRICES measures in the assets with security challenges, up of both LNG trains, together with the ramp up Oil prices began 2015 at $48/bbl (average monthly such as Egypt and Tunisia. Regular training and in Brazil of the fourth and fifth FPSOs and the spot price), and reached a high of $66/bbl in May. simulations were conducted across the Group start-up of the sixth FPSO, drove a strong E&P Having traded in a range of $45–$50/bbl for much to prepare for crisis situations. operational performance. E&P production volumes of the year, prices again deteriorated in November Human rights averaged 704 kboed, up 16% on 2014. The addition reaching $35–$37/bbl by late December. During 2015, BG Group published a public position of new low cash cost volumes in Australia and The weak price environment resulted from a classic to explain its approach to managing human rights Brazil and delivery of operating and capital cost imbalance of demand and supply. Key factors on issues. BG Group has a human rights policy, which savings helped partly to mitigate the impact of the supply side included robust production from is applicable across all countries in which the lower commodity prices. US shale and fields (despite the weaker Group operates. The LNG Shipping & Marketing business delivered price environment), and continued pursuit of 282 cargoes, 104 more cargoes than in 2014. The production maximisation by OPEC, led by increase included 77 cargoes from QCLNG. Saudi Arabia. On the demand side, weak growth and a structural slowdown in manufacturing and investment across major markets, such as China, contributed to modest demand growth, despite the low price environment.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 3

Ethical Conduct The calculation used to derive scope 1 (direct) GHGs prevention STRATEGIC REPORT During 2015, BG Group continued to assess from all emissions sources for 2015 was: GHG (or We have in place a wide range of precautionary and manage exposure to corruption and bribery CO2e) = CO2 + (CH4 x 25) + (N2O x 298). These are measures to ensure the risks of an oil spill are risks in existing operations and new ventures, the three Kyoto protocol gases relevant to the reduced to a level that is as low as reasonably as well as monitoring compliance with ethical Group’s businesses. BG Group’s 2014 reporting was practicable. Through the design, operation and conduct standards. based on the GWPs from the Second Assessment maintenance of our facilities, we work to achieve Report published by the International Panel on asset integrity, or the ability of our physical assets ENVIRONMENT AND Climate Change (IPCC). Consistent with updated UK to perform their required function effectively Climate change regulations, BG Group’s 2015 reporting is based on whilst safeguarding life and the environment. In 2015, BG Group focused on improving operational the GWPs from the Fourth Assessment Report. For All BG Group-operated wells have a management emissions performance through energy efficiency. example, as a result, GWP for methane increased system in place for well integrity, which is the (GHG) emissions from 21 to 25. The Group calculated scope 2 safety, reliability, efficiency and general fitness for Data in this section is reported on a 100% basis (indirect) CO2 emissions from electricity service of every well. These plans stipulate how in respect of activities where BG Group was the consumption in its operated businesses by applying well integrity will be managed throughout the operator and 50% of the data where it was joint a country-specific default emission (grid) factor lifecycle of a well with the aim of reducing the risk operator. BG Group reported from offices with from IEA CO2 Emissions from Combustion of uncontrolled releases or spills. more than 100 people and/or from those sites (2012 Edition), Electricity and Heat , IEA, During 2015, we continued the focus on well capable of influencing and monitoring GHG Paris. These were updated in the Group’s database integrity by updating the software that provides emissions. Reporting on this operational control on an annual basis. live data from all our wells to facilitate enhanced basis differs from that applied for financial The Group used emissions intensity per unit of management of well integrity and early detection reporting purposes in the “Consolidated Financial gross production (mmboe) as a ratio to relate of potential incidents. Statements” on pages 32 to 78. emissions to its activities. Emissions intensity is an Oil spill preparedness and response The BG Group scope 1 and 2 greenhouse gas (GHG) indication of the energy efficiency of a facility or We put in place measures to ensure that if a spill emissions from Group-operated businesses for 2015 process. This normalisation allows the Group to occurs it will be contained and not discharged to were 10.8 million tonnes (mt) CO2e and 1.3 mt CO2e, see whether its activities are more or less carbon the environment. All of our facilities or operations respectively, compared with 7.6 mt CO2e and 260 intensive. Gross production data includes gross that produce, store or transfer oil have an oil spill thousand tonnes (kt) CO2e, respectively in 2014. The upstream production, liquefaction and contingency plan which assesses the potential risks Group’s combined operated scope 1 and 2 GHG regasification volumes, electricity production, of oil pollution and outlines response procedures. emissions intensity for the year was 21.0 kt of CO2e shipping cargoes and throughput volumes from We also regularly train staff with pollution response per mmboe, compared with 19.8 kt CO2e per pipelines converted into mmboe using default roles and run drill exercises for the contractors mmboe in 2014, an increase of 6%. calculation values for all activities. who provide pollution response services in order The increase in GHG emissions intensity for Environmental management to practice oil spill response procedures. operated assets reflects the impact of lower In 2015, BG Group maintained 100% certification People and skills throughput from some operations, increased of its environmental management system to As at 31 December 2015, BG Group employed energy required to extract gas in maturing fields, ISO 14001 for its operated assets. The Group had 4 566 people worldwide. In 2015, the Group and increased emissions in Australia as a result no major environmental incidents, including no recruited 23 graduates to its Graduate of temporarily increased flaring of gas during major oil spills. Development Programme and actively managed the commissioning of the QCLNG project. POSITIVE SOCIO-ECONOMIC IMPACT university relationships to attract high-quality The Group reported in line with the GHG Protocol Transparency candidates. In 2015, 26% of the organisation Corporate Accounting Reporting Standard (2004) and BG Group continued to support transparency as a whole, 13% of senior management and the IPIECA Oil and Gas Industry Voluntary Guidance of payments to governments in 2015. The Group 23% of the Board was female. For further on Sustainability Reporting (2010). All of the Group’s remained committed to the Extractive Industries information on diversity, see page 17. operated and joint-operated businesses reported Transparency Initiative (EITI), a global standard quarterly on fuel use, flaring, venting and fugitives to promote accountable management of into a central environmental database to calculate natural resources. carbon dioxide (CO2), methane (CH4) and nitrous Social performance oxide (N2O) emissions. We assess potential social and economic impacts The Group used emission factors supplied by the and develop mitigation measures for planned or 2009 API Compendium wherever available, in line proposed projects, in consultation with stakeholders with good industry practice. These emission factors and local communities. Our approach to consultation were built into the calculations in the Group’s and engagement is transparent, inclusive and environmental reporting database as default culturally appropriate. It contributes to a wider goal values. While the Group used generic emission of developing broad community support for our factors as a default, it aimed to improve the presence in all locations where we operate. accuracy of calculations by inputting other Our community grievance mechanisms aim to information specific to the fuel and the facility provide a proactive and structured approach to in question, as different fuel compositions will receive, acknowledge, investigate, respond to result in different emission levels. and remedy grievances about our projects from affected stakeholders in a planned, timely and respectful manner.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 4 Strategic report The Group’s performance

BG Group identified both financial and non-financial key and cash-flow growth, return on average capital employed performance indicators (KPIs) it believed were useful in (ROACE) and earnings before interest, tax, depreciation and assessing the Group’s performance against its strategic amortisation (EBITDA) were adopted as additional KPIs for aims. Consistent with BG Group’s focus in 2015 on the business in 2015. improving return on capital and delivering earnings

EARNINGS BEFORE INTEREST, In 2015, Business Performance EBITDA LNG Shipping & Marketing EBITDA Earnings before interest, tax, depreciation TAX, DEPRECIATION AND decreased 39% to $5 633 million was down 46% to $1 456 million and amortisation (EBITDA) ($m) AMORTISATION (EBITDA) (2014: $9 176 million) primarily and included the impact of a greater 10 Business Performance EBITDA reflecting the significant fall in proportion of relatively lower margin 9 176 includes the post-tax results of commodity prices, impacting realised spot cargoes. 8 joint ventures and associates. sales prices, which were only partly For further information, see the offset by higher volumes in both 6 5 633 Financial review on pages 11 to 13. segments. Upstream EBITDA declined 35% to $4 167 million and included 4 the positive impact of the start-up 2 of liquefaction operations at QCLNG. 2014 2015

For the year ended 31 December.

EARNINGS PER SHARE (EPS) Business Performance EPS in 2015 $631 million in respect of disposals, Business Performance Business Performance EPS is the declined 58% to 49.7 cents re-measurements and impairments. earnings per share (cents) amount of earnings attributable (2014: 118.4 cents). The 39% reduction This included a $1 672 million gain 150 to each individual share in issue in EBITDA combined with increased from disposal of non-current assets, 124.9 128.9 128.6 118.4 and has been calculated by dividing depreciation, depletion and primarily in relation to the QCLNG 120 BG Group’s Business Performance amortisation (DD&A) costs and pipeline sale, and exceptional one-off earnings by the weighted average higher net finance costs were only and prior period taxation credits of 90 number of ordinary shares in issue partially offset by a reduction in the $692 million, partly offset by and ranking for dividend during Group’s effective tax rate from 37% $691 million of post-tax impairment 60 49.7 the financial year. to 24% (excluding BG Group’s share of charges and a net $659 million charge 30 joint ventures and associates’ results reflecting the impact of foreign and tax). exchange movements on deferred 2011 2012 2013 2014 2015 and current tax balances. Total Results EPS for 2015 was For the year ended 31 December. See note 8, page 53. 68.2 cents (2014: loss of 30.8 cents) For further information, see the and included a post-tax gain of Financial review on pages 11 to 13.

TOTAL SHAREHOLDER performance relative to its peers. The graph shows, for the past five Total shareholder return – RETURN (TSR) The Group’s TSR performance over a years, the annualised US Dollar TSR three-year average to 31 August (%) TSR is defined as the percentage three-year period was used, inter alia, of BG Group shares over a three-year 15 12.1 return on investment obtained from to determine vesting levels under the performance period and the 12 10.2 holding a company’s shares over Group’s Long-Term Incentive Plan corresponding average TSR of the 9 8.6 7.9 a period of time. It includes the (LTIP). For LTIP awards granted in early Group’s industry peers. For the 6 2.7 2.9 change in capital value of the shares, September, TSR performance was three-year period ending 31 August 3 0.7 dividends paid and other payments measured to 31 August. For further 2015, BG Group underperformed the 0 -1.4 made to or by shareholders. It was information, see the Remuneration weighted peer group index by 10.41% -3 -2.7 used to measure BG Group’s report on pages 18 to 26. per annum. For details of BG Group’s -6 -9 -7.9 TSR in Pounds Sterling relative to the 2011 2012 2013 2014 2015 FTSE 100 index see the TSR chart Peer group(a) (weighted average) on page 23. BG Group

(a) For constituents of the peer group, see page 22.

SAFETY In 2015, the Group’s TRCF further leadership across teams was a Total recordable case frequency Total recordable case frequency improved to 1.14, versus a target of key enabler of the improved safety (incidents per million work hours) (TRCF) measures the number of 1.20 and a 2014 performance of 1.38. performance, especially in the 2.5 incidents per million work hours This progress reflected good safety light of the ‘distraction’ risk 2.26 and is the headline indicator of performance in a number of assets for the workforce following the 2.0 1.92 the success of the Group’s safety but particularly in Australia during announcement of Shell’s intention 1.64 programmes, measuring the ratio the important phase of start-up of to acquire the entire issued and to 1.5 1.38 of injuries to working hours. the QCLNG project. Active and visible be issued share capital of BG Group. 1.14 1.0

0.5

2011 2012 2013 2014 2015

For the year ended 31 December.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 5 STRATEGIC REPORT

RETURN ON AVERAGE CAPITAL Business Performance ROACE in 2015 Return on average capital employed EMPLOYED was 4.6% (2014: 9.7%). The reduction (ROACE) (%) This measure represents Business reflects lower Business Performance 10 9.7 Performance earnings over the past results, mainly as a result of the 12 months, excluding net finance significant fall in commodity prices. 8 costs/income on net borrowings, as a percentage of average capital 6 employed over the past 12 months. 4.6 4

2

2014 2015

For the year ended 31 December.

PRODUCTION VOLUMES In 2015, E&P production was producing an average of 12 kboed Exploration and production The graph shows BG Group’s net 704 kboed, up 16% year-on-year. in the year. This growth was partially volumes (net) (kboed) production from all of its producing Growth was driven by Australia, offset by the expected decline in 800 E&P interests and is measured in Brazil and Norway. Volumes in Egypt, down 18 kboed to 44 kboed, 704 641 657 633 thousands of barrels of oil equivalent Australia more than doubled to combined with lower volumes in 606 600 per day (kboed). 88 kboed and in Brazil, increased Trinidad and Tobago, down 13 kboed 87% to 146 kboed. In Norway, to 52 kboed. Knarr continued to ramp up 400

200

2011 2012 2013 2014 2015

For the year ended 31 December.

TOTAL RESOURCES In 2015, BG Group’s total reserves Proved reserves at year-end 2015 Total reserves and resources (mmboe) The size of BG Group’s total reserves and resources decreased to were 3 512 mmboe giving a one year 18 511 17 771 and resources is a key determinant 16 220 mmboe. This corresponds to a reserves replacement ratio of 61% 18 000 17 130 17 016 of the Group’s ability to replace reduction of 3% excluding production. allowing for price effect. The Group 16 220 production and deliver production The Group’s proved and probable monetised 257 mmboe through growth in the future. It is measured reserves at year-end 2015 were production and additions and 12 000 in mmboe. From the year ended 6 028 mmboe. This represents a revisions to proved reserves were 31 December 2013 onwards, BG Group 4% year-on-year reduction 156 mmboe including price effect. 6 000 adopted the reserves definitions excluding production. This included technical revisions due and guidelines consistent with the to new data and field performance 2011 2012 2013 2014 2015 Petroleum Resources Management updates (126 mmboe increase), SEC SEC SPE- SPE- SPE- System published by the Society of extensions, discoveries and PRMS PRMS PRMS Proved reserves(a) Discovered resources(a) Petroleum Engineers (SPE-PRMS). reclassifications (3 mmboe decrease) Probable reserves(a) Risked exploration(a) and the net effect of price (a) For an explanation of these terms, refer to page 80. movements (33 mmboe increase). For the year ended 31 December.

LNG VOLUMES LNG delivered volumes in 2015 Liquefied delivered volumes This is a measure of the volume of were 17.9 mtpa compared to 11.0 mtpa (mtpa) 17.9 LNG that BG Group has delivered, in 2014, equating to 282 cargoes in 18 excluding fuel gas. The Group has 2015, 104 more cargoes than in 2014. a portfolio of flexible, long-term Increased supply included 77 cargoes 15 12.8 12.1 LNG supply, sourced from its own from QCLNG and 31 additional spot 12 10.9 11.0 liquefaction plants in Australia and cargoes, partially offset by four fewer Trinidad and Tobago, as well as from cargoes from the Group’s Atlantic 9 third-party suppliers in Equatorial Basin supply contracts. Of the 282 6 Guinea and . Delivered cargoes (2014: 178), 208 were supplied volumes also includes third-party to Asian markets (2014: 121). 3 spot purchases. It is measured in 2011 2012 2013 2014 2015 millions of tonnes per annum (mtpa). For more information on delivered volumes, see page 10.

For the year ended 31 December.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 6 Strategic report 2015 Business model and strategy

The strategy that the Board and HIGHLY COMPETITIVE LNG BUSINESS Actively manage the Group’s portfolio to reinvest Corporate Executive Team (CET) The Group was well positioned in growth: focused on delivering during 2015 to capitalise on the rapidly evolving ●● The Group was committed to monetising value through active portfolio management in order and up to the Effective Date of and growing LNG market, through to realise value from exploration and production the Combination is described below. its competitive advantage in (E&P) and LNG assets; and

For a description of the forward- commercialising gas and its ●● The objective was to have a focused and looking strategy applicable to the highly competitive LNG model. balanced portfolio and to accelerate growth. Group following Effective Date, please Prioritise value over production: refer to Shell’s latest regulatory filings, The Group’s LNG strategy created and delivered ●● The Group screened all projects rigorously in particular, Shell’s Annual Report value in three ways: and aimed to invest in those judged to be ●● Through a portfolio of competitively priced most capital-efficient; and on Form 20-F for the year ended supply sources and an attractive set of new 31 December 2015. supply options; ●● In 2015, the Group was coming to the end of a capital intensive phase that supported ●● Through a flexible portfolio that enabled the the ramp-up of QCLNG. Through 2015, the Group The Group’s strategy, up to Group to optimise these supply and market continued to invest in Australia and Brazil, while Effective Date, was driven by two positions to maximise value and ensure reliable reducing total capital investment partly to reflect distinctive capabilities: the Group’s supply for customers; and lower oil prices. world-class exploration and its ●● Through the Group’s market knowledge and Focused portfolio of high-quality assets: extensive customer relationships, which ● highly competitive LNG business. ● The Group was committed to value creation enabled the Group to build strong positions from its portfolio of high-quality businesses in higher-value, growing LNG markets. in upstream gas and oil, and in LNG; and

BG Group’s distinctive This knowledge of gas markets and skills across ●● The portfolio focused on growth assets, such capabilities the whole gas chain enabled the Group to unlock as Australia and Brazil, assets with high-value resources and connect them to markets. optimisation opportunities and material, mature WORLD-CLASS EXPLORATION assets that provided strong cash flow. From 2013, The Group’s exploration strategy, all producing assets were reviewed for strategic The Group’s Strategy fit and recommendations made to maximise which has been consistent for more value over the full life cycle. than 15 years, was in two parts. VALUE-DRIVEN EXPLORATION AND PRODUCTION AND LNG COMPANY Focus on areas where the Group had a competitive advantage: Existing areas ● World-class exploration and highly competitive ● In 2015, the Group completed the sale of its Where the Group was already actively operating LNG business: interests in the QCLNG pipeline in Australia that and/or exploring, it looked for new opportunities ●● Within exploration, the Group aimed to deliver followed the disposal of the CATS pipeline and by capitalising on: one new material opportunity on average associated infrastructure in the UK in 2014. ●● The Group’s detailed knowledge of local geology; each year; These were divested as they were not core businesses; and ●● The Group’s infrastructure already in place; and ●● In 2015, the Group restocked its exploration portfolio with acreage in Cyprus, Mongolia ●● The Group remained focused on areas where ●● The Group’s relationships with governments and and Canada. It also completed eight it had a distinctive competitive advantage others affected by or involved in its operations. conventional and three unconventional – particularly early stage origination and New basins Exploration & Appraisal (E&A) wells; discovery and across the LNG value chain. The Group sought large frontier acreage, where ●● Within LNG, the Group continued to use Lean and agile organisation: it could find giant gas and oil opportunities at a ● its flexible supply portfolio to grow and ● BG Group was a lean and agile organisation, relatively low cost of entry: deliver value; with strong commercial and technical abilities, ●● The Group had wide geological and technical simple processes and clear accountabilities; ●● In 2015, the Group achieved first LNG from expertise; ● QCLNG Train 2 and continued to ramp-up ● 2015 saw the appointment of Helge Lund ●● The Group had simple, consistent and robust production from Train 1, producing 83 cargoes as Chief Executive and an ongoing drive screening processes that enabled it to make from QCLNG through the year; and to rationalise and streamline decision making fast decisions and then establish positions and management structure; and ●● The Group also received Federal Energy rapidly; and ● Regulatory Commission (FERC) approval for ● Under Helge’s leadership, BG Group appointed ●● The Group’s people and culture were a key part Lake Charles LNG. a new Corporate Executive Team, embedded of its competitive advantage. new corporate values across the business and established a new operating model (including simplified procedures, a late-life asset model, and integrated performance model).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 7 Strategic report Operating review

UPSTREAM STRATEGIC REPORT

BUSINESS PERFORMANCE EBITDA In 2015, E&P production was 704 kboed, up PRODUCTION VOLUMES (kboed) 16% year-on-year. Growth was driven by Australia, Brazil and Norway. This growth was partially 2015 % 2014 % $4 167m offset by the expected decline in Egypt, combined Oil 205 29 136 22 2015: −35% with lower volumes in Trinidad and Tobago. The Liquids 91 13 86 14 2014: $6 453m Operating review provides an operational update on the major events and activities during 2015. Gas 408 58 384 64 Total 704 100 606 100 E&P VOLUMES 704 kboed 2015: +16% 2014: 606 kboed

AUSTRALIA

●● 2015 net production 88 kboed (2014: 34 kboed). LNG trains. Both trains have reached plateau, ●● In November, BG Group and partners announced ●● The Group is majority owner and operator of with output equivalent to around 8.0 million approval of a $1.4 billion (gross) development the two-train 8.5 million tonnes per annum tonnes per annum. programme, known as Charlie, as part of the Queensland Curtis liquefaction plant (QCLNG). ●● QCLNG produced 83 cargoes during 2015 and continuous development of tenements in the ●● Exploration and development of onshore delivered 77, primarily to the Group’s long-term Surat Basin to sustain gas supply to both seam gas (CSG) acreage in the Surat Basin. customers in Asia. domestic customers and to QCLNG. ●● BG Group has contracted third-party gas supplies ●● In June, BG Group completed the sale of 2015 Key events to maximise volumes through the the QCLNG pipeline, with gross proceeds ●● Following start-up of QCLNG Train 1 in LNG trains. During the ramp-up phase, less than of $4.6 billion received, which were used December 2014 and Train 2 in July 2015, 20% of gas supplied to QCLNG was from to reduce net debt. BG Group assumed operational control and third-party contracts, in line with expectations. commenced full commercial operations of both

BOLIVIA

●● 2015 net production 52 kboed (2014: 48 kboed). ●● BG Group is a member of the 2015 Key events ●● BG Group is operator and 100% holder of the Caipipendi (37.5% interest, containing the ●● In August, BG Group achieved record daily La Vertiente block (three fields), Tarija XX East Margarita field), Charagua (20% interest, net production in Bolivia, reaching 58.3 kboed. (two fields), Los Suris (one field) and the in the process of being relinquished) and ●● In October, BG Group commenced a seismic Huacareta block. Tarija XX West (25% interest, containing acquisition programme in the Huacareta block. the Itaú field) blocks.

BRAZIL

●● 2015 net production 146 kboed (2014: 78 kboed). production of around 63 kbopd was achieved with target depth in 2015 was 42 days, down from ●● BG Group holds significant acreage positions three producer and three injector wells connected. 52 in 2014 with six wells achieving the Group’s with interests in three offshore blocks in the ●● In the fourth quarter, the FPSO Cidade de 30 day spud-to-target depth objective. with permanent production Mangaratiba reached plateau production and ●● During the year, the Group farmed down facilities on the Lula, Iracema and Sapinhoá gross production averaged 130 kbopd from five 10% equity on four frontier exploration blocks discoveries. producer and five injector wells, while the FPSO in the Barreirinhas Basin. BG Group remains ●● Operator of 10 offshore exploration blocks in Cidade de Ilhabela averaged 87 kbopd with three operator with 65% equity in these blocks. the Barreirinhas Basin, offshore northern Brazil. producer wells and one injector well connected. ●● In April 2015, issued its final audited ●● In December, BG Group achieved record net 2014 financial statements, which included a 2015 Key events production from the Santos Basin, reaching write-off in respect of overpayments on the ●● The first three leased FPSO vessels continued 188 kboed from the six installed FPSO vessels. acquisition of property, plant and equipment to operate at around plateau oil production Across the Santos Basin, BG Group had 25 wells incorrectly capitalised according to testimony through 2015. in production which flowed at an average rate obtained as part of the Lava Jato investigations. ●● In July, the sixth FPSO, Cidade de Itaguaí, started of around 26 kbopd (gross). The impact of this write-off on BG Group’s up. During the fourth quarter, average ●● Drilling performance for development wells various interests remains unknown. continued to improve. The average spud-to-

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 8 Strategic report Operating review > continued

EGYPT

●● 2015 net production 44 kboed (2014: 62 kboed). 2015 Key events the Egyptian authorities and other stakeholders ●● Operatorship of two gas-producing areas ●● Production volumes in Egypt were significantly to seek a long-term solution, including the offshore the Nile Delta – Rosetta and West lower in 2015 due to continued reservoir decline. repayment of $1.1 billion owed by the Egyptian Delta Deep Marine (WDDM) concessions. ●● All nine of the WDDM Phase 9a development government ($0.9 billion overdue at 2015 year ●● BG Group holds major shareholdings in the wells are now onstream. The nine-well end) and negotiation of an acceptable domestic Egyptian LNG project (Train 1 at 35.5% and development has only temporarily offset gas price. Train 2 at 38%). underlying gas production declines. ●● The Force Majeure notices issued in January 2014 ●● BG Group remains committed to its Egyptian under the Group’s LNG agreements in Egypt LNG business and will continue to negotiate with remain in place.

INDIA

●● 2015 net production 16 kboed (2014: 18 kboed). 2015 Key events ●● Limited filed a draft prospectus ●● BG Group holds a 30% interest in, and is joint ●● BG Group exited the deep water exploration with the Securities Exchange Board India in operator of, the Panna/Mukta oil and gas fields block MB-DWN-2010/1 having fulfilled all November 2015 in preparation for a potential and the Mid and South Tapti gas fields necessary contractual obligations. initial public offering. (PMT fields).

KAZAKHSTAN

●● 2015 net production 92 kboed (2014: 85 kboed). 2015 Key events Agreement from 2023 to January 2038. This ●● Joint operator of the Karachaganak oil and gas ●● Gross production in 2015 reached an average of agreement helps extend the liquid production condensate field (BG Group 29.25%), one of the 389 kboed. With the decline in oil prices during plateau into the next decade and underpins the largest condensate fields in the world. the year, production sharing contract (PSC) implementation of the next phase of effects increased BG Group’s net entitlement. development, which partners are looking to ●● In June, the Karachaganak partners agreed a progress into front-end engineering and design. 15-year extension to the Karachaganak Gas Sales

NORWAY

●● 2015 net production 13 kboed (2014: 1 kboed). 2015 Key events ●● BG Group has eight licences, five as operator. ●● Production through the Knarr FPSO (63 kboed gross capacity, BG Group 45% and operator), commenced in March 2015 and ramped up through the year, producing 27 kboed (net) in the fourth quarter.

THAILAND

●● 2015 net production 41 kboed (2014: 39 kboed). ●● Operator of Blocks 7, 8 and 9 (66.67% interest) in 2015 Key events ●● 22.22% interest in the Bongkot field. The field the -Cambodia Overlapping Claims Area. ●● In the second quarter, first gas was achieved supplies over 25% of Thailand’s gas demand. ●● BG Group holds an overriding royalty agreement from Greater Bongkot North Phase 3M. over Block 9a. ●● In the third quarter, first gas was achieved from Greater Bongkot South Phase 4C.

TRINIDAD AND TOBAGO

●● 2015 net production 52 kboed (2014: 65 kboed). ●● BG Group holds major shareholdings start-up of the Starfish field in December 2014 ●● Three concessions with fields currently in all four trains of the Atlantic LNG project. where production has been lower than producing – Central Block, East Coast anticipated with only one development well Marine Area (ECMA) and North Coast 2015 Key events now on production, and at the field Marine Area (NCMA). ●● During the third quarter, BG Group revised where decline rates have been higher ●● Exploration activities in Blocks 5(a), 5(c), 5(d), downwards its proved and probable reserves than expected. 6(b), 6(d) and E, and Atlantic Area Blocks 3, 5, 6 in Trinidad and Tobago. This revision follows the and 7.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 9 STRATEGIC REPORT

TUNISIA

●● 2015 net production 30 kboed (2014: 32 kboed). ●● BG Group is the largest gas producer in Tunisia, 2015 Key events ●● BG Group holds the Miskar and Hasdrubal supplying more than 65% of domestic gas ●● A two well rig workover and a three well rigless concessions, in the Gulf of Gabès. BG Group is production. stimulation campaign was conducted on operator and owns 100% of the Miskar field and Miskar. operates the Hasdrubal field on behalf of a 50%-owned joint-venture.

UK

●● 2015 net production 97 kboed (2014: 105 kboed). 2015 Key events ●● The Armada and Everest fields were shut ●● BG Group holds extensive interests focused ●● First production from the West Franklin in for the duration of the first quarter as a in the UK’s central , including a Phase 2 development was achieved in January result of repairs to a valve on the CATS Riser number of operated production hubs (Armada, 2015. The project consists of three wells and Tower which had shut in the main gas export Everest and Lomond) and exploration and installing a new well head platform tied-back route. Production from Lomond and Erskine appraisal interests, with minor interests to existing facilities. The project delivered was also shut in during the quarter due to the in pipeline and processing facilities. 8 kboed (net) production from two wells, extensive asset integrity programme on the ●● BG Group participates in ventures operated with drilling of the third well underway. Lomond platform. Armada and Everest were by others including Buzzard, Elgin/Franklin, successively brought back onstream in April. J-Block and Jasmine. Lomond and Erskine came back onstream later in the second quarter.

USA

●● 2015 net production 33 kboed (2014: 39 kboed). 2015 Key events ●● BG Group develops in east / ●● Production declined during 2015 as a result north Louisiana (Haynesville and Bossier) of a reduced level of drilling activity due to and Pennsylvania/West Virginia (Marcellus). the continued low gas prices. At year end 2015, three rigs were operating.

DISCOVERIES AND EXPLORATION In Canada, BG Group acquired five adjacent of gas to Egypt where BG Group holds equity in ACREAGE/NEW DEVELOPMENTS non-operated positions offshore Newfoundland the two-train LNG export facility at Idku as well with equity stakes of 10% in blocks EL 1125 and as LNG offtake rights to lift 3.6 million tonnes EL 1126, 25% in blocks EL 1123 and EL 1139 and 30% per annum. During 2015, BG Group entered three new basins, in block EL 1138. advanced its opportunity set by undertaking and In Mongolia, BG Group farmed in to Blocks IV and V, analysing seismic data, improved its understanding In Cyprus, BG Group signed a farm-in agreement acquiring a 78% interest in each. These blocks of its interests through drilling exploration and to acquire a 35% holding in Block 12 offshore Cyprus, cover approximately 28 900 square kilometres and appraisal wells and high-graded the opportunity which includes the Aphrodite gas discovery. This 21 100 square kilometres, respectively. A 2D seismic set through exiting or relinquishing licences. upstream position provides a potential source acquisition programme commenced during the year.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 10 Strategic report Operating review > continued

LNG SHIPPING & MARKETING

LNG SUPPLY SOURCES AND DESTINATIONS 2015

SOURCE 2015 2014 BUSINESS PERFORMANCE EBITDA In 2015, delivered LNG volumes totalled 17.9 million tonnes (mt), an increase of 63% over 2014. This Atlantic LNG 54 56 growth was due to new supplies from the Group’s Egyptian LNG 0 1 $1 456m QCLNG project in Australia and an increase in Equatorial Guinea 57 55 spot cargo purchases, partially offset by slightly 2015: –46% Nigeria 35 38 2014: $2 683m fewer cargoes from the Group’s Atlantic Basin supply contracts. The Operating review provides QCLNG 77 0 an operational update on the major events and Spot purchases 59 28 LNG DELIVERED VOLUMES activities during 2015. Total 282 178

17.9mt DESTINATION 2015 2014 2015: +63% Asia 208 121 2014: 11.0mt Europe and other 11 9 North America 5 4 South America 58 44 Total 282 178

SUPPLY AND MARKETING

●● BG Group sources LNG from its equity projects 2015 Key events ●● In December, the Lake Charles LNG project in Australia and Trinidad and Tobago, together ●● Delivered LNG volumes increased in 2015 due received approval from the US Federal Energy with long-term purchases from third-party to new supplies from the Group’s QCLNG project Regulatory Commission to construct and projects in Equatorial Guinea and Nigeria in Australia (77 cargoes) and an increase in spot operate a gas liquefaction and export facility and numerous spot market opportunities. purchases (an additional 31 cargoes). In total, in Lake Charles, Louisiana. The project has ●● BG Group is engaged in marketing LNG BG Group delivered 282 (2014: 178) cargoes conditional authorisation from the US to buyers throughout the world, both to 19 (2014: 17) countries during the year. Department of Energy for the export of on a long-term and short-term basis. 74% of cargoes were delivered to Asian markets up to 2 billion cubic feet of gas per day or The combination of flexible supply, shipping in 2015 (2014: 68%) and the Group delivered approximately 15 million tonnes of LNG capacity and commercial capability enable cargoes to three new markets (Egypt, Jordan per annum. BG Group’s strategic approach to LNG and Pakistan) during the year. ●● Supply under three long-term sales contracts marketing. In addition to marketing its own began in 2015: the 20-year sale of 5.0 million committed portfolio of volumes, BG Group tonnes per annum to CNOOC, 1.2 million tonnes also buys and sells spot LNG cargoes. per annum to Tokyo Gas and up to 2.5 million ●● BG Group has regasification capacity at the tonnes per annum to GSPC. Lake Charles and Elba Island terminals in the USA, the Dragon LNG terminal in the UK and Singapore LNG.

LNG SHIPPING 2015 Key events ●● BG Group has a core fleet of LNG ships that ●● In March, BG Group completed the sale of two it owns or has under charter. In addition, the of its LNG ships for proceeds of $460 million, Group contracts additional shipping as required as announced in December 2014. BG Group on a short or medium-term basis to capture will charter back the two vessels for nine and business opportunities and maintain a eleven years, respectively, with further options balanced shipping position. to extend the term for each vessel by either three or five years.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 11 Strategic report Financial review

2015 Financial Highlights* In 2015, BG Group’s revenue and other operating Total Results earnings of $2 328 million profit STRATEGIC REPORT income decreased 16% to $16 419 million, reflecting (2014: $1 051 million loss) and EPS of 68.2 cents ●● Lower commodity prices impacted financial the significant fall in realised sales prices impacting (2014: loss per share of 30.8 cents) increased, mainly results both the Upstream and LNG Shipping & Marketing reflecting lower non-cash post-tax impairment –– Upstream EBITDA** $4 167 million, down 35% segments. The impact of lower prices was partly charges of $691 million (2014: $5 928 million) partly offset by higher volumes in both segments, the offset by lower Business Performance earnings. –– LNG Shipping & Marketing EBITDA start-up of liquefaction operations at QCLNG and Impairments in 2015 primarily reflected the impact $1 456 million, down 46% weather-related gains in North America in the LNG of further falls in commodity prices and reserves ●● Business Performance earnings $1 697 million; Shipping & Marketing segment. E&P production revisions on certain of BG Group’s E&P assets, EPS 49.7 cents; both down 58% volumes were up 16% and LNG delivered volumes mainly in the North Sea and Tunisia. Impairments were up 63%. in 2014 were mainly driven by the significant fall ●● Total Results earnings of $2 328 million; in global commodity prices, primarily impacting Total Results EPS 68.2 cents EBITDA decreased 39% to $5 633 million. In the the Group’s Upstream assets in Australia, Egypt, Upstream segment, EBITDA fell 35% to $4 167 million ●● Capex down 32% to $6 387 million; cost and the North Sea and Tunisia. primarily reflecting the lower revenues, partly efficiency savings of $300 million achieved offset by the increased liquefaction contribution Net cash flow from operating activities deteriorated ●● Free cash outflow** of $2 408 million, down from QCLNG. In the LNG Shipping & Marketing by $3 096 million to $4 303 million as a result of 8%; lower net cash flow from operating segment, EBITDA fell 46% to $1 456 million as lower Business Performance EBITDA and lower activities offset by lower capex margins reduced through a combination of lower working capital inflows, partially offset by lower sales prices and a greater proportion of relatively tax payments. Capital investment on a cash basis ●● Gross disposal proceeds of $5 186 million; lower margin spot cargoes. was 32% lower at $6 387 million and was net cash inflow before dividends and financing predominately focused on key projects in Australia of $3 363 million EBIT decreased by $3 948 million to $2 429 million, and Brazil. In 2015, the Group realised gross cash reflecting the reduction in EBITDA combined with ●● No final 2015 BG Group dividend proceeds of $4.6 billion associated with the sale increased DD&A charges, which resulted from of QCLNG Pipeline Pty in Australia, which were * Unless otherwise set out in this Financial review, financial higher E&P production volumes and the start-up used to reduce net debt. The Group also realised information for BG Group is based on the Group’s Business of QCLNG. Performance. For a reconciliation between Business Performance proceeds of $460 million from the sale and charter and Total Results, see note 1, page 42 and note 8, page 53. Total Net finance costs of $260 million back of two LNG ships, the majority of which were Results earnings and EPS figures set out in this Financial review are the Group’s Total Results for continuing operations including (2014: $109 million) increased, reflecting the used to support the funding of the BG Pension disposals, certain re-measurements and impairments. reduction in the amount of interest on borrowings Scheme, with $119 million used to reduce net ** See Glossary, page 80. that can be capitalised against assets under debt. As a result, the Group ended the year with construction following the start-up of QCLNG. $7 200 million of cash and cash equivalents and The tax charge for the year reduced to $472 million lower gearing of 25.3% (2014: 29.2%). and reflects the lower profit before tax and a reduction in the Group’s effective tax rate DIVIDEND (excluding BG Group’s share of joint ventures and BG Group plc shareholders were paid an interim associates’ results and tax) to 24.0% (2014: 36.9%). dividend in respect of the six-month period up to 30 June 2015 of 14.38 cents (9.22 pence) per Group earnings of $1 697 million and EPS of BG Group plc share on 11 September 2015. Following 49.7 cents both decreased 58%, with the reduction the Combination with Shell on 15 February 2016, in EBIT and higher net finance costs only partially BG Group shareholders will not receive a further offset by the reduction in the Group’s tax charge. BG Group dividend for 2015. However, as the effective date of the Combination** with Shell occurred prior to the record date for Shell’s fourth quarter dividend (being 19 February 2016), BG Group shareholders were entitled to receive that Shell dividend. On 4 February 2016 Shell announced a fourth quarter 2015 dividend of 47 cents per Shell share (equivalent to 20.93 cents per BG share based on the default consideration of 383 pence in cash and 0.4454 Shell B shares for each BG share held). For further information on BG Group’s dividend, see note 7, page 53. Financial results BUSINESS PERFORMANCE

Revenue and other operating income(a) EBIT/earnings(b) 2015 2014 2015 2014 $m $m $m $m Upstream 9 792 12 026 1 075 3 801 LNG Shipping & Marketing 8 339 8 217 1 348 2 540 Other activities 4 7 6 36 Less: intra-Group revenue (1 716) (704) – – 16 419 19 546 2 429 6 377 Net finance costs (260) (109) Taxation (472) (2 233) Earnings 1 697 4 035

(a) Includes other operating income of $67 million (2014: $164 million) in the Upstream segment and $204 million (2014: $93 million) in the LNG Shipping & Marketing segment. (b) See Glossary, page 80.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 12 Strategic report Financial review > continued

UPSTREAM The E&P EBIT margin (excluding exploration charge) The Total tax charge for the year was $643 million E&P production volumes increased 16% to was $15.09 per boe lower at $5.93 per boe. (2014: $1 279 million credit) and included a net 256.9 mmboe primarily as a result of the ramp-up charge of $171 million (2014: $3 512 million credit) The exploration charge decreased 10% to in Australia, Brazil and Norway, and a higher share in relation to disposals, re-measurements and $676 million primarily as a result of reduced seismic of production in Kazakhstan, partly offset by impairments. The net charge in 2015 comprised activities. Gross exploration expenditure decreased lower production in Egypt, Trinidad and Tobago, a net charge of $204 million relating to disposals, 25% to $942 million and included spend in Trinidad and the UK. re-measurements and impairments, a net charge and Tobago ($274 million), Canada ($119 million), of $659 million reflecting the impact of foreign Revenue and other operating income decreased the UK ($111 million), Australia ($110 million) and exchange movements on deferred and current 19% to $9 792 million. E&P revenues fell 27% Tanzania ($57 million). tax balances, especially in Australia and Brazil, to $8 540 million, reflecting significantly lower Liquefaction EBITDA increased $460 million to a $388 million credit relating to changes in deferred commodity prices, partly offset by higher volumes $586 million, with the start of production from tax balances due to changes in UK taxation rates and an improved product mix with additional oil, QCLNG only partly offset by lower prices and and a net $304 million credit resulting from a particularly from Brazil. This was partly offset volumes at Atlantic LNG. number of exceptional one-off and prior period by the growth in liquefaction revenues, which taxation items. The net credit in 2014 included increased by $875 million to $1 252 million LNG SHIPPING & MARKETING a net credit of $3 031 million in relation to disposals following the start-up of QCLNG. Delivered volumes increased 63% with 282 cargoes and impairments and a net credit of $449 million E&P EBITDA before exploration was 40% lower delivered. The increase included 77 cargoes from resulting from a number of exceptional one-off at $4 257 million, primarily reflecting the decrease QCLNG and 31 additional spot cargoes, partially and prior period taxation items. in revenues. offset by four fewer cargoes from the Group’s Atlantic Basin supply contracts. Revenue and other CAPITAL INVESTMENT E&P operating costs increased 1% to $3 482 million operating income increased 1% to $8 339 million Capital investment on a cash basis was 32% lower as a 12% increase in lifting costs was largely offset as the benefit of higher delivered volumes and at $6 387 million and was almost entirely in the by a 11% reduction in royalties and other costs weather-related gains in the Group’s North Upstream segment ($6 377 million), consisting of mainly as a result of lower commodity prices. The American gas marketing business due to particularly $5 779 million on development and other activities, 12% increase in lifting costs reflected the ramp-up cold weather in the first quarter of 2015 were and $598 million on exploration. The development of production in Australia and Brazil, partially offset offset by lower LNG sales prices. spend was concentrated primarily on projects in by lower maintenance costs in the UK. Other E&P Brazil ($2 656 million) and Australia ($1 585 million), costs decreased 26% to $866 million reflecting the LNG Shipping & Marketing EBITDA decreased together with investments in the UK ($267 million) impacts in Brazil of movements in the volume of oil 46% to $1 456 million, reflecting lower margins and Kazakhstan ($240 million). held in stock, with around 6.8 mmboe of oil in stock primarily as a result of the fall in sales prices at the end of 2015 (2014: 2.5 mmboe), partially offset combined with a greater proportion of relatively CASH FLOW by higher Brazil oil shipping costs. In addition, lower margin spot cargoes. The majority of EBITDA Net cash flow from operating activities Other E&P costs in 2014 included the elimination associated with supply from QCLNG is recorded in deteriorated by $3 096 million to $4 303 million of profit on oil sales associated with the Lula and the Upstream segment. LNG Shipping & Marketing as a result of lower Business Performance EBITDA Iara extended well tests, together with a number EBITDA unit margin fell 67% to $81 per tonne. and lower working capital inflows, partially offset of one-off items. Business development and other costs of by lower tax payments. Net interest paid was E&P DD&A increased 12% to $2 733 million reflecting $132 million (2014: $124 million) include expenditure $585 million (2014: $556 million). the higher production volumes, including new on the Lake Charles liquefaction project. Investing activities in 2015 included payments production from higher rate fields, partly offset by DD&A decreased 24% to $108 million following the to acquire property, plant and equipment favourable changes in the mix of fields, including sale and leaseback of six LNG vessels during 2014 and intangible assets of $5 596 million increased production from Australia and Brazil. and two further vessels in the first quarter of 2015. (2014: $8 510 million) and capital expenditure The Group’s average realised oil price decreased on investments of $791 million (2014: $892 million), LNG Shipping & Marketing EBIT decreased to 46% to $52.98 per , the liquids price decreased partially offset by dividends received and other $1 348 million (2014: $2 540 million), as the fall 46% to $43.73 per barrel and the gas price per repayments of $261 million (2014: $331 million). in EBITDA was partially offset by the lower produced therm decreased 28% to 35.39 cents, Free cash flow* deteriorated by $180 million DD&A charges. reflecting lower market prices. As a result, unit to a $2 408 million outflow, primarily reflecting revenues reduced $19.45 per boe to $33.24 per boe. the decrease in net cash flow from operating FINANCE COSTS activities, partly offset by the lower capital Unit operating expenditure decreased to In 2015, BG Group’s net finance costs were investment. Disposal proceeds in 2015 amounted $13.55 per boe (2014: $15.54 per boe). Lifting costs $260 million (2014: $109 million) and included to $5 186 million (2014: $855 million), including per boe decreased primarily as a result of the foreign exchange gains of $nil (2014: $49 million). $4 597 million gross proceeds from the disposal reduction in shutdowns in the UK. Lower commodity Excluding the impact of foreign exchange, of the QCLNG pipeline. prices led to a decrease in royalty costs, although net finance costs increased by $102 million to this was partly offset by an increased proportion of $260 million, reflecting the reduction in the amount Dividends paid to the Group’s shareholders in production from royalty paying fields, principally in of interest on borrowings that can be capitalised 2015 accounted for cash outflows of $980 million Brazil. Other E&P unit costs decreased to $3.37 per against assets under construction following the (2014: $1 024 million). Net cash inflows from boe (2014: $5.29 per boe). Consequently, the Group’s start-up of QCLNG. Total net finance costs, borrowings and other financing amounted unit E&P EBITDA margin was $15.44 per boe lower including re-measurements, amounted to to $72 million (2014: $1 489 million). at $16.57 per boe. $202 million (2014: $753 million). As at 31 December 2015, the Group held The unit DD&A charge decreased to $10.64 per boe cash and cash equivalents of $7 200 million TAXATION (2014: $10.99 per boe) as a result of a change in the (2014: $5 295 million). Net debt of $10 068 million The tax charge for the year reduced to $472 million mix of production, with lower production from fell by $1 930 million as a result of the QCLNG (2014: $2 233 million) and reflects the lower profit higher rate fields in the UK and increased production pipeline disposal, and gearing was lower at before tax and a reduction in the Group’s effective from lower rate fields in Australia and Brazil. This 25.3% (2014: 29.2%) reflecting the reduction tax rate (excluding BG Group’s share of joint was partly offset by reserve revisions in Trinidad in net debt. ventures and associates’ results and tax) to and Tobago, and higher-rate new developments 24.0% (2014: 36.9%). The lower tax rate includes coming onstream in Trinidad and Tobago and in the impact of changes in the Group’s mix of the North Sea. profits and revisions to certain tax positions.

* See Glossary page 80.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 13

CAPITAL AND LIQUIDITY Re-measurements included within revenue In Australia, the total pre-tax impairment charge STRATEGIC REPORT Total equity as at 31 December 2015 of and other operating income amount to a charge was $6 824 million ($4 540 million post-tax). $29 757 million was $617 million higher than 2014. of $117 million (2014: $403 million credit), of which With the agreement to sell the wholly owned Details of the maturity, currency and interest a charge of $4 million (2014: $280 million credit) subsidiary QCLNG Pipeline Pty Ltd in 2014, the rate profile of BG Group’s borrowings as at represents non-cash mark-to-market movements remaining QCLNG assets were impaired by $2 747 31 December 2015, and details of movements in on certain gas contracts. While the activity million pre-tax ($1 828 million post-tax). A further the Group’s net borrowings during 2015, are shown surrounding these contracts involves the physical $4 077 million pre-tax ($2 712 million post-tax) in note 16, page 58. Details of the Group’s cash and delivery of gas, the contracts fall within the scope impairment charge in Australia was driven mainly cash equivalents as at 31 December 2015 are shown of IAS 39 and meet the definition of a derivative by a reduction in the Group’s assumptions for in note 15, page 58. instrument. In addition, re-measurements include future commodity prices. a net $113 million charge (2014: $17 million credit) The Group’s principal borrowing entities are In Egypt, the total pre-tax impairment charge representing unrealised mark-to-market BG Energy Holdings Limited and certain wholly was $790 million ($737 million post-tax), principally movements associated with economic hedges. owned subsidiary undertakings, the majority driven by further reserves downgrades reflecting Other operating income in 2014 also included a of whose borrowings are guaranteed by underlying reservoir performance, and a $106 million credit in respect of final settlement BG Energy Holdings Limited (collectively BGEH). write-down of the Group’s investment in of a legacy treaty dispute relating to investments Egyptian LNG reflecting the Group’s expectation BG Energy Holdings Limited is the Group’s formerly held by the Group. of limited LNG exports for the foreseeable future. principal credit-rated entity. As at 31 December Operating costs include a $50 million 2015, it had long-term credit ratings of A-, rating Elsewhere in 2014, the reduction in the Group’s pre- and post-tax charge relating to the downward watch positive from Fitch; A2, rating under review assumptions for future commodity prices resulted re-measurement of trade receivables in Egypt for upgrade from Moody’s; and A-, credit watch in a $1 342 million pre-tax ($651 million post-tax) to reflect the time value of money associated with developing implications from Standard & impairment charge of which the most significant with the outstanding debt based on a revised Poor’s; and short-term credit ratings of F-2, rating charges were in the North Sea $566 million pre-tax assumed repayment profile. This increases the total watch positive from Fitch; P-1 from Moody’s; ($172 million post-tax), Tunisia $450 million pre-tax discount recognised to $150 million following the and A-2 from Standard & Poor’s. ($255 million post-tax) and the USA $227 million $100 million pre-tax charge ($79 million post-tax) pre-tax ($148 million post-tax). As at 31 December 2015, BGEH had a $4.0 billion recorded in 2014. US Commercial Paper Programme and a $2.0 billion Other items in 2015 resulted in a pre-tax charge Disposals include a pre-tax gain of $2 538 million Euro Commercial Paper Programme, both of which of $142 million (2014: $131 million), post-tax (post-tax $1 663 million) following the disposal of were unutilised, and a $15.0 billion Euro Medium $109 million (2014: $95 million). There was a further the QCLNG pipeline and a pre-tax loss of $15 million Term Note Programme, of which $7.0 billion pre- and post-tax charge of $40 million (2014: $nil), (post-tax $14 million) in respect of the sale of two was unutilised. being the Group’s share of an impairment charge LNG vessels. Disposals in 2014 included a recognised by a joint venture, along with a pre- and BGEH also had aggregate undrawn committed pre- and post-tax gain of $782 million in respect of post-tax charge of $5 million (2014: $56 million) revolving bank borrowing facilities of $7.25 billion, the disposal of the Central Area Transmission System relating to the Group’s share of a write-off of of which $5.04 billion expires in 2017 and $2.21 billion (CATS) gas pipeline and associated infrastructure assets under construction in Brazil following expires in 2019. During 2015, BGEH drew down in the UK and a pre-tax gain of $216 million the bankruptcy of a contractor. the remaining $1.6 billion available under a credit (post-tax $170 million) in respect of the sale of facility provided by an export credit agency. six LNG vessels, which were previously held as finance leases and have subsequently been leased Furthermore, BGEH had uncommitted borrowing back under operating leases. Other disposals facilities including multicurrency lines, overdraft in 2015 resulted in a pre-tax gain of $30 million facilities of £45 million and credit facilities of (2014: $31 million charge) for the year (post-tax $20 million, all of which were unutilised. $23 million, 2014 $18 million charge). Unutilised committed borrowing facilities of In 2015, non-cash pre-tax impairment charges $7.25 billion were canceled in February 2016. of $1 452 million (post-tax $691 million) primarily reflected the impact of further falls in commodity COMMITMENTS prices and reserves revisions on certain of BG Group has commitments in respect of LNG BG Group’s E&P assets, mainly in the North Sea ships in support of its expanding LNG portfolio, and Tunisia. and oil tankers and FPSO vessels required for marketing and production operations primarily In the North Sea, the non-cash pre-tax impairment in Brazil. For further information on the Group’s charge was $787 million (post-tax $307 million), commitments, see note 21, page 68. driven by lower commodity prices, a reserves downgrade reflecting underlying reservoir DISPOSALS, RE-MEASUREMENTS performance, and higher decommissioning AND IMPAIRMENTS costs on certain fields. The following items, described as ‘disposals, In Tunisia, the pre-tax impairment charge re-measurements and impairments’ are excluded was $534 million (post-tax $307 million) driven from Business Performance as exclusion of these by lower commodity prices and a reserves items provides a clearer presentation of the downgrade reflecting reservoir performance. underlying performance of the Group’s ongoing business. For a full reconciliation between Elsewhere in 2015, reduction in the Group’s BG Group’s Total Results and Business Performance, assumptions of future commodity prices resulted see note 1, page 42. For further details of amounts in pre-tax impairment charges of $131 million comprising disposals, re-measurements and (post-tax $77 million) in relation to certain other impairments, see note 4, page 49. E&P assets. Disposals, re-measurements and impairments In 2014, a non-cash pre-tax impairment charge in respect of continuing operations in 2015 of $8 956 million (post-tax $5 928 million) related amounted, in aggregate, to a profit of $744 million to Upstream activities in Australia, Egypt and before tax and interest (2014: $7 954 million loss), certain other assets. This was driven mainly by see note 1, page 42. the significant fall in global commodity prices.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 14 Strategic report Principal risks and uncertainties

The principal risks and uncertainties upon The ERM Framework was the process by which The Risk Management Environment which the Board and Corporate Executive Team BG Group: The principal change in risk since late 2014 (CET) were focused in 2015 and up to the date of ●● Defined risk appetite: the Board and CET was the substantial fall in commodity prices, completion of the Shell transaction (‘Completion’) determine the extent to which the Group which materially affected the oil and gas industry are described below. For forward-looking risks was willing to accept and manage risks and as a whole. These lower prices added pressure on applicable to the BG Group as part of the Shell uncertainties in the pursuit the Group’s revenues, cash flows and balance sheet Group following Completion, please refer to of its strategic objectives; and demonstrated the need for a robust ERM Shell’s latest regulatory filings, in particular, Framework to identify and manage the associated Shell’s Annual Report on Form 20-F for the year ●● Identified and assessed risks: the nature risks. Prior to completion of the Shell transaction, ended 31 December 2015. and extent of the Group’s principal risks the Board and CET had considered the ongoing and uncertainties were identified, analysed Effective identification, assessment and viability of the Group and the associated draft and assessed; management of BG Group’s principal risks and viability statement disclosures. uncertainties, the implementation of associated ●● Designed and executed controls: the Group Successful start-up of the QCLNG project controls and the monitoring of sources of put in place appropriate control systems directed in Australia and further FPSOs on production assurance, was integral to how the Group ran at mitigating those risks and uncertainties; in Brazil have meant that capital expenditure its business. ●● Monitored risks and assured controls: the could be reduced without risk to project delivery The Board considered carefully the nature and management and mitigation of risks and and a number of the Group’s project-related risks extent of the risks and uncertainties it was willing uncertainties were monitored and associated and uncertainties were reduced in 2015. to take in achieving the Group’s strategic objectives internal controls were assured in the short The financial situation and corruption allegations and a summary is set out here, although it should and longer term through ongoing Board and affecting the Group’s Brazilian partner, Petrobras, not be considered as being exhaustive. Please refer management oversight and performance may lead to impacts on the cost and schedule to the Important Notes on page 16. review processes. The effect of uncertainty of further developments in the Santos Basin due on the Group’s cash flow and earnings profiles BG Group’s approach to the system of risk to either supply chain disruption or capital and was modelled and used as an input to management and internal control was articulated liquidity constraints on Petrobras. decision-making; and and managed through the Group’s Enterprise Risk Management (ERM) Framework. ●● Took and tracked actions: ensured appropriate actions were taken to strengthen controls and reduce risk.

COMMODITY PRICES Description Commentary Controls ●● Commodity prices have fallen sharply since ●● Continued downward pressure on oil price during ●● Key mitigation focused on capital rationing and mid-2014; risk is that they remain low, affecting the year has affected financial results; although cost control through developing business plans earnings, cash flows and balance sheet. volatile, forward curve prices remain low in 2016. at lower commodity prices.

SHELL ACQUISITION Description Commentary Controls ●● Shell acquisition proposal fails to complete ●● All of the five pre-conditions were fulfilled. ●● Measures were in place to focus and motivate due to either shareholder or regulatory issues. ●● Shareholder approvals received and Combination the organisation. became effective on 15 February 2016. ●● Standalone BG Group strategy was developed in case of deal failure.

FISCAL RISK AND GOVERNMENT TAKE Description Commentary Controls ●● Governments and their agencies act in a way ●● Fiscal risk may increase with falling commodity ●● Risks managed through government and that extracts greater value from BG Group prices as governments look to maintain stakeholder influence. than assumed in the Business Plan. tax revenues. ●● Creation and maintenance of a strong Licence ●● This is partly mitigated as other tax regimes to Operate. have lower taxes in a low price environment.

PROJECT DECISION AND DELIVERY Description Commentary Controls ●● Poor decision making regarding project ●● Project execution risk has fallen in 2015 ●● Investment decisions were made through selection and development leading to following the completion of QCLNG and the Group’s Capital Investment Process. inadequate returns on capital employed. the sixth Brazilian FPSO. ●● Strategic resourcing and strategic alliances. ●● Other risks remain, primarily on future developments in Brazil.

RESERVES AND RECOVERABILITY Description Commentary Controls ●● Reservoir potential may not match ●● Poor reservoir performance leads to reserve ●● Reserves Committee deliver an independent planned levels. downgrades. review including the impact of rules ●● Adverse outcome of field unitisation decisions. ●● Lower commodity prices reduce the economic and guidelines. ●● Impact of rules and guidelines. potential and therefore lower reserves. ●● Data acquisition and reservoir modelling to forecast and manage future performance, and including history matching.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 15

HEALTH, SAFETY, SECURITY STRATEGIC REPORT AND ASSET INTEGRITY (HSSAI) Description Commentary Controls In a BG Group venture, any of the following: ●● Risk of fatalities, litigation, environmental or ●● Regular training for all staff. reputational damage all affect the Group’s ●● Developed an HSSE Management System ●● Major accident hazard event, including process Licence to Operate. Framework and Safety Case process. safety or asset integrity; ●● In 2015, focus has been on the safe start-up of the ●● The Group tests controls regularly, including ●● Occupational safety or health event; QCLNG and Brazilian projects and on the security Emergency response planning. ●● Being subject to violent attack, situation in North , particularly Tunisia. demonstrations; or ●● Inability to operate due to major in-country disruption (war, disorder, revolution).

INSUFFICIENT EXPLORATION SUCCESS Description Commentary Controls ●● Insufficient addition of resources to ●● Low commodity price environment in 2015 ●● Robust opportunity screening to manage develop new projects and deliver future has been challenging, but allows a reduction a balanced portfolio. production growth. in exploration and new venture entry costs. ●● Well planning and risk assessment. ●● Global New Ventures team to acquire acreage via farm-ins and licence rounds.

REGULATION, LEGISLATION, LITIGATION AND COMPLIANCE Commentary Controls Description ●● Volatile commodity prices increase counterparty ●● Increased involvement from Group Legal. ●● Contractual disputes and litigation or breach and litigation risk. ●● Continued application of legal and regulatory of applicable laws and regulations. ●● Risk that BG Group is affected by the corruption compliance systems. allegations in Brazil. ●● Independent Speak Up reporting system.

ENVIRONMENT AND CLIMATE CHANGE Description Commentary Controls ●● Release, emission or discharge beyond agreed ●● No significant environmental breaches in 2015. ●● HSSE Management System Framework in place. or acceptable limits. ●● BG Group was active in industry coalitions ●● Environmental management systems certified ●● The impact of climate change on demand on climate change and the COP21 discussions to ISO 14001. for . in Paris. ●● Emergency and crisis response plans in place. ●● Risk of reputational damage.

PARTNER RELATIONSHIPS Description Commentary Controls ●● Dependence on, inability to influence ●● Petrobras, BG Group’s Brazilian partner, ●● Due diligence and strategic view taken in new or misalignment with partners. has faced corruption allegations throughout partner selection. the year; BG Group is not implicated. ●● Robust JOA process, from drafting to execution. ●● Lower prices increased the partner risk, but this ●● Close monitoring of partner activities, backed has not had a major impact on the Group in 2015. up by joint venture audits.

MACRO-ECONOMIC AND GEO-POLITICAL DEVELOPMENTS Description Commentary Controls ●● The Group may not foresee or adapt ●● The global slowdown in 2015, particularly ●● Strategic planning from top down to to changes in the external environment. in China and deteriorating Brazilian stability take into account external environment. has been a focus. ●● Maintaining a balanced portfolio across the Group. ●● Analysis of political and Licence to Operate risks.

CREDIT Commentary Controls Description ●● Credit risk, including suppliers, producers, ●● Credit policies in place; credit support required ●● BG Group’s counterparties may be governments and trading companies, when considered necessary. unable to meet their financial or is increasing due to lower prices. ●● Credit limits applied to counterparties. performance obligations. ●● Monitoring of exposures and overdue balances.

ACCESS TO CAPITAL AND LIQUIDITY Description Commentary Controls ●● Inability to meet the Group’s funding ●● Risk has increased due to a ‘lower for longer’ ●● The Group’s planning process assists in judging requirements or manage liquidity and price environment, weakening sector credit the amount of capital and liquidity required. solvency risks. metrics and a difficult M&A environment ●● Minimum levels of committed facilities for divestments. maintained and limits are placed on the amount of borrowings maturing in a specific period.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 16 Strategic report Principal Risks and Uncertainties > continued

HUMAN RESOURCES CAPACITY AND CAPABILITY Description Commentary Controls ●● Insufficient people with the right behaviours, ●● Lower than expected impact of the Shell ●● Resourcing model aligned with business plans. skills, experience in the right places to deliver takeover on staff turnover in 2015, although the ●● Strategic alliances. the Group’s business plan. risk increases again as the deal has completed ●● Competitive reward and incentive packages. and integration activities begin.

IT, CYBERSECURITY AND RESILIENCE Description Commentary Controls ●● Failure of business or production-critical ●● Risk range could be from the loss of sensitive ●● Security awareness campaigns increased IT systems. information to unauthorised access and damage following Shell offer. ●● A successful attack on Group to production control systems. ●● Enhanced technical security monitoring. computer networks. ●● Critical infrastructure designed to be resilient. ●● Loss of, or unauthorised access to, sensitive information held electronically.

PORTFOLIO CONCENTRATION Description Commentary Controls ●● Over-concentration in a particular country ●● The 2015 strategy and portfolio review confirmed ●● Value Assurance Framework with stage-gates. or revenue stream. concentration in the Group’s Australian, Brazilian ●● Executive management and Board review and GEMS business, but this was believed to be Group strategy. manageable. ●● Portfolio management.

IMPORTANT NOTES In addition to the principal risks and uncertainties BG Group may incur significant losses from listed in this report, BG Group’s activities may different types of risks that are not covered Risk Identification and Assurance also be affected adversely by other risks as yet by insurance. The Group maintains an insurance While BG Group developed processes for unforeseen or currently considered not to be programme to provide some mitigation against identifying and managing risk, these processes material. For the year 2015, the principal risks significant losses, which, as is consistent with provided reasonable, rather than absolute, and uncertainties described in this section should be general industry practice, includes limited cover assurance and were designed to help manage, read in conjunction with the Legal notice for physical damage, removal of debris, control rather than eliminate, risk. It is not possible on the inside front cover. of wells, re-drill, sudden and accidental pollution, to be certain that such processes will be successful and employer’s and third-party liabilities. in managing or mitigating these risks effectively Insurance Policies purchased are subject to limits, deductibles or at all, not least because not all of these risks Some of the major risks involved in BG Group and specific terms and conditions. In addition, and uncertainties are within BG Group’s control. activities cannot reasonably and economically premium costs are subject to changes based In particular, BG Group was limited in its ability be insured. The transfer of risks to the insurance on a company’s loss experience, the overall loss to impose risk management systems and processes market may be affected and influenced by experience of the insurance markets accessed (and associated controls) in non-operated ventures. constraints on the availability of cover, market and capacity constraints. Insurance is, by its nature, Systems of risk management and internal control appetite and capacity, pricing, and the decisions contingent. As such, any particular insurance claim were therefore no guarantee that all risks have of regulatory authorities. made might not result in a full recovery from insurers. been identified, or will not materialise, or that associated damage or losses will not occur.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 17 Corporate governance

The Company was a listed throughout the financial year ended 31 December 2015. At the date of this report, the Company was no longer listed, having re-registered as a private limited company on 30 March 2016. As such, this report has been prepared in accordance with the reporting requirements set out in the Companies Act 2006 (the Act) of an unlisted, public limited company. The relevant provisions of the UK Listing Authority Listing Rules, Disclosure and Transparency Rules, and the provisions of the UK Corporate Governance Code are no longer applicable to the Company. CORPORATE GOVERNANCE BOARD OF DIRECTORS The following served as Directors during the year, and up to the effective date of the Combination, 15 February 2016: Andrew Gould (Chairman) Helge Lund (Chief Executive)(appointed 9 February 2015) Simon Lowth (Chief Financial Officer) Sir John Hood (Senior Independent Director, Non-Executive Director) Vivienne Cox (Non-Executive Director) Pam Daley (Non-Executive Director) Martin Ferguson (Non-Executive Director) Caio Koch-Weser (Non-Executive Director) Lim Haw-Kuang (Non-Executive Director) Sir David Manning (Non-Executive Director) Patrick Thomas (Non-Executive Director) Baroness Hogg (Non-Executive Director)

The following Directors were appointed after the year end, and from the effective date of the Combination, 15 February 2016: Simon Henry Donny Ching Gerard Paulides Huibert Vigeveno Joanne Wilson Erik Bonino Russell O’Brien

COMPANY SECRETARY The following served as Company Secretary during the year and up to the date of this report, unless otherwise shown:

Steve Allen (resigned 14 March 2016) Shell Corporate Secretary Limited (appointed 14 March 2016)

GENDER DIVERSITY In accordance with reporting requirements set out in the Act, disclosure is provided in respect of gender diversity at Board level, senior management (including directors of subsidiary companies) and in the organisation as a whole, in each case as at 31 December 2015.

Male (%) Female (%) Board(a) 77 23 Senior Management 73 27(b) Other 74 26

(a) Following the changes to the Board, from the effective date of the Combination, 15 February 2016, 14% of the Board were female. (b) The Board considers that a more meaningful measure of senior management than that defined by the Act is employees in leadership positions, in line with the definition used within the Group Diversity Statement. At 31 December 2015, 13% of employees in leadership positions were female.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 18 Corporate governance Remuneration report

The Remuneration Committee met on many occasions 2015 was Helge Lund’s first year as Chief Executive and, during a period during 2015. During the early part of the year, the of prolonged uncertainty for BG and its employees, Mr Lund continued Committee’s major decisions were focused on revisions to lead high standards of safety, project delivery and operational performance, while also maintaining staff morale. Despite the very challenging external to the Company’s Long-Term Incentive Plan (LTIP) and, environment, BG Group delivered strongly in all of these areas. Over successive for the remainder of the year, a significant part of the quarters in 2015, the BG Group Directors believed that BG Group had met or Committee’s focus was on considering and discussing exceeded market expectations. Under Mr Lund’s leadership, BG Group grew remuneration matters in the context of the proposed production by 16% on 2014, increasing the Group’s guidance for production in 2015 during the year to 680–700 kboed and achieving actual production of 704 Combination with Shell. kboed. BG Group brought core major projects in Australia and Brazil onstream Through consultation with a number of the Group’s shareholders during 2014, and introduced a more streamlined operating model, achieving cost and it was evident that certain shareholders favoured a basket of Company efficiency savings of more than $300 million and reducing capital performance metrics applying to the LTIP Performance Share Awards, rather expenditure by 32%. than a single metric dependent solely on relative total shareholder return The Committee reviewed the outcome of the 2015 annual bonus scorecard (TSR). The single TSR metric was well-suited to the first phase of BG Group’s for the Executive Directors in this context. Before considering individual development, during which the Company was judged principally on its ability performance, the bonus scorecard outcome was 80% (compared to 42.5% to add value through discovering resource. However, as the Company’s focus target and 85% stretch). After careful consideration, the Committee shifted to improving return on capital and delivering earnings and cash flow determined that the business performance scorecard outcome should apply. growth, the Board believed it appropriate for the Company performance metrics for the BG Group LTIP to reflect this. As a result of the Committee’s annual review of Executive Directors’ salaries in March 2015, no increase was made to the salary of the Chief Executive, Following an extensive consultation exercise with major shareholders during consistent with the determination that this should remain unchanged for February 2015, the Committee revised the LTIP performance conditions for five years. The Chief Financial Officer’s salary was increased by 2%, which 2015 awards so that they were based on a basket of metrics comprising 50% was in line with the general increases for UK employees. relative TSR, 25% cash flow (earnings before interest, tax, depreciation and amortisation (EBITDA)) and 25% return on capital (return on average capital I should like to take this opportunity to thank my fellow Committee members employed (ROACE)). The expected value of the BG Group LTIP awards remained for their contributions and constructive support during the period of my broadly unchanged. The changes were all within the Directors’ Remuneration chairmanship, particularly over the past 18 months, which were by any standards Policy approved by shareholders in May 2014. Further details are set out in the exceptionally busy for the Committee. Their commitment and professionalism following report. helped the Committee through this challenging period and were of considerable assistance to me in chairing it. I thank them all for their service. In considering remuneration matters in the context of the proposed Combination with Shell, the Committee took into account a number of factors, including the importance of retaining and motivating BG Group’s management and employees during the unusually long period between the announcement of the Combination in April 2015 and the Effective Date (15 SIR JOHN HOOD February 2016). Retention was seen as critical both in order to facilitate the CHAIRMAN OF THE REMUNERATION COMMITTEE continued delivery of high standards of safety and operational performance 15 February 2016 during the offer period. Full details of the decisions on remuneration matters, including those relating to the Company’s share plans and the arrangements for the Executive Directors, are set out in the Scheme Document that was published on 22 December 2015.

REMUNERATION REPORT – GLOSSARY OF TERMS These terms or are used in the following report: Acronyms AGM Annual General Meeting AIS Annual Incentive Scheme, the Group’s annual bonus plan CET Corporate Executive Team CSOS Company Share Option Scheme, a legacy plan under which share options were previously granted DBP Deferred Bonus Plan EBITDA Earnings before interest, tax, depreciation and amortisation EPS Earnings per share EPV Estimated present value, a measure of the economic or fair value of a share award HMRC HM Revenue & Customs HSSE Health, safety, security and environment LTIP Long-Term Incentive Plan PSA Performance Share Award, an award granted under the LTIP which is subject to performance conditions other than in exceptional circumstances ROACE Return on average capital employed SIP Share Incentive Plan, an HMRC approved plan for UK employees TRCF Total recordable case frequency TSR Total shareholder return VBDP Voluntary Bonus Deferral Plan

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 19 Corporate governance Remuneration report Annual remuneration report

The following section of this report provides details of the implementation of the Directors’ Remuneration Policy for the year ended 31 December 2015.

The Directors’ Remuneration Policy, as approved by shareholders at the AGM in May 2014, can be found in the 2013 Remuneration report and is available upon request at the Company’s registered office. EXECUTIVE DIRECTORS’ TOTAL REMUNERATION LTIP – LTIP – Total Salary Benefits Pension Bonus annual award on-hire award remuneration Executive Directors Year £’000 £’000 £’000 £’000 £’000 £’000 £’000 Helge Lund, appointed Chief Executive 2015 1 339 948 402 2 546 – 295 5 529 from 9 February 2015 2014 n/a n/a n/a n/a n/a n/a n/a Simon Lowth, appointed Chief Financial Officer 2015 736 61 221 1 004 – – 2 022 from 2 December 2013 2014 725 33 218 877 – – 1 853 CORPORATE GOVERNANCE

SALARY PROCESS FOR DETERMINING BONUS When awarding salary increases, the Committee considered, among other The following business performance metrics operated for the 2015 financial year: factors, the salary increases applied elsewhere in the Group and, for UK-based ●● Group EPS – Actual Business Performance results were adjusted to exclude Executive Directors, the increases applied for UK employees. the effects of changes in upstream prices, material exchange rates and Salary contracted LNG prices. Increase received in year Salary Pro-rated in year ●● Group ROACE – Actual post-tax Business Performance results (adjusted Executive Directors % £’000 % £’000 as for Group EPS above but excluding net finance income/costs on net Helge Lund nil 1 500 89% 1 339 borrowings/funds) are expressed as a percentage of average Group capital Simon Lowth 2 740 100% 736 employed. Average Group capital employed was calculated by averaging the positions at the start and end of the year, excluding the impact of any material impairments. Group capital employed is the aggregate of total BENEFITS equity (excluding commodity financial instruments and associated deferred Benefits included life assurance, income protection, personal accident tax) and net borrowings/funds (in both cases adjusted to exclude the insurance, company car or cash in lieu of company car, chauffeur services, effects of changes in upstream prices, material exchange rates and spousal travel, relocation, financial counselling, medical insurance and any contracted LNG prices). taxable business expenses, including the applicable tax. ●● Project performance – In-year performance on all Board-sanctioned projects, SIP Flex Share Relocation Other Total both operated and non-operated, was assessed against a range of indicators, allocations allowance benefits benefits including in-year cost and on-schedule performance relative to plan. Executive Directors £’000 £’000 £’000 £’000 ●● Group HSSE – Performance was assessed against a balanced scorecard of Helge Lund 4 906 38 948 measures and targets across a broad range of leading and lagging indicators, Simon Lowth 4 n/a 57 61 including, for example, TRCF and the actioning of audit findings.

PENSIONS Individual performance was assessed against individual objectives for the year. The Executive Directors were able to choose a defined contribution pension For the 2015 incentive year, the Committee followed the two-stage review contribution or receive cash in lieu, or a combination thereof, at a rate of process outlined in the Directors’ Remuneration Policy. This involved, for each up to 30% of salary. metric, a review of performance against targets and, secondly, consideration of the outcomes of the first stage in the context of the underlying Pensionable salary performance of the business. received Cash in lieu in year Cash in lieu of pension Executive Directors £’000 % £’000 Helge Lund 1 339 30 402 Simon Lowth 736 30 221

BONUS For an individual’s AIS award, the Committee’s determination of the business performance outcome was added to the individual’s performance outcome and the resulting percentage figure was applied to their bonus opportunity range, with a 50% outcome resulting in a target award and increasing on a linear basis with a 100% outcome resulting in a maximum award.

Bonus potential as % of salary Actual Bonus bonus awarded Total as a % of Cash Deferred bonus Executive Directors Target Maximum salary £’000 £’000 £’000 Helge Lund 100 200 190 2 546 n/a(a) 2 546 Simon Lowth 60 150 135.6 1 004 n/a(a) 1 004

(a) No portion was deferred as the Executive Directors were no longer in employment at the time of the granting of awards under the Deferred Bonus Plan.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 20 Corporate governance Remuneration report Annual remuneration report > continued

For the 2015 financial year, the Annual Incentive Scheme performance metric outcomes in determining the Executive Directors’ bonuses were as follows (all Company performance measures are Group-wide):

Helge Lund Simon Lowth Target Weighting and Performance Performance outcome maximum outcome assessment assessment Metric Performance outcome (%) (%) (%) (%) 1. Group EPS Normalised EPS was 128c, which was ahead of a target of 95c and a maximum of 111c. 19 38 38 38 2. Group ROACE Normalised ROACE was 10.5%, which was ahead of a target of 8% and a maximum of 9.4%. 6 12 12 12 3. Project performance Good progress was made during the year on Board-sanctioned projects, particularly in Australia and Brazil, and performance was assessed as between target and maximum. 10 20 16 16 4. Group HSSE Performance was assessed against the HSSE balanced scorecard set at the start of the year as between target and maximum, with all the scorecard indicators at or ahead of target. 7.5 15 14 14 5. Individual Individual performance was assessed against the objectives performance set for the year. 7.5 15 15 12 Total 50 100 Overall assessment 95 92

AWARDS UNDER THE DEFERRED BONUS PLAN GRANTED DURING 2015 For bonus awards for the 2014 financial year in excess of 100% of salary, the excess was automatically deferred for three years in accordance with the Directors’ Remuneration Policy. Awards under the DBP are not subject to Company performance conditions, but vest at the end of the deferral period subject to continued employment.

Awards under the Deferred Bonus Plan granted during 2015

Face value End of Share price (at date Bonus Date of deferral at grant(a) of grant) Executive Directors year grant period £ £’000 Simon Lowth 2014 12 May 2015 17 Mar 2017 11.89 152

(a) Granted in the form of nil-cost options based on the average share price over the five dealing days preceding the date of grant.

LONG-TERM INCENTIVE PLAN LTIP PERFORMANCE SHARES VESTING IN 2015 Performance Share Awards vesting during 2015

Market Dividend Total % Number value equivalent award Executive Directors vesting of shares £’000 £’000 £’000 Helge Lund(a) 100 31 735 295 – 295

(a) Helge Lund received an award of vested shares, not subject to performance conditions, on account of 2014 bonus entitlements foregone on leaving his former employer.

As Helge Lund and Simon Lowth did not join the Group until February 2015 and December 2013, respectively, they did not receive a 2012 PSA grant. For other participants, the performance period for the 2012 PSAs ended on 31 August 2015. None of the shares awarded vested, and the awards lapsed in full on 4 September 2015. BG Group’s TSR performance relative to the weighted index was measured by TSR monitoring service of Alithos Limited and reviewed by Kepler Associates. This analysis indicated that BG Group had underperformed the index. The Committee considered the underlying financial performance of the Group, and concluded that none of the PSAs granted in September 2012 should vest.

LTIP PERFORMANCE SHARES GRANTED IN 2015 Number of Face value shares received of shares Face value if threshold End of awarded EPV of Share price Maximum (at date performance Date of performance as a % awards at grant shares of grant) achieved Executive Directors grant period of salary £’000 £(a) awarded £’000 (15%)(b) Helge Lund 9 Mar 2015 9 Mar 2017 30 455 9.29 48 976 455 48 976(c) 9 Mar 2015 9 Mar 2018 707 4 558 9.29 1 141 011 10 600 171 151 12 May 2015 12 May 2018 600 3 870 11.89 756 938 9 000 113 540 Simon Lowth 12 May 2015 12 May 2018 465 1 480 11.89 289 475 3 442 43 421

(a) PSAs granted on 9 March 2015 were in the form of conditional share awards based on the average share price over the three dealing days preceding the date of grant. PSAs granted on 12 May 2015 were in the form of nil-cost options based on the average share price over the five dealing days preceding the date of grant. (b) Assuming continuing employment until the normal vesting date and excluding any dividend equivalents. (c) The vesting of this buy out award, 75% on 9 March 2016 and the remainder on 9 March 2017, is not subject to Company performance conditions, consistent with the share awards foregone by Mr Lund on leaving his former employer.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 21

2015 LTIP PERFORMANCE METRICS so that they were based on a basket of metrics. The Committee considered Through consultation with a number of the Group’s shareholders during 2014, that the structure for future LTIP awards, using a basket of metrics that were it was evident that certain shareholders favoured that a basket of Company clearly linked to the evolving strategic priorities of the Group, would serve to performance metrics apply to the LTIP PSAs, rather than a single metric dependent incentivise the senior management of the Company to achieve exceptional solely on relative TSR. The single TSR metric was well-suited to the first phase financial and business performance, and would thereby promote the long-term of BG Group’s development, during which the Company was judged principally success of the Company. Further details of the metrics, the structure of the on its ability to add value through discovering resource. However, with the awards and the targets are set out below. As the LTIP outcome would be derived, shift in the Company’s focus to improving return on capital and delivering in part, from reported financial metrics (EBITDA and ROACE) that were based on earnings and cash-flow growth, the Board believed it was appropriate that completed financial years (1 January to 31 December), the awards moved from a the Company performance metrics for the LTIP reflect this. September to a May grant date, to allow the vesting period to align more closely with the relevant period of Company performance. Following consultation with major shareholders during February 2015, the Committee revised the LTIP performance conditions for future awards CORPORATE GOVERNANCE 2015 LTIP Performance Metrics KPI Weighting Link to strategy

●● Prioritising safety and asset integrity TSR 50% ●● Disciplined financial approach EBITDA 25% ●● World-class exploration ROACE 25% ●● Excellence in project development and execution ●● Maximising value through supply and market positions

Determination of vesting Performance Metric Measurement of performance Performance targets outcome TSR Measured on a relative basis compared Threshold performance is performance at the median of the peer to a sector peer group. group.

Maximum performance is performance that exceeds the median of the peer group by 7% on a compounded annual basis.

The peer group for the 2015 award comprised: Corp.; Apache Corporation; BHP Billiton Plc; BP plc; ; ConocoPhillips; For each metric, Corporation; S.p.A.; EOG Resources Inc; Corporation; 15% of the portion ; ; Novatek; Corp.; of the award vests for S.A.; Royal Dutch Shell plc; Statoil ASA; Total S.A.; plc; threshold performance, and Ltd. increasing on a linear EBITDA Measured by the cumulative performance The targets for threshold vesting for EBITDA set by the Committee basis to 100% for of the Company over the three-year period were informed by the forecast level of performance of the Company maximum performance. on an absolute basis, normalising for and the targets for maximum vesting were set at a level that the commodity prices and material exchange Committee considered represented a significant challenge for the rate movements. Company to achieve. ROACE Measured by the average annual The targets for threshold vesting for ROACE set by the Committee performance of the Company over the are informed by the forecast level of performance of the Company three-year period on an absolute basis, and the targets for maximum vesting are set at a level that the normalising for commodity prices and Committee considers represents a significant challenge for the material exchange rate movements. Company to achieve.

ADDITIONAL INFORMATION ON 2015 LTIP PERFORMANCE METRICS PRIOR YEARS’ LTIP PERFORMANCE METRICS For PSAs granted during 2014 and prior years and subject to performance TSR conditions, TSR performance was the only performance measure, with The TSR peer group was reviewed and updated to include the most relevant performance measured over a three-year performance period commencing comparator companies. Seventeen of the 20 companies in the 2015 peer group on the first day of the calendar month in which the award was made and with were also included in the 2014 peer group for assessing TSR performance. no retest provision. Subject to the review of the Committee, the level of PSAs For a listing of peer group companies for prior years see page 22. vesting would depend on BG Group’s TSR performance over the performance EBITDA AND ROACE period relative to the TSR performance of a weighted index of a selection of The Committee considered that it would be detrimental to disclose oil and gas industry peers. the performance targets for EBITDA and ROACE before the completion of the financial years to which they applied, as such disclosure would provide the Company’s competitors with confidential information on the timing of key projects and might adversely impact the Group’s ability to optimise its marketing activities. It might also require the Company to provide earlier disclosure of material events that may or may not impact on the EBITDA and ROACE forecasts informing the LTIP targets. In accordance with the approved remuneration policy, the targets would be disclosed following completion of the financial years to which they applied, when they would no longer be commercially sensitive.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 22 Corporate governance Remuneration report Annual remuneration report > continued

The constituents of the index for 2014 and for the two prior years are shown in the table below. TSR CONSTITUENTS – INDEX FOR PERFORMANCE SHARE AWARDS

Company 2014 2013 2012 Company 2014 2013 2012 Anadarko Petroleum Corp. Hess Corporation Apache Corporation Marathon Oil BP plc Occidental Petroleum Corp. Canadian Natural Resources Limited Repsol S.A. Inc. Royal Dutch Shell plc Chevron Corporation Statoil ASA ConocoPhillips Inc. Devon Energy Corporation Total S.A. Eni S.p.A. Tullow Oil plc EOG Resources Inc. Woodside Petroleum Ltd. Exxon Mobil Corporation

OTHER OUTSTANDING LTIP AWARDS Face value Number of shares End of Face value of EPV of Share price Maximum (at date received if threshold Date of performance shares awarded awards at grant shares of grant) performance achieved Executive Directors grant period as a % of salary £’000 £(a) awarded £’000 (25%)(b) Simon Lowth 11 Dec 2013 30 Nov 2016 454 1 448 12.27 268 255 3 291 67 063 11 Dec 2013 30 Nov 2016 700 2 234 12.27 413 854 5 078 103 463 18 Mar 2014 30 Nov 2016 590 508 10.74 398 701 4 282 99 675(c) 4 Sept 2014 31 Aug 2017 454 1 450 12.11 272 126 3 295 40 818

(a) Based on the average share price over the five dealing days preceding the date of grant. (b) Assuming continuing employment until the normal vesting date and excluding any dividend equivalents. (c) The vesting outcome will be reduced by the proportion of the awards granted on 11 December 2013 that vest.

SHAREHOLDINGS EXECUTIVE DIRECTORS’ INTERESTS IN SHARES AT 31 DECEMBER 2015 DILUTION The table below shows the Executive Directors’ (and their connected persons’) In the event that all options and awards outstanding as at 31 December 2015 interests in ordinary shares, which included all shares held beneficially, under BG Group’s LTIP vested (such awards to be satisfied by the re-issue of together with those interests in shares that have vested, and that are no treasury shares or by the issue of new shares), and all CSOS options (a legacy longer subject to deferral or performance conditions, and that were able to plan under which options are currently satisfied by the issue of new shares) be included as an interest in shares under BG Group’s shareholding guidelines. were exercised, the resulting issue of new shares and re-issue of treasury shares (a) would amount to 0.55% of the issued ordinary share capital (excluding treasury Interests in ordinary shares shares) at that date. As at As at Value Salary Executive Directors 1 Jan 2015 31 Dec 2015 £’000(b) £’000(c) The exercise of options under BG Group’s Sharesave Plan 2008 was satisfied Helge Lund – 17 077 168 1 500 by the issue of new shares. If the total number of options outstanding under 29 177 29 488 these plans as at 31 December 2015 had been exercised on that date, the Simon Lowth 290 740 resultant issue of shares would have represented 0.07% of the total ordinary (a) Interests in ordinary shares included ordinary shares acquired pursuant to the BG Group SIP share capital (excluding treasury shares) then in issue. (vested and unvested). (b) The value of shareholdings was based on the closing price of a BG Group ordinary share on Partnership and Flex Share awards made under the SIP during 2015 were satisfied 31 December 2015. by the re-issue of treasury shares. These awards represented 0.01% of the issued (c) Salary is annual salary as at 31 December 2015. ordinary share capital (excluding treasury shares) as at 31 December 2015. BG Group’s intention was to continue to satisfy the future exercise of options and vesting of awards under the above share plans by the issue of new shares and re-issue of treasury shares as described above. As at 31 December 2015, the BG Group Employee Share Trust held 2 264 578 shares.

SUMMARY OF EXECUTIVE DIRECTORS’ OVERALL INTERESTS IN BG GROUP SHARES Outright Unvested and subject Lapsed Exercised or vested Unvested to performance Total during during as at as at conditions as at as at Executive Directors Type 2015 2015 31 Dec 2015 31 Dec 2015 31 Dec 2015 31 Dec 2015 Helge Lund Shares – – 16 771 – – 16 771 Conditional Share Awards(a) – – – – 1 189 987 1 189 987 Nil-cost options(a) – – – – 756 938 756 938 Share Incentive Plan – – 5 301 – 306 Simon Lowth Shares n/a n/a 28 913 – – 28 913 Nil-cost options(a) – – – – 1 655 194 1 655 194 Share Incentive Plan – – 10 565 – 575

(a) The Executive Directors’ interests in shares under awards made in the form of conditional share awards and nil-cost options are stated before the operation of any applicable withholdings for tax and social security, which would typically arise when a vested award is exercised.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 23

SHAREHOLDING GUIDELINES HISTORICAL TSR PERFORMANCE The Committee adopted guidelines for Executive Directors and CET members The graph shows the growth in value of a hypothetical £100 holding invested and certain other senior employees to encourage substantial long-term share over seven years in each of BG Group shares, the FTSE 100 index and the 2015 ownership. These specified that Executive Directors should build up, and LTIP index of oil and gas industry peers. then retain, a holding of shares with a value equivalent to 300% of salary. The FTSE 100 was chosen as this is a recognised broad equity market index The required holding for other members of the CET was 100% of salary and of which BG Group is a member. The calculations were in accordance with for certain other senior employees was 50% of salary. The guidelines required the Large and Medium-Sized Companies and Groups (Accounts and Reports) that, in relation to LTIP and DBP awards, vested shares (net of tax) should (Amendment) Regulations 2013 (the Regulations). be retained by the individual until the required shareholding level was reached. HISTORICAL TSR PERFORMANCE FOR THE YEAR ENDED 31 DECEMBER The chart sets out the percentage of salary held in shares by the Executive Directors as compared with the guidelines. The chart also shows for other members of the CET and senior employees the average actual shareholding 200 as a percentage of salary. 180 CORPORATE GOVERNANCE Under the shareholding guidelines, vested nil-cost option awards under the LTIP, VBDP and DBP was included. They were included net of the withholding 160 for tax and social security which would have been made had they been 140 exercised at the year end. For UK employees, the withholding applied was the current UK maximum of 47%. 120

SHAREHOLDINGS AT 31 DECEMBER 2015 AGAINST GUIDELINES 100 (% of salary) 80 2008 2009 2010 2011 2012 2013 2014 2015 Helge 300 Lund(a) 11 BG Group return index Peer return index FTSE 100 index Simon 300 Lowth(a) 39 CHANGE IN CHIEF EXECUTIVE’S REMUNERATION 100 CET(b) The table shows the Chief Executive’s remuneration over the same seven-year 130 period as the TSR graph above. Shareholding guideline Other senior 50 (b) Actual holding The remuneration of the interim Executive Chairman is included for the period employees 77 Average holding from 28 April 2014, following the resignation of Chris Finlayson, until 9 February 2015 when Helge Lund joined as Chief Executive. Andrew Gould did (a) In post for less than five years. not receive any additional remuneration as interim Executive Chairman. (b) Some in post for less than five years. Annual variable CEO total element award rates LTIP vesting rates remuneration against maximum against maximum EXTERNAL APPOINTMENTS Year – Chief Executive £’000 opportunity opportunity To broaden the experience of Executive Directors, they were able to accept 2015 – Helge Lund 5 529 95% – one external appointment as a non-executive director of another company 2015 – Andrew Gould provided that permission was sought from the Board in advance. Any external (interim Executive Chairman) 78 – – appointment was not permitted to conflict with the Director’s duties and 2014 – Chris Finlayson 467 0% 0% commitments to BG Group. Any fees from such appointments could be 2014 – Andrew Gould retained by the individual Executive Director. (interim Executive Chairman) 487 – – The Chief Financial Officer, Simon Lowth, served as a non-executive director 2013 – Chris Finlayson 2 518 59% 0% of plc throughout 2015, and received annual fees of 2012 – Sir Frank Chapman 5 411 0%(a) 44% £160 000 during 2015 in connection with this appointment. 2011 – Sir Frank Chapman 7 912 69% 62% No other non-executive director appointments were held by the Chief Executive 2010 – Sir Frank Chapman 9 840 74% 87% or Chief Financial Officer. 2009 – Sir Frank Chapman 10 318 70% 100%

PAYMENTS FOR LOSS OF OFFICE AND PAYMENTS TO FORMER DIRECTORS (a) At the request of the Executive Directors, they received no bonuses for 2012. During 2015, the total of payments made to former Directors in respect of or as a result of their employment as a Director did not exceed £10 000 per The table below provides a comparison of the percentage year-on-year change individual, the de minimis level set by BG Group for disclosure purposes. from 2014 to 2015 in elements of the Chief Executive’s reward package relative to the Group’s general UK employee population, which represented a sizeable portion of the Group’s global employee population and the most relevant employee comparator group for the UK-based Chief Executive.

Chief Executive Salary Benefits Bonus Chief Executive(a) 75% 1 877%(b) n/a(c) UK employees of the Group 4% 7% 10%

(a) Comparing figures for Andrew Gould as interim Executive Chairman until 8 February 2015 and Helge Lund as Chief Executive from 9 February 2015 with those for Chris Finlayson as Chief Executive until 27 April 2014 and Andrew Gould as interim Executive Chairman from 28 April 2014. (b) 2015 benefits include the relocation allowance paid to Helge Lund. (c) Neither Chris Finlayson nor Andrew Gould was awarded a 2014 bonus.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 24 Corporate governance Remuneration report Annual remuneration report > continued

RELATIVE IMPORTANCE OF SPEND ON PAY CHAIRMAN AND NON-EXECUTIVE DIRECTORS The chart details BG Group’s Business Performance earnings as a measure of The Chairman’s remuneration was last reviewed during 2014 and the other the Group’s operating performance, distributions to shareholders and total Non-Executive Directors’ fees were last reviewed in 2012. The Non-Executive Group-wide expenditure on pay for all employees (including benefits, pension, Directors’ fees, effective since 1 June 2012 following the last change, and variable pay, termination payments and social security), for the last two Chairman’s annual fee, effective since 16 May 2012 following the last change, financial years. The average number of employees in 2015 was 4 717 (2014: 5 143). are summarised below. RELATIVE IMPORTANCE OF SPEND ON PAY Chairman’s fee £725 000 ($m) Non-Executive Directors’ basic fee £82 000 Committee membership fee (excluding Nominations Committee) £8 000 5 000 Chairman – Audit Committee £28 000 4 035 Chairman – Remuneration Committee £25 000 4 000 Chairman – Sustainability Committee £20 000

3 000 Senior Independent Director £30 000

Business Performance 2 000 1 697 earnings 1 259 1 027 982 1 022 1 000 Distributions to shareholders 2014 2015 2014 2015 2014 2015 Total spend on pay –42% –4% –19%

CHAIRMAN AND NON-EXECUTIVE DIRECTORS’ TOTAL REMUNERATION Individual remuneration for the year to 31 December

Salary/fees £ Taxable benefits (a)£ Total £

Non-Executive Directors 2015 2014 2015 2014 2015 2014 Andrew Gould (Chairman) 725 000 725 000 5 075 5 592 730 076 730 592 Vivienne Cox 98 000 98 000 2 551 6 261 100 551 104 261 Pamela Daley 94 667 85 333 34 003 44 111 128 670 129 444 Martin Ferguson 90 000 90 000 14 568 24 291 104 568 114 291 Baroness Hogg 90 000 90 000 373 4 921 90 373 94 921 Sir John Hood 153 000 153 000 7 776 13 015 160 776 166 015 Caio Koch-Weser 98 000 98 000 5 764 11 079 103 764 109 079 Lim Haw-Kuang 90 000 90 000 27 936 22 033 117 936 112 033 Sir David Manning 102 000 102 000 2 389 4 675 104 389 106 675 Mark Seligman 118 000 118 000 4 482 4 700 122 482 122 700 Patrick Thomas 98 000 98 000 10 594 25 567 108 594 123 567

(a) Taxable benefits include reasonable travel, accommodation and subsistence expenses, including any applicable tax, incurred when undertaking their duties as a BG Group Director, and may on occasion have included necessary spousal travel in support of the business.

CHAIRMAN AND NON-EXECUTIVE DIRECTORS’ INTERESTS IN ORDINARY SHARES The Chairman and Non-Executive Directors’ interests in ordinary shares of BG Group plc (Shares) at the start and at the end of the financial year are set out below.

Interests in ordinary shares

As at As at 1 Jan 2015 31 Dec 2015 Andrew Gould (Chairman) 65 000 65 000 Vivienne Cox 3 818 6 370 Pamela Daley 14 200 32 000(a) Martin Ferguson – 650 Baroness Hogg 17 976 19 788 Sir John Hood 8 795 8 795 Caio Koch-Weser 3 600 3 600 Lim Haw-Kuang 3 751 8 367 Sir David Manning 3 108(b) 3 679 Mark Seligman 21 076 24 705 Patrick Thomas 7 302 12 410

(a) Pam Daley purchased Shares jointly with her husband on 12 February 2015. (b) Notification was provided on 19 January 2016 in respect of historic acquisitions and disposals of beneficial holdings of Sir David Manning, between 17 February 2009 and 3 September 2010, resulting in a net disposal of 139 shares, reflected as an adjustment to interest in ordinary shares as at 1 January 2015.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 25

STATEMENT OF IMPLEMENTATION OF REMUNERATION POLICY IN 2016 on average, and as a result 42.3% of the shares awarded should vest. Full details of the decisions on remuneration matters relating to the The Committee concluded that 42.3% of the shares awarded would vest recommended cash and share offer by Shell for the entire issued and to be and accordingly the corresponding portion of the awards vested on issued ordinary share capital of BG Group plc, including those relating to the 11 February 2016 and the balance lapsed. Company’s share plans and the arrangements for the Executive Directors, are 2015 LTIP PSAs set out in the Scheme Document that was published on 22 December 2015. For the PSAs granted in 2015, BG Group’s TSR performance relative to the Following the shareholder meetings and prior to the date of the Court Order weighted index was measured by the independent TSR monitoring service implementing the Combination, the Committee determined in accordance of Alithos Limited and reviewed by Kepler Associates. This analysis indicated with the Scheme Document the extent to which the performance conditions that BG Group had outperformed the index by significantly in excess of 7% per applicable to PSAs vesting at the time of the Court Order had been satisfied. annum on average, and as a result the portion of shares awarded and dependent on the Company’s TSR performance should vest in full. Normalised EBITDA 2013 LTIP PSAs was $10 billion, which was ahead of a target of $8.5 billion and a maximum of For the PSAs granted in 2013, BG Group’s TSR performance relative to the $8.8 billion. Reported Group EBITDA was $5.6 billion. Normalised ROACE was in weighted index was measured by the independent TSR monitoring service excess of 10.5%, which was ahead of a target of 7.9% and a maximum of 8.5%. CORPORATE GOVERNANCE of Alithos Limited and reviewed by Kepler Associates. This analysis indicated Reported Group ROACE was 4.6%. The Committee concluded that 100% of the that BG Group had underperformed the index. The Committee concluded shares eligible to vest should vest and accordingly the corresponding portion that none of the shares awarded would vest and the awards lapsed in full of the awards vested on 11 February 2016. on 11 February 2016. Accordingly, the ‘parallel award’ granted to Simon Lowth on 18 March 2014 was not reduced and the award vested in full on 11 February 2016. As explained in the Scheme Document, the Executive Directors’ employments with BG Group plc terminated on 16 February 2016, on the day following the 2014 LTIP PSAs Effective Date, and on 15 March 2016 each Executive Director was paid a lump For the PSAs granted in September 2014, BG Group’s TSR performance relative sum change of control payment and their AIS award for the 2015 financial year, to the weighted index was measured by the independent TSR monitoring the determination of which is described on page 19. service of Alithos Limited and reviewed by Kepler Associates. This analysis indicated that BG Group had outperformed the index by 2.25% per annum

GOVERNANCE AND ADVISERS TO THE REMUNERATION COMMITTEE During 2015, the following Non-Executive Directors were members of the REMUNERATION COMMITTEE’S RESPONSIBILITIES Committee and attended Committee meetings as shown: The Committee’s principal responsibilities were: Committee meeting ●● Setting, reviewing and recommending to the Board for approval the Director attendance Group’s overall remuneration policy and strategy; Sir John Hood (Committee Chairman) 17/17 Vivienne Cox 16/17 ●● Setting, reviewing and approving the remuneration arrangements (including any bonuses, incentive payments, share awards, pension Pamela Daley and benefit arrangements, and termination payments) of the Chairman, (appointed to the Committee with effect from 1 June 2015) 9/9 Chief Executive and Executive Directors; Mark Seligman 17/17 Patrick Thomas 14/17 ●● Reviewing and approving the remuneration arrangements (including any bonuses, incentive payments, share awards, pension and benefit During the year, the Committee also invited the following individuals to attend arrangements, and termination payments) of members of the CET on certain occasions to provide advice to the Committee to enable it to make who are not Executive Directors, and the Company Secretary; and informed decisions:

●● Reviewing and approving the rules of (and any significant amendment ●● Chairman; to) any LTIP (whether cash or share-based), DBP, cash-based incentive plan, ● or share plan, subject to final approval by the Board and/or shareholders, ● Chief Executive; where necessary. ●● Executive Vice President, Human Resources, or People; and

●● Head of Reward. The Company Secretary attended meetings as secretary to the Committee. No individual was present when their own remuneration was being discussed. The Committee also met without management present and received independent executive remuneration advice and information from external advisers (see table below).

EXTERNAL ADVISERS AND FEES Kepler Associates* During the year, Kepler Associates Kepler Associates was formally re-appointed by £133 543 on the basis of time provided the Committee with advice the Committee in 2012 as adviser to the Committee, incurred, and expenses. on market trends, incentive schemes following a competitive selection process. Kepler, and other remuneration matters. a brand of Mercer and part of the MMC group of companies, did not provide any other services to the Group, and the Committee was satisfied that the advice it received was objective and independent. Towers Watson* During the year, the Committee Towers Watson also provided general compensation £19 000 on the basis of time received market information from and benefits information, general consultancy incurred, and expenses. Towers Watson. services to the Group and actuarial advice to the Trustees of the BG Pension Scheme. Towers Watson was selected by the Company and the Committee was satisfied that the market information it received was objective and independent. Alithos Limited* During the year, Alithos Limited, an Alithos also provided reports to the Group on £31 750 on the basis of a fixed independent TSR monitoring service, BG Group’s TSR performance and on its sector fee for the requested reports. provided the Committee with reports peers. Alithos was selected by the Company and on the Company’s TSR performance the Committee was satisfied that the information relative to the relevant indices. it received was independent and objective.

* Kepler Associates, Towers Watson and Alithos Limited have given, and not withdrawn, their consent to the issue of this document with the inclusion of the reference to their respective names in the form and context in which they appear.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 26 Corporate governance Remuneration report Annual remuneration report > continued

SHAREHOLDER VOTING AUDIT NOTES The table sets out actual voting in respect of the Group’s previous In accordance with Section 421 of the Companies Act 2006 and the Regulations, Remuneration report. the following sections of the report have been audited: Executive Directors’ total remuneration; scheme interests awarded during the year; payments (a) For Against Abstain to former Directors; Executive Directors’ interests in shares; Non-Executive 2014 Annual Statement and 1 773m 388m 43m Directors’ remuneration; Non-Executive Directors’ interests in ordinary shares; Annual Report on Remuneration and the table and notes in the Pensions section of the report. The remaining (2015 AGM) (82%) (18%) sections are not subject to audit. (a) A vote abstained is not a vote in law and is not counted in the calculation of the proportion of votes ‘For’ By order of the Board or ‘Against’ a resolution.

SIMON HENRY DIRECTOR 1 June 2016 Registered office: 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT Registered in & Wales No. 3690065

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 27 Corporate governance Other disclosures

There are a number of legal requirements set out in the resolution to direct all or part of a dividend to be paid by distributing specific Companies Act 2006 (the Act) with which BG Group must assets. The Directors must give effect to such a resolution. The Company may comply, which are addressed in this section. invest unclaimed dividends, or these may be forfeited, subject to the relevant provisions of the Articles, or New Articles. INCORPORATION AND CONSTITUTION For the year ended 31 December 2015, the total profit for the Group before tax BG Group Limited is domiciled in England and incorporated in England and Wales was $2 971 million (2014: $2 330 million loss). The results are dealt with more under Company Number 3690065. The Company was a listed public limited fully in the Financial statements on pages 31 to 78. company throughout the financial year ended 31 December 2015. The Company’s An interim dividend in respect of the six-month period up to 30 June 2015 of shares were de-listed on completion of the Combination on 15 February 2016 and 14.38 cents (9.22 pence) per share was paid on 11 September 2015. The effective the Company was re-registered as a private limited company on 30 March 2016. date of the Combination, 15 February 2016, was prior to the record date for Shell’s The Company adopted new Articles of Association (the New Articles) on 2015 fourth quarter dividend (being 19 February 2016). As such, BG Group plc re-registration. Such New Articles may only be amended by a special resolution shareholders would be entitled to receive that Shell dividend and would not of the shareholders. receive a further BG Group plc dividend for 2015. On 4 February 2016, Shell CORPORATE GOVERNANCE announced a fourth quarter dividend of 47.00 cents per Shell share (equivalent Unless specifically referenced, the disclosures set out on pages 27 to 31 refer to 20.93 cents per BG Group share, based on the default consideration of 383 to the provisions contained in the articles of association which were in place pence in cash and 0.4454 Shell B shares for each BG Group plc share held). ahead of re-registration, and throughout the financial year ended 31 December 2015 (the Articles). SUBSTANTIAL SHAREHOLDERS As at 31 December 2015, the following voting interests in the ordinary share SHARE CAPITAL capital of the Company, which were disclosable under DTR 5, had been notified The Company’s share capital consists of ordinary shares with a nominal value to the Directors: of 10p each, and a single, redeemable Dividend Access Share with a nominal value of 10p. Under the Scheme, the creation of a new class of shares, the BlackRock Inc 231 289 616 6.77% Dividend Access Shares, was approved by Shareholders at a General Meeting Norges Bank 127 624 204 3.73% of the Company held on 28 January 2016, and such share was allotted and issued to the Dividend Access Trustee (as defined in the Scheme Document On 15 February 2016, the effective date of the Combination and the date on published on 22 December 2015). The rights attaching to the Dividend Access which the shares of the Company were de-listed, the following voting interests Share are set out in the New Articles. Details of the Company’s share capital, in the ordinary share capital of the Company, which were disclosable under together with details of the movements in the share capital during the year, DTR 5, had been notified to the Directors: and up to the date of this report, are set out in note 20 on page 68. BlackRock Inc 205 566 688 6.01% SHAREHOLDERS’ RIGHTS AND OBLIGATIONS JPMorgan Chase & Co. 195 919 807 5.72% Rights and restrictions that applied to the Company’s shares during the Norges Bank 125 705 776 3.67% financial year are as follows: UBS Investment Bank 231 778 826 6.77%

●● Restrictions on shareholders’ rights – Subject to the Articles, and unless the SIGNIFICANT CONTRACTS – CHANGE OF CONTROL Directors decided otherwise, if a shareholder had failed to supply As at 31 December 2015, there were a number of agreements that would take information about interests in shares after receiving a notice properly issued effect, alter or terminate upon a change of control of BG Group following a by the Company, the shareholder would not have been entitled to attend or takeover bid. vote at a shareholders’ meeting for as long as the default continued. Any person who acquired these shares was subject to the same restrictions. In BG Energy Holdings Limited had committed borrowing facilities with a number addition, if the shareholder’s interest represented 0.25% or more of the of financial institutions in aggregate amounts of (i) $7.3 billion, which were existing shares further restrictions applied. undrawn and (ii) $2.7 billion, which were drawn. Under the terms of these ●● Restrictions on holding securities – There were no restrictions under the facilities, the lenders had an option to demand repayment or cancellation of Articles or under UK law that either restricted the rights of UK resident any or all of them upon a change of control of BG Group. When taken together, shareholders to hold, or limited the rights of non-resident or foreign these facilities were significant to the ongoing liquidity of the BG Group. shareholders to hold, or vote, the Company’s ordinary shares. No other agreements that take effect, alter or terminate upon a change of ●● Transfer – There were no restrictions on the transfer of shares beyond those control of the Group following a takeover bid were considered to be significant required by applicable law, under the Articles or under any applicable share in terms of their potential impact on the business of the Group as a whole as at dealing code. 31 December 2015 and none are considered to be significant in the context of ●● Voting – Subject to any special rights or restrictions, at any general meeting the combined Shell-BG Group. on a poll, every shareholder on the Register not less than 48 hours (excluding non-working days) before the time fixed for a general meeting, had one vote RESEARCH AND DEVELOPMENT for every share that they held. Shareholders were permitted to cast votes In 2015, BG Group invested approximately $33 million in research and either personally or by proxy and a proxy need not be a shareholder. Under development (R&D) of which $19 million was with Brazilian third parties. The the Articles, only shareholders who had paid the Company all calls, and all investments support the Group’s technology programme which is focused on other sums, relating to their shares that were due at the time of the five priority areas: Sustainable Gas, Carbonate Improved Oil Recovery, Subsea, meeting, were permitted to attend and vote. Geoscience and Coal Seam Gas, and is based in Rio de Janeiro, Brazil. ●● Alteration of share capital and variation of rights – The shareholders could by ordinary resolution: (a) consolidate, or consolidate and then divide, all or any Under the Sustainable Gas technology programme, 2015 saw the launch of the of the Company’s share capital into new shares of a larger nominal amount Gas Innovation Centre, in partnership with the São Paulo Research Foundation than the existing shares; and (b) divide some or all of the Company’s share and the University of São Paulo, and the first White Paper published by the capital into shares that are of a smaller nominal value than the existing Sustainable Gas Institute under the Sustainable Gas Technology programme shares. The Company could reduce or vary the rights that attached to its on the theme of fugitive gas emissions. In addition, the Blue Amazon project share capital by special resolution. However, such matters are subject to the developed a new hull design for LNG ships in order to improve ship propulsion relevant provisions of the Articles, or New Articles and applicable law and efficiency and reduce both costs and emissions. regulations. Further details in relation to rights and restrictions applying to 2015 also saw the inauguration and commissioning of the supercomputer, the Company’s shares are set out in the New Articles. Remoja, at SENAI – The Integrated Campus of Manufacturing and Technology (SENAI CEMATEC), to support the International Inversion Initiative to develop PROFIT AND DIVIDENDS Fullwave Form Inversion research, a partnership between BG Group, SENAI The shareholders can declare final dividends by ordinary resolution. No dividend CEMATEC, University of Rio Grande do Norte, Imperial College London and can exceed the amount recommended by the Directors. Dividends are paid based University of British . A new innovative geomechanics software on the amounts that have been paid up on the shares in the relevant period. called TATU was also developed with the start-up Alis Solutions, which allows The Directors can recommend that the shareholders pass an ordinary

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 28 Corporate governance Other disclosures > continued

the fast evaluation of displacements caused by production and DIRECTORS’ POWERS associated stress changes in and outside the reservoir. The Directors are empowered to exercise all the powers of the Company subject to any restrictions in the Articles, or New Articles, the Act and Under the Subsea technology programme, a prototype for the Autonomous any special resolution. Underwater Vehicle ‘Flatfish’ was built and tested in ocean conditions in Brazil, with field trials planned in 2017. This project is a partnership between ●● Repurchase of shares – The Company did not repurchase shares during BG Group, SENAI CEMATEC and the German Research Centre for Artificial the year or make any shares the subject of a charge. At the 2015 AGM, the Intelligence (DFKI) with the intention to raise integrity assurance of subsea Company was given authority to make market purchases of up to 341 441 611 pipelines and equipment and contribute to improve the availability of of its own issued share capital at a maximum price per share of the higher BG Group’s Assets. Other projects under the Subsea programme are of: (i) 105% of the average middle market closing price of the shares for the focused on research into reducing costs and improving asset integrity five business days prior to the relevant purchase; and (ii) an amount equal of deepwater risers. to the higher of the price of the last independent trade and the highest independent bid for an ordinary share. This authority will expire on During 2015, significant investments were also made in the field of Carbonate 1 June 2016 and the Company will not seek to renew it. Improved Oil Recovery (IOR), focused on the Brazilian pre-salt. In particular, the first equipment was installed at the new cutting-edge laboratory in Enhanced ●● Pre-emptive rights and new issues – At the 2015 AGM, the Directors Oil Recovery at the Federal University of Rio de Janeiro and research undertaken were given the power to allot shares up to a maximum nominal amount on pre-salt reservoir characterisation and fluid modelling with multiple of £113 813 870, representing approximately 1/3 of the Company’s issued international academic and industry partners and student exchange programmes. share capital (excluding treasury shares) as at 17 March 2015, together with ordinary shares outstanding under BG Group’s share option schemes. Construction of the Global Technology Centre in Rio de Janeiro was completed This authority will expire on 1 June 2016 and the Company will not seek in November 2015, with occupation planned for mid-2016. to renew it.

BRANCHES ●● Borrowing powers – So far as the Act allows, the Directors can exercise all The Group, through various subsidiaries, has established branches in a number the powers of the Company to: (a) borrow money; (b) issue debentures and of different countries in which the business operates. other securities; and (c) give any form of guarantee or security for any debt, liability or obligation of the Company or of any third party, subject to the EMPLOYEES limits (as and where defined in the Articles, or New Articles). Such limits ●● Engagement – Employees are informed about significant business issues, may be exceeded if the Company’s consent has been given in advance by the Group’s performance, and other matters of concern to them, using an ordinary resolution passed at a general meeting. webcasts, the Group’s intranet and in-house publications, as well as at face-to-face briefing meetings at each business location. When appropriate, DIRECTORS’ INDEMNITIES AND INSURANCE consultation with employee and union representatives also takes place. During the financial year BG Group maintained liability insurance for its Directors and Employees are given an opportunity to become shareholders in the officers. The Directors, Company Secretary and some senior management were Company and many participate in the Group’s share plans. also granted a qualifying third-party indemnity, under the Act. On the Combination, the Directors who had served during the year resigned and new Directors were ●● Disabilities – BG Group takes a positive approach to equality and diversity. appointed. Prior to the Effective Date, the Company entered into a deed of The Group remains committed to the full and fair treatment of people with indemnity with each new Director under identical terms. The deeds indemnify the disabilities in relation to job applications, training, promotion and career Directors to the widest extent permitted by the applicable laws of England against all development. Where existing employees become disabled, the Group’s liability incurred as a Director or employee of the Company or of certain other entities. policy is to provide continuing employment and training wherever practicable. The Group encourages its partners to take a similar approach to these issues Neither the BG Group nor the Shell company indemnity and insurance would where Group Policies or Standards are not able to be implemented directly. provide cover in the event that the indemnified individual was proved to have acted fraudulently or dishonestly. APPOINTMENT AND REMOVAL OF DIRECTORS The Board may appoint any person to be a Director of the Company and such Director would only hold office until the next AGM, when he or she would be eligible for re-appointment by the shareholders. The Articles provided that, at each AGM, all these Directors who were 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.

POLITICAL DONATIONS The Group’s policy is not to make donations for political purposes. In 2015, no donations were made to any EU member state for political purposes, nor contributions made to any non-EU political parties.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 29

DIRECTORS’ REPORT – PRINCIPAL DISCLOSURES The Directors’ report comprises pages 2 to 30. The following information, which forms part of the Directors’ report, can be found on the pages detailed:

Amendments to 2, 27 Greenhouse gas 3 Articles emissions Appointment and 28 Important events 2, 25, 73 removal of Directors since end of financial year Branches 28 Incorporation and 27 constitution Corporate 17 Payments to 19, 25

Governance report Directors/employees CORPORATE GOVERNANCE on a takeover Directors’ details 17 Political donations 28 Directors’ 28 Profit and dividends 2, 27 indemnities and insurance Directors’ interests 19–24 Repurchase of 28 shares Directors’ powers 28 Research and 27 development Directors’ 30 Restrictions on the 27 responsibilities transfer of shares Disclosure of 30 Restrictions on 27 information to voting rights auditors Employee 28 Risk management 14 engagement Employees with 28 Securities carrying 27 disabilities special rights Employee equal 28 Share capital 27, 68 opportunities Employees’ gender 17 Shareholders’ rights 27 disclosure and obligations Employee share 19 Significant contracts 27 schemes – change of control Financial 33, 60 Strategic report and 2 instruments principal activities Future 7–10 Substantial 27 developments shareholders Going concern 30

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 30 Corporate governance Disclosure statement

STATEMENT OF DIRECTORS’ RESPONSIBILITIES Legislation in the UK governing the preparation and dissemination FINANCIAL STATEMENTS AND ACCOUNTING RECORDS of financial statements may differ from legislation in other jurisdictions. The Directors are responsible for preparing the Annual Report, the Directors’ STATEMENT OF DISCLOSURE OF INFORMATION TO AUDITORS Remuneration report and the Financial statements in accordance with As required by Sections 418 and 419 of the Act, each of the Directors has applicable law and regulations. approved this report and confirmed that, so far as they are aware, there The Companies Act 2006 (the Act) requires the Directors to prepare Financial is no relevant audit information (being information needed by the auditor statements for each financial year. Under the Act, the Directors have prepared in connection with preparing their audit report) of which the Company’s the Group and the parent Company Financial statements in accordance with auditor is unaware, and they have taken all the steps that they ought to have IFRS as adopted by the European Union and as applied in accordance with taken as a Director in order to make themselves aware of any relevant audit the provisions of the Act. The Financial statements are required by law to information and to establish that the Company’s auditor is aware give a true and fair view of the state of affairs of the Group and the Company of that information. and of the profit or loss of the Group for that period. GOING CONCERN The Directors consider that, in preparing the Financial statements on BG Group’s business activities, together with factors likely to affect its future pages 31 to 78, the Company has used appropriate accounting policies development, performance and position, are set out in the Strategic report consistently applied and supported by reasonable and prudent judgements on pages 2 to 16. The financial position of the Group, its cash flows, liquidity and estimates, and all applicable accounting standards have been followed. position and borrowing facilities, as well as the Group’s objectives, policies The Company has complied with UK disclosure requirements in this report, and processes for managing capital, are described on pages 11 to 13. Financial in order to present a consistent picture to all shareholders. risk management objectives, details of financial instruments and hedging activities, and exposures to credit risk and liquidity risk are described in note 17, The Directors have responsibility for ensuring that the Company keeps pages 60 to 66. The Directors consider that the Group’s business activities accounting records that disclose with reasonable accuracy the financial and financial resources ensure that it is well placed to manage its business position of the Company and of the Group and that enable them to ensure risks successfully. that the Financial statements and the Directors’ Remuneration report comply with the Act and, as regards the Group Financial statements, Article 4 of the The Directors are satisfied that it is appropriate to continue to adopt a going International Accounting Standard Regulation. concern basis in the preparation of the Financial statements. The Directors have general responsibility for taking such steps as are By order of the Board reasonably open to them to safeguard the assets of BG Group and to prevent and detect fraud and other irregularities, and have adopted a control framework for application across the Group. The Directors, having prepared the Financial statements, have asked the auditor to take whatever steps, and to undertake whatever inspections, they consider to be appropriate for the purposes of enabling them to give their audit report. SIMON HENRY DIRECTOR A copy of the Financial statements of the Company is placed on the Shell 1 June 2016 website. The work carried out by the auditor does not involve consideration of the maintenance of the Shell website and, accordingly, the auditor accepts Registered office: 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT, no responsibility for any changes that may have occurred to the Financial United Kingdom statements since they were initially presented on the website.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 31 Financial statements Independent auditor’s report to the member of BG Group Limited

We have audited the Financial statements SCOPE OF THE AUDIT OF THE FINANCIAL OPINION ON OTHER MATTER PRESCRIBED of BG Group Limited for the year ended STATEMENTS BY THE COMPANIES ACT 2006 31 December 2015 which comprise the Consolidated An audit involves obtaining evidence about the In our opinion: income statement, the Consolidated statement amounts and disclosures in the Financial statements ● of comprehensive income, the Consolidated and sufficient to give reasonable assurance that the ● the information given in the Strategic report parent Company balance sheets, the Consolidated Financial statements are free from material and the Directors’ report for the financial year and parent Company statements of changes in misstatement, whether caused by fraud or error. for which the Financial statements are prepared equity, the Consolidated and parent Company cash This includes an assessment of: whether the is consistent with the financial statements; and flow statements and the Principal accounting accounting policies are appropriate to the Group’s ● policies and the related notes 1 to 26. The financial and the parent Company’s circumstances and have ● the part of the Directors’ Remuneration report reporting framework that has been applied in their been consistently applied and adequately disclosed; to be audited has been properly prepared in preparation is applicable law and International the reasonableness of significant accounting accordance with the Companies Act 2006. Financial Reporting Standards (IFRSs) as adopted estimates made by the directors; and the overall MATTERS ON WHICH WE ARE REQUIRED by the European Union and, as regards the parent presentation of the Financial statements. In TO REPORT BY EXCEPTION Company Financial statements, as applied in addition, we read all the financial and non-financial We have nothing to report in respect of the accordance with the provisions of the Companies information in the Annual Report to identify material following matters where the Companies Act 2006 Act 2006. inconsistencies with the audited Financial statements requires us to report to you if, in our opinion: and to identify any information that is apparently This report is made solely to the company’s materially incorrect based on, or materially ●● adequate accounting records have not been members, as a body, in accordance with Chapter 3 inconsistent with, the knowledge acquired by us of Part 16 of the Companies Act 2006. Our audit kept by the parent company, or returns in the course of performing the audit. If we become work has been undertaken so that we might state adequate for our audit have not been received aware of any apparent material misstatements to the company’s members those matters we are from branches not visited by us; or or inconsistencies we consider the implications required to state to them in an auditor’s report and for our report. ●● the parent Company Financial statements and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility OPINION ON FINANCIAL STATEMENTS the part of the Directors’ Remuneration report to anyone other than the company and the In our opinion: to be audited are not in agreement with the FINANCIAL STATEMENTS company’s members as a body, for our audit work, accounting records and returns; or ● for this report, or for the opinions we have formed. ● the Financial statements give a true and fair view of the state of the Group’s and ●● certain disclosures of directors’ remuneration RESPECTIVE RESPONSIBILITIES OF DIRECTORS of the parent Company’s affairs as at specified by law are not made; or AND AUDITOR 31 December 2015 and of the Group’s profit As explained more fully in the Directors’ ●● we have not received all the information and for the year then ended; Responsibilities Statement set out on page 30, explanations we require for our audit. the directors are responsible for the preparation ●● the Group Financial statements have been of the Financial statements and for being satisfied properly prepared in accordance with IFRSs that they give a true and fair view. Our responsibility as adopted by the European Union; is to audit and express an opinion on the Financial statements in accordance with applicable law ●● the parent Company Financial statements GARY DONALD and International Standards on Auditing (UK and have been properly prepared in accordance (SENIOR STATUTORY AUDITOR) Ireland). Those standards require us to comply with IFRSs as adopted by the European for and on behalf of Ernst & Young LLP, with the Auditing Practices Board’s Ethical Union and as applied in accordance with the Statutory Auditor Standards for Auditors. provisions of the Companies Act 2006; and London ●● the Financial statements have been prepared 1 June 2016 in accordance with the requirements of the Companies Act 2006 and as regards the Group Financial statements, Article 4 of the IAS Regulation.

Notes: (a) The maintenance and integrity of the Royal Dutch Shell plc web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the web site. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 32 Financial statements Principal accounting policies

BASIS OF PREPARATION Reserves, commodity prices, impairment Exploration expenditure The Financial statements for the year ended and depreciation Expenditure on unproved gas and oil reserves 31 December 2015 have been prepared in accordance One factor that affects the calculation of within intangible assets is reviewed at least annually with International Financial Reporting Standards depreciation and impairment in particular is the to confirm the Group’s continued right and intent (IFRS), and IFRS Interpretations Committee (IFRIC) estimation of hydrocarbon reserves and resources. to explore, develop or otherwise realise value from interpretations as adopted by the European Union. BG Group’s estimates of reserves and resources of these assets. As at 31 December 2015 BG Group held In addition, the Financial statements have been gas and oil are reviewed and, where appropriate, a balance of $3 141 million (2014: $3 014 million) prepared in accordance with those parts of the updated quarterly. They are also subject to periodic relating to expenditure on unproved gas and oil Companies Act 2006 applicable to companies review by external petroleum engineers. A number reserves within intangible assets. Capitalised reporting under IFRS. The Financial statements of factors impact on the amount of gas and oil exploratory well costs included within this total have been prepared primarily using historical cost reserves and resources, including the available amounted to $2 570 million (2014: $2 525 million). principles except that, as disclosed in the accounting reservoir data, commodity prices and future costs, Unsuccessful exploration expenditure written off policies below, certain items, including derivatives, and the amount is subject to periodic revision as to the income statement in 2015 was $363 million are measured at fair value. these factors change. (2014: $237 million). Capitalised exploratory well costs relate to areas where further work is being BG Group estimates that a 1% change throughout BASIS OF CONSOLIDATION undertaken on geological and geophysical 2015 in the estimation of proved, proved developed The Financial statements comprise a consolidation assessment, development design and commercial and proved plus probable reserves associated with of the accounts of the Company and its subsidiary arrangements. producing fields would have changed the 2015 undertakings and incorporate the results of its depreciation charge by $25 million. Decommissioning costs share of joint ventures and associates using the The recognition and measurement of equity method of accounting. All inter-company In 2015, the Group recognised a non-cash pre-tax decommissioning provisions involves the use transactions are eliminated on consolidation. impairment charge of $1 452 million (post-tax of estimates and assumptions. These include: Consistent accounting policies have been used to $691 million) primarily reflecting the impact of the existence of a legal or constructive obligation prepare the consolidated Financial statements. further falls in commodity prices and reserves to decommission, based on current legislation, revisions on certain of the Group’s E&P assets, Most of BG Group’s exploration and production contractual or regulatory requirements or best mainly in the North Sea and Tunisia. In the North (E&P) activity is conducted through joint operations. practice; the risk-free discount rate used to Sea, the pre-tax impairment charge was $787 million The Group recognises its own share of the assets, determine the net present value of the liability; (post-tax $307 million), driven by lower commodity liabilities, revenues, expenses and cash flows the estimated cost of decommissioning based on prices, a reserves downgrade reflecting underlying associated with these joint operations. internal and external engineering estimates and reservoir performance, and higher decommissioning reports; and the payment dates of expected The results of undertakings acquired or disposed costs on certain fields. In Tunisia, the pre-tax decommissioning costs which are uncertain and are of are consolidated from or to the date when control impairment charge was $534 million (post-tax based on economic assumptions surrounding the passes to or from the Company. $307 million), driven by lower commodity prices useful economic lives of the fields concerned. Actual and a reserves downgrade reflecting reservoir costs could differ from estimated costs due to PRESENTATION OF RESULTS performance. Elsewhere, the reduction in the changes in legislation, regulations, technology, price BG Group presents its results in the income Group’s assumptions of future commodity prices levels and the expected date of decommissioning. statement to separately identify the contribution resulted in pre-tax impairment charges of of disposals, certain re-measurements, impairments $131 million (post-tax $77 million) in relation On the basis that all other assumptions in the and certain other exceptional items in order to certain other E&P assets. calculation remain the same as at 31 December 2015, to provide readers with a clear and consistent a 10% increase in the cost estimates used to assess Egypt receivables presentation of the underlying operating the final decommissioning obligations would result As at 31 December 2015, the amount owed by Egypt performance of the Group’s ongoing business; in an increase to the decommissioning provision General Petroleum Corporation (EGPC) in respect of see note 1, page 42 and note 8, page 53. of circa $450 million, and a 1% increase in the domestic gas sales was $1.1 billion (2014: $0.9 billion), discount rate would result in a decrease to the of which $0.9 billion (2014: $0.7 billion) was overdue. SIGNIFICANT ACCOUNTING JUDGEMENTS decommissioning provision of circa $800 million. The Group considers that the current receivable AND ESTIMATES These changes would be principally offset by a balance remains fully recoverable as cash payments The preparation of Financial statements in change in the value of the associated asset, resulting from EGPC continue to be received, however, in 2015, conformity with IFRS requires management to in no material change to the consolidated net assets. a $50 million pre- and post-tax charge was recognised make judgements and assumptions that affect relating to the downward re-measurement of the the reported amounts of assets and liabilities receivable balance to reflect the time value of money and disclosure of contingencies at the date of the associated with the outstanding debt based on a Financial statements and the reported revenues and revised assumed repayment profile. This increases expenses during the reporting period. Actual results the total discount recognised to $150 million following could differ from these estimates. BG Group believes the $100 million pre-tax charge ($79 million post-tax) that the accounting policies associated with recorded in 2014. The net amount after this reserves, impairment, depreciation, exploration remeasurement is $0.9 billion (2014: $0.8 billion). expenditure, decommissioning costs and tax are Discussions continue with the Egyptian government the policies where changes in estimates and regarding potential future gas development assumptions could have a significant impact programmes, subject to the negotiation of a higher on the Financial statements. domestic gas price and resolution of the outstanding receivables.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 33 Financial statements Principal accounting policies > continued

Current and deferred tax Depreciation and amortisation based on the best evidence available to the Group, BG Group is subject to income taxes in numerous Freehold land is not depreciated. Other property, and may include appropriate valuation techniques, jurisdictions. There are transactions and calculations plant and equipment, except exploration and market data or sales of comparable assets. for which the ultimate tax determination is production assets, is depreciated on a straight-line For the purposes of impairment testing, uncertain. The Group periodically evaluates basis at rates sufficient to write off the historical exploration and production assets may be situations in which applicable tax regulation is cost less residual value of individual assets over their aggregated into appropriate cash-generating subject to interpretation and establishes provisions estimated useful economic lives. Asset lives and units based on considerations including where appropriate based on amounts expected to residual values are reassessed annually. geographical location, the use of common be paid to the tax authorities. In estimating these The depreciation periods for the principal categories facilities and marketing arrangements. provisions, consideration is taken of the strength of assets are as follows: of the technical arguments, the local statute of Financial instruments limitations, likely scope for double tax relief, and Freehold and leasehold buildings up to 50 years Derivative financial instruments are initially whether penalties and interest could apply. Plant and machinery 5 to 40 years recognised and subsequently re-measured at fair value. Deferred tax assets are recognised for deductible Motor vehicles and office equipment up to 10 years temporary differences, unutilised tax losses and Exploration and production assets associated with Derivative financial instruments utilised by unused tax credits to the extent that realisation of conventional activities are depreciated from the BG Group’s treasury operations include interest the related tax benefit through future taxable commencement of commercial production in the rate swaps, foreign currency swaps, cross-currency income is probable. To determine the future taxable fields concerned, using the unit of production method interest rate swaps, forward rate agreements income, reference is made to the latest available based on the proved developed reserves of those and forward exchange contracts. profit forecasts. This requires assumptions regarding fields, except that a basis of total proved reserves Certain derivative financial instruments are future profitability and is therefore inherently is used for acquired interests and for facilities. designated as hedges in line with the Group’s risk uncertain. Significant items where the Group has management policies. Gains and losses arising from relied on estimates of future taxable income include Exploration and production assets associated with the re-measurement of these financial instruments a deferred tax asset in respect of the US tax group unconventional activities, including coal seam and are either recognised in the income statement or amounting to $1 266 million (2014: $1 298 million) shale gas, are depreciated from the commencement deferred in other comprehensive income depending and a deferred tax asset relating to the Australian of commercial production in the fields concerned, on the type of hedging relationship. When a hedging tax group amounting to $698 million using the unit of production method based on FINANCIAL STATEMENTS instrument is sold or expires, any cumulative gain or (2014: $2 167 million). proved plus probable reserves, together with the estimated future development expenditure loss previously recognised in other comprehensive SIGNIFICANT ACCOUNTING POLICIES required to develop those reserves. income remains in other comprehensive income Exploration expenditure until the hedged transaction is recognised in the BG Group uses the ‘successful efforts’ method Intangible assets in respect of contractual rights income statement or is no longer expected to occur. of accounting for exploration expenditure. are recognised at cost less amortisation. They are Movements in the fair value of derivative financial amortised on a straight-line basis over the term instruments not included in hedging relationships Exploration expenditure, including licence of the related contract. are recognised in the income statement. acquisition costs, is capitalised as an intangible asset when incurred and certain expenditure, Changes in depreciation and amortisation estimates Loans held by the Group are initially measured at fair such as geological and geophysical exploration are dealt with prospectively. value and subsequently carried at amortised cost, costs, is expensed. A review of each licence or Decommissioning costs except where they form the underlying transaction field is carried out, at least annually, to ascertain Where a legal or constructive obligation has been in an effective fair value hedge relationship when whether commercial reserves have been discovered. incurred, provision is made for the net present value the carrying value is adjusted to reflect fair value movements associated with the hedged risks. Such For conventional E&P activities, intangible of the estimated cost of decommissioning at the adjustments are reported in the income statement. exploration and appraisal expenditure is end of the producing lives of assets. reclassified to property, plant and equipment When this provision gives access to future Other financial instruments such as receivable on the determination of proved reserves. This is economic benefits, an asset is recognised and then balances are measured at amortised cost the point when exploration and appraisal activities subsequently depreciated in line with the life of the less impairments. become a development project and reflects the underlying producing asset, otherwise the costs are Commodity instruments importance of individual well performance and charged to the income statement. The unwinding Within the ordinary course of business BG Group reserves to conventional E&P projects. By comparison, of the discount on the provision is included in the routinely enters into sale and purchase transactions unconventional coal seam and shale gas activities income statement within finance costs. Any changes for commodities. The majority of these transactions have a relatively short exploration and appraisal to estimated costs or discount rates are dealt take the form of contracts that were entered into phase and are more focused on the average with prospectively. and continue to be held for the purpose of receipt deliverability of a large number of wells over an or delivery of the commodity in accordance with entire licence area rather than the performance Impairment of non-current assets the Group’s expected sale, purchase or usage and reserves associated with individual wells. Non-current assets subject to depreciation or requirements. Such contracts are not within Accordingly, BG Group uses the determination amortisation are reviewed for impairments the scope of IAS 39. of proved plus probable reserves as the point at whenever events or other changes in circumstances which exploration and appraisal expenditure on indicate that the carrying amount may not be Certain commodity contracts have pricing terms unconventional E&P activities is reclassified to recoverable. Expenditure on unproved gas and oil that bring them into the scope of IAS 39. In addition, property, plant and equipment. This approach reserves is assessed for impairment when facts and commodity instruments are used to manage certain is consistent with the methodology used to circumstances suggest that its carrying amount price exposures in respect of optimising the depreciate assets associated with these activities. exceeds its recoverable amount. timing and location of physical gas, LNG and oil commitments. These contracts are recognised Exploration expenditure transferred to property, Any impairment of non-current assets (excluding on the balance sheet at fair value with movements plant and equipment is subsequently depreciated financial assets) is calculated as the difference in fair value recognised in the income statement. on a unit of production basis. Exploration between the carrying values of cash-generating expenditure deemed to be unsuccessful is units (including associated goodwill) and their The Group uses various commodity-based derivative written off to the income statement. recoverable amount, being the higher of the instruments to manage some of the risks arising estimated value in use or fair value less costs of from fluctuations in commodity prices. Such disposal at the date the impairment charge is contracts include physical and net-settled forwards, recognised. Value in use represents the net present futures, swaps and options. Where these derivatives value of expected future cash flows discounted have been designated as cash flow hedges of on a pre-tax basis. Fair value less costs of disposal is underlying commodity price exposures, certain

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 34 Financial statements Principal accounting policies > continued

gains and losses attributable to these instruments OTHER ACCOUNTING POLICIES Leases are deferred in other comprehensive income and Property, plant and equipment excluding Assets held under finance leases are capitalised recognised in the income statement when the decommissioning assets and included in property, plant and equipment underlying hedged transaction crystallises or is All property, plant and equipment is carried at at the lower of fair value and the present value no longer expected to occur. depreciated historical cost. Additions represent new, of the minimum lease payments as determined at or replacements of specific components of property, the inception of the lease. The obligations relating All other commodity contracts within the scope plant and equipment. Finance costs associated with to finance leases, net of finance charges in respect of IAS 39 are measured at fair value with gains and borrowings used to finance major capital projects of future periods, are determined at the inception losses taken to the income statement. Gas and oil are capitalised up to the point at which the asset of the lease and included within borrowings. The contracts and related derivative instruments is ready for its intended use. interest element of the rental obligation is allocated associated with the physical purchase and re-sale to accounting periods during the lease term to of third-party gas and oil are presented on a net Inventories reflect the constant rate of interest on the remaining basis within other operating income. Inventories, including inventories of gas, LNG and balance of the obligation for each accounting period. oil held for sale in the ordinary course of business, Revenue recognition are stated at weighted average historical cost less BG Group has certain long-term arrangements Revenue associated with E&P sales (of natural gas, provision for deterioration and obsolescence or, under which it has acquired all of the capacity crude oil and petroleum products) is recorded when if lower, net realisable value. of certain property, plant and equipment. In title passes to the customer. Revenue from the circumstances where it is considered that the production of natural gas and oil in which BG Group Foreign currencies Group has the majority of the risks and rewards has an interest with other producers is recognised The currency in which the Group presents its of ownership of the plant, the arrangement is based on the Group’s working interest and the terms consolidated and parent Company Financial considered to contain a finance lease. of the relevant production sharing contracts statements is US Dollars. The functional currency (entitlement method). of the Company is Pounds Sterling. The exchange Rentals under operating leases are charged to rates of US Dollar to Pound Sterling over the periods the income statement on a straight-line basis Sales of LNG and associated products are recognised included in this Annual Report and Accounts are over the lease term. when title passes to the customer. LNG shipping as follows: revenue is recognised over the period of the Pensions relevant contract. US$/UK£ exchange The amount recognised on the balance sheet in rate 2015 2014 2013 2012 2011 respect of liabilities for defined benefit pension and All other revenue is recognised when title passes Closing rate 1.4739 1.5593 1.6563 1.6255 1.5541 post-retirement benefit plans represents the present to the customer. Average rate 1.5322 1.6545 1.5640 1.5848 1.6079 value of the obligations offset by the fair value of Current and deferred income tax plan assets. On consolidation, assets and liabilities denominated The tax expense for the period comprises current in currencies other than US Dollars are translated The cost of providing retirement pensions and and deferred tax, determined using currently into US Dollars at closing rates of exchange. related benefits is charged to the income statement enacted or substantively enacted tax laws. Non-US Dollar trading results of the parent over the periods benefiting from the employees’ Deferred income tax is provided in full, using the Company, subsidiary undertakings, jointly controlled services. Current service costs are reflected in liability method, on temporary differences arising entities and associates are translated into US Dollars operating profit and net interest costs are reflected between the tax bases of assets and liabilities and at average rates of exchange. Differences resulting in finance costs in the period in which they arise. their carrying amounts in the Financial statements. from the retranslation of the opening net assets Actuarial gains and losses are recognised in full as Deferred tax assets are recognised to the extent and the results for the year are recognised in other they occur in other comprehensive income. that it is probable that future taxable profit will be comprehensive income. Contributions made to defined contribution pension available, against which the temporary differences Any differences arising from 1 January 2003, the plans are charged to the income statement when can be utilised. date of transition to IFRS, are presented as a payable. Deferred income tax is provided on temporary separate component of equity. A surplus in a plan is recognised as an asset to the differences arising on investments in subsidiaries, Share capital, share premium and other reserves extent that it is considered recoverable. joint ventures and associates, except where the are translated into US Dollars at the historical timing of the reversal of the temporary difference Share-based payments rates prevailing at the date of the transaction. can be controlled and it is probable that the The cost of providing share-based payments to temporary difference will not reverse in the Exchange differences on monetary assets and employees is charged to the income statement over foreseeable future. liabilities arising in individual entities are taken to the vesting period of the related share options or the income statement, including those in respect share allocations. The cost is based on the fair value of inter-company balances unless related to of the options or shares allocated and the number exchange differences on items that form part of awards expected to vest. The fair value of each of a net investment in a foreign operation. These option or share is determined using either the share differences are taken to reserves until the related price on the date of the grant or a Monte Carlo investment is disposed of. All other exchange projection model, depending on the type of award. movements are dealt with through the Market-related performance conditions are reflected income statement. in the fair value of the share. Non-market-related performance conditions are allowed for using a separate assumption about the number of awards expected to vest; the final charge made reflects the number actually vesting.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 35 Financial statements Principal accounting policies > continued

ACCOUNTING DEVELOPMENTS DURING 2015 A number of amendments to accounting standards issued by the IASB are applicable from 1 January 2015. They have not had a material impact on the Group’s Financial statements for the year ended 31 December 2015. ACCOUNTING DEVELOPMENTS NOT YET ADOPTED The following standards and amendments have been issued by the IASB up to the date of this report and in some cases have not yet been endorsed by the European Union. IFRS 9 ‘Financial Instruments’ The IASB issued the final version of IFRS 9 in July 2014, which reflects all phases of the financial instruments project. IFRS 9 introduces new requirements for the classification, measurement and impairment of financial instruments and hedge accounting, and is required to be adopted by 2018. BG Group is reviewing the standard to determine the likely impact. IFRS 15 ‘Revenue from Contracts with Customers’ The IASB issued IFRS 15 in May 2014. The standard establishes a five-step model that will apply to revenue arising from contracts with customers. FINANCIAL STATEMENTS Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. Revenue is recognised based on the consideration to which the Group expects to be entitled. IFRS 15 is required to be adopted by 2018. BG Group is reviewing the standard to determine the likely impact. IFRS 16 ‘Leases’ The IASB issued IFRS 16 in January 2016. The standard requires lessees to recognise a lease liability and a right of use asset for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Interest expense on the lease liability and depreciation on the right of use asset will be recognised in the income statement, resulting in a higher total charge to profit or loss in the initial years of a lease. IFRS 16 is required to be adopted by 2019. BG Group is reviewing the standard to determine the likely impact. Amendment to IFRS 11 ‘Joint Arrangements’ The IASB issued an amended IFRS 11 in May 2014. The amendment requires an acquisition of an interest in a joint operation that is a business as defined in IFRS 3, ‘Business Combinations’, to apply the relevant IFRS 3 principles for business combinations accounting, and applies to both the acquisition of an initial interest in a joint operation and the acquisition of any additional interest. The amendment is required to be applied prospectively from 2016. Other revisions and amendments Other revisions and amendments are not expected to have a material impact.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 36 Financial statements Consolidated income statement

for the year ended 31 December 2015 2014 Disposals, Disposals, Business re-measurements Business re-measurements Performance and impairments Total Performance and impairments Total Note $m $m $m $m $m $m Group revenue 1 16 148 – 16 148 19 289 – 19 289 Other operating income 1, 4 271 (117) 154 257 403 660 Group revenue and other operating income 1 16 419 (117) 16 302 19 546 403 19 949 Operating costs 2, 4 (14 196) (53) (14 249) (13 391) (181) (13 572) Profits and losses on disposal of non-current assets and impairments 4 – 959 959 – (8 120) (8 120) Share of post-tax results from joint ventures and associates 1 206 (45) 161 222 (56) 166 Operating profit/(loss) before interest and tax (EBIT) 1 2 429 744 3 173 6 377 (7 954) (1 577) Finance income 4, 5 107 278 385 153 – 153 Finance costs 4, 5 (367) (220) (587) (262) (644) (906) Profit/(loss) before taxation 2 169 802 2 971 6 268 (8 598) (2 330) Taxation 4, 6 (472) (171) (643) (2 233) 3 512 1 279 Profit/(loss) for the year from continuing operations 1, 4 1 697 631 2 328 4 035 (5 086) (1 051) Profit/(loss) for the year from discontinued operations – 6 6 – 7 7 Profit/(loss) for the year attributable to Shareholders (earnings) 1 697 637 2 334 4 035 (5 079) (1 044)

Earnings per ordinary share continuing operations (cents) Basic 8 49.7 18.5 68.2 118.4 (149.2) (30.8) Diluted 8 49.5 18.4 67.9 118.4 (149.2) (30.8) Earnings per ordinary share discontinued operations (cents) Basic – 0.2 0.2 – 0.2 0.2 Diluted – 0.2 0.2 – 0.2 0.2 Total earnings per ordinary share (cents) Basic 49.7 18.7 68.4 118.4 (149.0) (30.6) Diluted 49.5 18.6 68.1 118.4 (149.0) (30.6)

For information on dividends paid and proposed in the year see note 7, page 53.

The accounting policies on pages 32 to 35 together with the notes on pages 42 to 78 form part of these accounts.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 37 Financial statements Consolidated statement of comprehensive income

for the year ended 31 December 2015 2014 $m $m Profit/(loss) for the year 2 334 (1 044)

Items that may be reclassified to the income statement: Fair value losses on cash flow hedges – (71) Transfers to income statement on cash flow hedges (2) 33 Fair value losses on net investment hedges (867) (574) Fair value movements on available-for-sale assets (4) (17) Tax on cash flow and net investment hedges(a) 156 125 Currency translation adjustments(b) (127) (223)

Other items: Re-measurement of defined benefit pension obligation 21 (163) Tax on re-measurement of defined benefit pension obligation (6) 45

Other comprehensive income/(charge) for the year, net of tax(c) (829) (845)

Total comprehensive income/(charge) for the year attributable to Shareholders 1 505 (1 889)

(a) Includes tax relating to cash flow hedges of $nil (2014: $9m credit) and a tax credit relating to net investment hedges of $156m (2014: $116m). (b) In 2015, $405m charge (2014: $nil) was transferred to the income statement as part of the profit on disposal of non-US Dollar denominated operations. (c) Includes a charge in other comprehensive income in respect of joint ventures and associates of $28m (2014: $29m).

The result for the financial year for the Company was $nil (2014: $(6)m loss). Total comprehensive charge for the Company was $292m (2014: $361m). As permitted by section 408 of the Companies Act 2006, no income statement or statement of comprehensive income is presented for the Company. FINANCIAL STATEMENTS

The accounting policies on pages 32 to 35 together with the notes on pages 42 to 78 form part of these accounts.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 38 Financial statements Balance sheets

The Group The Company as at 31 December 2015 2014 2015 2014 Note $m $m $m $m Assets Non-current assets Intangible assets 10 3 253 3 135 – – Property, plant and equipment 11 35 256 35 855 – – Investments in subsidiary undertakings 12 – – 3 940 4 104 Investments 12 4 308 3 547 – – Deferred tax assets 6 2 844 3 949 5 2 Trade and other receivables 14 1 282 1 068 – – Retirement benefit surplus 23 205 – – Commodity contracts and other derivative financial instruments 17 164 287 – – 47 312 47 841 3 945 4 106 Current assets Inventories 13 1 117 1 194 – – Trade and other receivables 14 3 667 5 042 784 1 786 Current tax receivable 213 151 8 35 Commodity contracts and other derivative financial instruments 17 167 235 – – Cash and cash equivalents 15 7 200 5 295 – – 12 364 11 917 792 1 821

Assets classified as held for sale 24 – 2 088 – – Total assets 59 676 61 846 4 737 5 927

Liabilities Current liabilities Borrowings 16 (1 268) (1 586) – – Trade and other payables 18 (3 775) (4 768) (34) (48) Current tax liabilities (832) (1 412) – – Commodity contracts and other derivative financial instruments 17 (141) (128) – – (6 016) (7 894) (34) (48) Non-current liabilities Borrowings 16 (15 473) (15 921) – – Trade and other payables 18 (184) (136) – – Commodity contracts and other derivative financial instruments 17 (846) (253) – – Deferred tax liabilities 6 (2 111) (2 946) – – Retirement benefit obligations 23 (69) (258) – – Provisions for other liabilities and charges 19 (5 220) (5 235) – – (23 903) (24 749) – –

Liabilities associated with assets classified as held for sale 24 – (63) – – Total liabilities (29 919) (32 706) (34) (48)

Net assets 29 757 29 140 4 703 5 879

The accounting policies on pages 32 to 35 together with the notes on pages 42 to 78 form part of these accounts.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 39 Financial statements Balance sheets > continued

The Group The Company as at 31 December 2015 2014 2015 2014 Note $m $m $m $m Equity Ordinary shares 20 580 579 580 579 Share premium 707 691 707 691 Hedging reserve (9) (7) – – Translation reserve (2 305) (1 467) (515) (223) Other reserves 2 710 2 710 1 203 1 203 Retained earnings 28 074 26 634 2 728 3 629 Total equity 29 757 29 140 4 703 5 879

The accounts on pages 32 to 78 were approved by the Board and signed on its behalf on 1 June 2016 by:

SIMON HENRY DIRECTOR FINANCIAL STATEMENTS

The accounting policies on pages 32 to 35 together with the notes on pages 42 to 78 form part of these accounts.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 40 Financial statements Statements of changes in equity

The Group Share Called up premium Hedging Translation Other Retained share capital account reserve reserve(a) reserves(b) earnings(c) Total $m $m $m $m $m $m $m As at 1 January 2014 579 663 22 (786) 2 710 28 772 31 960 Total comprehensive income for the year – – (29) (681) – (1 179) (1 889) Loss for the year – – – – – (1 044) (1 044) Hedges, net of tax – – (29) (458) – – (487) Available-for-sale assets, net of tax – – – – – (17) (17) Defined benefit pension obligation, net of tax – – – – – (118) (118) Currency translation adjustments, net of tax – – – (223) – – (223) Adjustment for share schemes – – – – – 71 71 Tax in respect of share schemes(d) – – – – – (3) (3) Dividends – – – – – (1 027) (1 027) Issue of shares(e) – 28 – – – – 28 As at 31 December 2014 579 691 (7) (1 467) 2 710 26 634 29 140 Total comprehensive income for the year – – (2) (838) – 2 345 1 505 Profit for the year – – – – – 2 334 2 334 Hedges, net of tax – – (2) (711) – – (713) Available-for-sale assets, net of tax – – – – – (4) (4) Defined benefit pension obligation, net of tax – – – – – 15 15 Currency translation adjustments – – – (127) – – (127) Adjustment for share schemes – – – – – 76 76 Tax in respect of share schemes(d) – – – – – 1 1 Dividends – – – – – (982) (982) Issue of shares(e) 1 16 – – – – 17 As at 31 December 2015 580 707 (9) (2 305) 2 710 28 074 29 757

The Company Share Called up premium Hedging Translation Other Retained share capital account reserve reserve reserves(b) earnings Total $m $m $m $m $m $m $m As at 1 January 2014 579 663 – 132 1 203 4 598 7 175 Total comprehensive income for the year(f) – – – (355) – (6) (361) Adjustment for share schemes – – – – – 71 71 Tax in respect of share schemes(d) – – – – – (7) (7) Dividends – – – – – (1 027) (1 027) Issue of shares(e) – 28 – – – – 28 As at 31 December 2014 579 691 – (223) 1 203 3 629 5 879 Total comprehensive income for the year(f) – – – (292) – – (292) Adjustment for share schemes – – – – – 76 76 Tax in respect of share schemes(d) – – – – – 5 5 Dividends – – – – – (982) (982) Issue of shares(e) 1 16 – – – – 17 As at 31 December 2015 580 707 – (515) 1 203 2 728 4 703

(a) As at 31 December 2015, includes currency translation losses of $37m (2014: $9m losses) relating to joint ventures and associates. (b) Other reserves, which are not distributable, represent the difference between the carrying value of subsidiary undertaking investments and their respective capital structures following the restructuring and refinancing in 1999. (c) As at 31 December 2015, includes retained earnings in respect of joint ventures and associates of $704m (2014: $660m). (d) This consists of current tax of $1m (2014: $5m) and deferred tax of $nil (2014: $(8)m) in the Group and deferred tax of $5m (2014: $(7)m) in the Company. (e) The issue of shares relates to amounts issued to employees under employee share option schemes for a cash consideration of $17m (2014: $28m). (f) Comprises result for the year of $nil (2014: $(6)m loss) and currency translation adjustments of $(292)m (2014: $(355)m).

The accounting policies on pages 32 to 35 together with the notes on pages 42 to 78 form part of these accounts.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 41 Financial statements Cash flow statements

The Group The Company for the year ended 31 December 2015 2014 2015 2014 Note $m $m $m $m Profit/(loss) before taxation(a) 2 977 (2 321) 1 (1) Finance income (386) (153) (8) (13) Finance costs 587 906 – – Operating profit/(loss) before interest and tax 3 178 (1 568) (7) (14) Share of post-tax results from joint ventures and associates (161) (166) – – Depreciation of property, plant and equipment 3 194 2 788 – – Amortisation of other intangible assets 10 11 – – Share-based payments 69 62 12 3 Fair value movements in commodity-based contracts 22 (354) – – Profits and losses on disposal of non-current assets and impairments(b) (955) 8 120 (6) – Unsuccessful exploration expenditure written off 363 237 – – Decrease in provisions for liabilities and retirement benefit obligations (568) (94) – – Movements in working capital: Decrease/(increase) in inventories 53 (272) – – Decrease in trade and other receivables 472 993 – – (Decrease)/increase in trade and other payables (355) 258 – – Cash generated/(used) by operations 5 322 10 015 (1) (11) Income taxes (paid)/received (1 019) (2 616) 28 8 Net cash inflow/(outflow) from operating activities 4 303 7 399 27 (3) Cash flows from investing activities Dividends received 131 179 – – (c) Proceeds from disposal of subsidiary undertakings and investments 4 606 800 – – FINANCIAL STATEMENTS Proceeds from disposal of property, plant and equipment and intangible assets(d) 580 55 – – Purchase of property, plant and equipment and intangible assets (5 596) (8 510) – – Repayments from joint ventures and associates – 41 – – Interests in subsidiaries, joint ventures and associates, and other investments (791) (892) – – Other loan repayments 130 111 – – Net cash outflow from investing activities (940) (8 216) – – Cash flows from financing activities Interest paid (655) (620) – – Interest received 70 64 – – Dividends paid (980) (1 024) (980) (1 024) Net proceeds from issue of new borrowings 1 614 2 086 – – Repayment of borrowings (1 559) (625) – – Issue of shares 17 28 17 28 Funding movements with subsidiary – – 936 999 Net cash (outflow)/inflow from financing activities (1 493) (91) (27) 3 Net increase/(decrease) in cash and cash equivalents 1 870 (908) – – Cash and cash equivalents at 1 January 15 5 295 6 208 – – Effect of foreign exchange rate changes 35 (5) – – Cash and cash equivalents at 31 December 15 7 200 5 295 – –

(a) Profit before taxation from discontinued operations was $6m (2014: $9m). (b) Excludes $4m cash receipts recognised in profits and losses on disposal of non-current assets and impairments in the Income Statement. (c) 2015 includes proceeds from the disposal of the QCLNG pipeline of $4 597m. 2014 includes proceeds from the sale of the Central Area Transmission System pipeline and associated infrastructure in the UK North Sea of $797m. (d) 2015 includes proceeds of $460m from the sale and lease back of LNG ships (2014: $53m).

The cash flows above are inclusive of discontinued operations.

The accounting policies on pages 32 to 35 together with the notes on pages 42 to 78 form part of these accounts.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 42 Financial statements Notes to the accounts

1 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION BG Group’s reportable segments are those used by the Group’s Board and management (the ‘Chief Operating Decision Maker’ as defined in IFRS 8 ‘Operating Segments’) to run the business and are based on differences in the Group’s products and services. Segment information is presented on the same basis as that used for internal reporting purposes. BG Group has two principal operating and reporting segments; Upstream and LNG Shipping & Marketing.

Upstream comprises exploration, development, production, liquefaction and marketing of hydrocarbons. LNG Shipping & Marketing combines the development and use of LNG import facilities with the purchase, shipping and sale of LNG and regasified natural gas. The Group’s transmission and distribution businesses and certain corporate activities are included in the Other activities segment.

In order to simplify disclosures and improve transparency, the Group’s share of joint ventures and associates’ results are now reported separately on a post-tax basis within each segment as part of EBITDA.

Intra-Group sales are settled at market prices and are generally based on the same prices as those charged to third parties (arm’s length principle). Group revenue, profit for the year and capital investment attributable to BG Group activities are shown within this note, analysed by operating segment.

The presentation of BG Group’s results under IFRS separately identifies the effect of the re-measurement of certain financial instruments, profits and losses on the disposal and impairment of non-current assets and certain other exceptional items. Results excluding discontinued operations and disposals, certain re-measurements and impairments and certain other exceptional items (‘Business Performance’) are used by management and are presented in order to provide readers with a clear and consistent presentation of the underlying operating performance of the Group’s ongoing business. Further information on Business Performance is given on page 79.

The disposals, re-measurements and impairments column includes unrealised gains and losses in respect of certain gas sales contracts classified as derivatives under IAS 39, commodity instruments that represent economic hedges but do not qualify for hedge accounting, and financial instruments used to manage foreign exchange and interest rate exposure. Where these instruments represent economic hedges but cannot be designated as hedges under IAS 39, unrealised movements in fair value, together with foreign exchange movements associated with the underlying borrowings and foreign exchange movements in respect of certain inter-company balances, are recorded in the income statement and disclosed separately as ‘disposals, re-measurements and impairments’. The separate presentation of these items 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.

Reconciliations between the Total Results and Business Performance are provided on page 43. The geographical information provided for external revenue is based on country of production.

GROUP REVENUE Analysed by operating segment

External revenue Intra-Group revenue Total Group revenue for the year ended 31 December 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Group revenue(a) Upstream 8 012 11 161 1 713 701 9 725 11 862 LNG Shipping & Marketing 8 132 8 121 3 3 8 135 8 124 Other activities 4 7 – – 4 7 Segmental revenue 16 148 19 289 1 716 704 17 864 19 993 Less: Intra-Group revenue – – (1 716) (704) (1 716) (704) Group revenue 16 148 19 289 – – 16 148 19 289

(a) External revenue attributable to the UK is $1 725m (2014: $3 168m). External revenue attributable to non-UK countries is $14 423m (2014: $16 121m). Included in the Upstream segment is external revenue of $2 454m attributable to Brazil representing 15% of Group external revenue (2014: $2 441m, 13%). LNG Shipping & Marketing revenues are not considered reliant on individual countries since they are associated with the global deployment of the Group’s portfolio of flexible LNG supplies.

External revenue from the largest single customer amounted to $2 177m representing 13% of Group revenue and is included within both LNG and Upstream segments. In 2014 no single customer had external revenue exceeding 10% of Group revenue.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 43 Financial statements Notes to the accounts > continued

1 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION CONTINUED PROFIT FOR THE YEAR Analysed by operating segment

Disposals, re-measurements Business Performance and impairments Total for the year ended 31 December 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Group revenue 16 148 19 289 – – 16 148 19 289 Other operating income(a)(b) 271 257 (117) 403 154 660 Group revenue and other operating income 16 419 19 546 (117) 403 16 302 19 949 EBITDA Upstream 4 167 6 453 906 (8 238) 5 073 (1 785) LNG Shipping & Marketing 1 456 2 683 (177) 205 1 279 2 888 Other activities 10 40 15 79 25 119 5 633 9 176 744 (7 954) 6 377 1 222 DD&A Upstream (3 092) (2 652) – – (3 092) (2 652) LNG Shipping & Marketing (108) (143) – – (108) (143) Other activities (4) (4) – – (4) (4) (3 204) (2 799) – – (3 204) (2 799) Operating profit/(loss) before interest and tax (EBIT) Upstream 1 075 3 801 906 (8 238) 1 981 (4 437) LNG Shipping & Marketing 1 348 2 540 (177) 205 1 171 2 745 Other activities 6 36 15 79 21 115 FINANCIAL STATEMENTS 2 429 6 377 744 (7 954) 3 173 (1 577) Net finance (costs)/income Finance income 107 153 278 – 385 153 Finance costs (367) (262) (220) (644) (587) (906) (260) (109) 58 (644) (202) (753) Taxation Taxation (472) (2 233) (171) 3 512 (643) 1 279 Profit/(loss) for the year from continuing operations 1 697 4 035 631 (5 086) 2 328 (1 051) Profit for the year from discontinued operations – – 6 7 6 7 Profit/(loss) for the year attributable to Shareholders 1 697 4 035 637 (5 079) 2 334 (1 044)

(a) Business Performance Other operating income includes gains on the Group’s 2014 oil hedging programme, the results of the purchase and re-sale of third-party gas and income arising from optimisation activities undertaken by the Group’s LNG Shipping & Marketing operations. Information on Disposals, re-measurements and impairments Other operating income is given in note 4, page 49. (b) Business Performance Other operating income is attributable to segments as follows: Upstream $67m (2014: $164m) and LNG Shipping & Marketing $204m (2014: $93m).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 44 Financial statements Notes to the accounts > continued

1 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION CONTINUED JOINT VENTURES AND ASSOCIATES Analysed by operating segment

Share of post-tax results from joint ventures and associates for the year ended 31 December 2015 2014 $m $m Upstream 167 130 LNG Shipping & Marketing (30) 14 Other activities 24 22 161 166

CAPITAL INVESTMENT Analysed by operating segment

Capital expenditure(a) Capital investment(b) for the year ended 31 December 2015 2014 2015 2014 $m $m $m $m Upstream 5 894 8 867 6 687 9 759 LNG Shipping & Marketing 10 6 10 6 Other activities – 4 – 4 5 904 8 877 6 697 9 769

(a) Comprises expenditure on property, plant and equipment and other intangible assets. (b) Comprises expenditure on property, plant and equipment, other intangible assets and investments.

At 31 December 2015, the Group’s non-current assets (excluding derivative financial instruments, deferred tax assets, retirement benefit surplus and finance lease receivable) of $43 927m (2014: $43 433m) included an amount attributable to the UK of $4 226m (2014: $5 798m). The amount attributable to non-UK countries was $39 701m (2014: $37 635m) including $16 468m (2014: $16 148m) attributable to Australia representing 37% (2014: 37%) of the Group total and $10 875m (2014: $8 022m) attributable to Brazil representing 25% of the Group total (2014: 18%).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 45 Financial statements Notes to the accounts > continued

2 OPERATING COSTS Included within the Group’s operating costs charged to the income statement were the following items: 2015 2014 $m $m Raw materials, consumables and finished goods 3 839 3 552

Employee costs (see note 3(C), page 47) 1 022 1 259 Less: Own work capitalised (169) (340) Employee costs included within other operating charges below (81) (140) Employee costs included within net finance costs 1 (7) 773 772 Depreciation and amortisation Depreciation of Property, plant and equipment 3 194 2 788 Amortisation of Other intangible assets 10 11 3 204 2 799

Other operating charges: Unsuccessful exploration expenditure written off 363 237 Other exploration expenditure(a) 313 514 Total exploration expenditure 676 751

Operating lease rentals 1 047 701 Research and development 33 90

Net foreign exchange (gains)/losses on operating activities 79 (8) FINANCIAL STATEMENTS

Other costs(b) 4 598 4 915

Continuing operations total 14 249 13 572

(a) Broadly equivalent to cash flows attributable to operating activities arising from exploration and evaluation. (b) Includes certain E&P lifting, storage, marketing, royalty, tariff and general administration costs.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 46 Financial statements Notes to the accounts > continued

2 OPERATING COSTS CONTINUED AUDITOR’S FEES AND SERVICES Ernst & Young LLP has served as BG Group’s independent external auditor for the two-year period ended 31 December 2015. The following table presents the aggregate fees for professional services and other services rendered by the external auditor to BG Group: 2015 2014 $m $m Fees payable to the Group’s auditor for the audit of both the parent Company and the Group’s Annual Report and Accounts 3.0 2.5

Fees payable to the Group’s auditor and its associates for other services: The audit of the parent’s subsidiaries 1.9 2.2 Audit related assurance services(a) 1.1 1.1 3.0 3.3

Total fees payable for audit and audit related services 6.0 5.8

Services relating to corporate finance transactions(b) 3.0 – All other services(c) 0.4 0.4 9.4 6.2

(a) Audit related assurance services includes costs relating to the interim review and regulatory reporting. (b) Services in relation to the Combination with Shell. (c) All other services includes fees billed for attestation services, consultations concerning financial accounting and reporting standards, and other advice.

3 DIRECTORS AND EMPLOYEES A) DIRECTORS’ REMUNERATION 2015 2014 $’000 $’000 Fees to Non-Executive Directors and Chairman 2 679 2 947 Salaries(a) 3 165 3 834 Benefits(b) 1 704 423 Bonuses(c) 5 413 1 200 Share-based payments(d) 9 603 3 444 Fees and benefits in respect of former Directors – 7 22 564 11 855

(a) Salaries for 2015 include termination payments of $nil (2014: $2 097 000). (b) In addition, in 2015, two Directors (2014: two) received cash in lieu of their pension totalling $950 000 (2014: $521 000). (c) Bonus figures for 2015 represent payments under the Annual Incentive Scheme (AIS) in respect of the 2015 incentive year which will be made in 2016. Bonus figures for 2014 represent payments under the AIS in respect of the 2014 incentive year which were made in 2015. Bonuses exclude remuneration in the form of mandatorily deferred shares under the Deferred Bonus Plan (DBP) (2015: $nil; 2014: $251 000). (d) Share-based payments include a charge for mandatorily deferred shares awarded to the Directors under the DBP in respect of the previous incentive years.

For further information please see the Remuneration report on page 18.

B) KEY MANAGEMENT COMPENSATION During 2015, the Group’s governance arrangements were revised and a new Corporate Executive Team (CET) was established, replacing the Executive Management Committee (EMC) and the Group Leadership Team (GLT). The key management compensation analysed below for 2015 represents amounts in respect of the Directors and the executive officers, defined as members of the EMC and GLT, and subsequently the CET, and the Company Secretary. For 2014, the analysis reflects the Group’s previous governance structure. 2015 2014 $’000 $’000 Fees to Non-Executive Directors and Chairman 2 679 2 947 Salaries(a) 12 344 11 078 Benefits 2 283 817 Bonuses(b) 11 885 6 952 Pension charge(c) 2 211 2 158 Share-based payments(d) 17 989 14 746 49 391 38 698

(a) Salaries for 2015 include termination payments of $1 670 000 (2014: $3 021 000). (b) Bonus figures for 2015 include payments under the AIS in respect of the 2015 incentive year which will be made in 2016. Bonus figures for 2014 represent payments under the AIS in respect of the 2014 incentive year which were made in 2015. Bonuses for 2014 include remuneration in the form of awards under the VBDP. Bonuses exclude remuneration in the form of mandatorily deferred shares under the DBP (2015: $746 000; 2014: $746 000). (c) Includes benefits accruing under defined benefit schemes and cash in lieu of pensions. (d) Share-based payments include a charge for mandatorily deferred shares awarded to key management under the DBP in respect of the previous incentive years.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 47 Financial statements Notes to the accounts > continued

3 DIRECTORS AND EMPLOYEES CONTINUED C) EMPLOYEE COSTS The Group 2015 2014 $m $m Wages and salaries(a) 678 896 Social security costs 47 69 Pension charge(b) 58 65 Share-based payments (see note 3(E) below) 81 56 Other including incentive schemes(c) 158 173 1 022 1 259

(a) Includes termination payments. (b) The pension charge for the year ended 31 December 2015 includes a $1m credit (2014: $7m charge) which is presented within finance costs (see note 23, page 70). (c) Includes payments under the AIS and remuneration in the form of awards under the VBDP.

In 2015, employee costs of $853m (2014: $919m) were charged to the income statement and $169m (2014: $340m) were capitalised.

D) AVERAGE NUMBER OF EMPLOYEES DURING THE YEAR 2015 2014 Number Number Upstream 4 419 4 779 LNG Shipping & Marketing 298 364 4 717 5 143

E) SHARE-BASED PAYMENTS The Group

2015 2014 FINANCIAL STATEMENTS $m $m Equity-settled share-based payments: Group Share Awards 44 40 Performance Share Awards 18 15 Other share awards(a) 8 10 70 65

Cash-settled share-based payments 11 (9) 81 56

(a) The charge for other share awards excludes an amount of $6m (2014: $6m) relating to shares and nil-cost options awarded under the VBDP, which was transferred to equity during 2015. This expense was recognised in the income statement during 2014 as part of the AIS charge. The number of awards made was 0.4m (2014: 0.3m).

The 2015 share-based payment charge excludes the effect of accelerated vesting on certain schemes as a consequence of the Combination with Shell, see note 25, page 73. Group Share Awards Group Share Awards under the Group’s Long-Term Incentive Plan (LTIP) will normally vest three years after the date of grant, subject to continued employment and the individual employee’s performance. Awards are in the form of shares (2015: 1.6m shares; 2014: 1.6m shares) or nil-cost options (2015: 1.5m options; 2014: 1.5m options). The costs in respect of these awards are charged to the income statement over the vesting period, based on the fair value of the shares and options at the award date. Dividend equivalents accrue on the award during the vesting period. Accordingly, the fair value of the shares and options awarded is based on the market value of BG Group plc shares on the award date, which was £11.89 per share in 2015 (2014: £12.09 per share). Performance Share Awards Details of Performance Share Awards under the Group’s LTIP are given on pages 21 and 22. Awards are in the form of shares (2015: 1.5m shares; 2014: 0.3m shares) or nil-cost options (2015: 2.3m options; 2014: 2.0m options). The costs in respect of these awards are charged to the income statement over the vesting period, based on the fair value of the shares and options at the award date, adjusted for the probability of market-related performance conditions being achieved. Generally, the fair value of options awarded during the year is estimated using a Monte Carlo projection model with the following assumptions: share price on date of issue of £11.89 (2014: £12.11), exercise price of £nil (2014: £nil), a risk-free rate of 1.30% (2014: 1.20%) and a vesting period of three years (2014: three years). The model also contains assumptions for both the Group and each member of the industry peer group (set out on pages 21 and 22) in respect of volatility, average share price growth and share price correlation. Expected volatility was determined by calculating the historical volatility of the share price over the previous three-year period. Share price correlation was determined by calculating the historical correlation of the share price over the previous three-year period. Average share price growth was determined from historical growth over the previous year. Dividend equivalents accrue on the award during the vesting period. The fair value of the most significant options awarded during the year was £6.66 per share (2014: £4.73 per share).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 48 Financial statements Notes to the accounts > continued

3 DIRECTORS AND EMPLOYEES CONTINUED E) SHARE-BASED PAYMENTS CONTINUED Other share awards The charge for Other share awards includes awards made under the DBP, the Sharesave Plan, the Share Incentive Plan and the Share Award Plan. The DBP operates in conjunction with the AIS and is described in the Directors’ Remuneration Policy, which can be found in the 2013 Remuneration report and is available upon request at the Company’s registered office. Awards are in the form of nil-cost options (2015: 0.1m options; 2014: 0.3m options). The charge to the income statement in respect of these awards was $1m in 2015 (2014: $3m) and is based on the market value of BG Group plc shares at the award date, which was £8.86 in 2015 (2014: £10.74). The charge to the income statement in respect of the Sharesave Plan is based on the fair value of the share options at the grant date and the likelihood of allocations vesting under the scheme. The charge was $2m in 2015 (2014: $1m). The fair value of the share options granted is determined using a Black-Scholes option pricing model and was £3.24 in 2015 (2014: £2.10). In 2015, awards of 0.2m shares (2014: 0.3m shares) were made in conjunction with the Group’s UK Flexible Benefits Plan, an element of the Share Incentive Plan. The charge to the income statement in respect of these awards was $4m in 2015 (2014: $4m) and is based on the market value of BG Group plc shares at the grant date, which was £11.80 in 2015 (2014: £11.34). The Share Award Plan was an award in 2013 in the form of shares or nil-cost options with a three-year vesting period. In 2015 and 2014, no awards were made under this plan. The charge to the income statement in respect of these awards was $1m in 2015 (2014: $2m). The fair value of the shares and options awarded is based on the market value of BG Group plc shares at the grant date, which was £12.19 in 2013. Cash-settled share-based payments Cash-settled share-based payments arise when the Group incurs a liability to transfer cash amounts that are based on the price (or value) of the Company’s shares. Most of the charge in respect of cash-settled share-based payments relates to social security costs on share awards which have not vested or, in the case of share options, have not been exercised. The charge to the income statement is based on the fair value of the awards outstanding at the balance sheet date, multiplied by the current employer’s social security rate.

F) SUMMARY OF MOVEMENTS IN SHARE AWARDS AND SHARE OPTIONS Nil-cost Share awards options under Sharesave Plan Other nil-cost under the LTIP the LTIP options CSOS options options(a) m m m m m 2014 Outstanding as at 1 January 2014 5.3 12.4 1.4 6.0 1.5 Granted 1.9 3.5 1.0 – 0.5 Vested (1.0) n/a n/a n/a n/a Exercised n/a (0.9) (0.2) (2.3) (0.2) Forfeited (1.9) (3.6) (0.3) (0.1) (0.1) Outstanding as at 31 December 2014 4.3 11.4 1.9 3.6 1.7 Exercisable as at 31 December 2014 n/a 2.2 – 3.6 1.2 Option price range as at 31 December 2014 (£) n/a n/a 8.30–11.10 4.99–7.92 n/a Weighted average remaining contractual life n/a 8yrs 2mths 2yrs 7mths 1yr 9mths 4yrs 5mths Option price range for exercised options (£) n/a n/a 8.74–11.10 3.47–7.92 n/a Weighted average share price at the date of exercise for options exercised in the year (£) n/a 11.82 11.63 11.52 11.89

2015 Outstanding as at 1 January 2015 4.3 11.4 1.9 3.6 1.7 Granted 3.1 3.8 0.6 – 0.5 Vested (1.1) n/a n/a n/a n/a Exercised n/a (1.0) – (1.4) (0.2) Forfeited (0.8) (2.9) (0.3) (0.1) – Outstanding as at 31 December 2015 5.5 11.3 2.2 2.1 2.0 Exercisable as at 31 December 2015 n/a 2.3 – 2.1 0.5 Option price range as at 31 December 2015 (£) n/a n/a 8.30–11.10 6.90–7.92 n/a Weighted average remaining contractual life n/a 8yrs 11mths 2yrs 3mths 1yr 2mths 4yrs 8mths Option price range for exercised options (£) n/a n/a 8.30–11.10 4.99–7.92 n/a Weighted average share price at the date of exercise for options exercised in the year (£) n/a 10.23 10.90 10.28 10.42

(a) Comprises nil-cost options awarded under the DBP, Share Award Plan and VBDP.

G) WEIGHTED AVERAGE EXERCISE PRICE OF SHARE OPTIONS 2015 Sharesave 2015 CSOS 2014 Sharesave 2014 CSOS Plan options options Plan options options £ £ £ £ Outstanding as at 1 January 8.72 6.82 9.43 6.38 Granted 8.30 – 8.30 – Exercised 10.25 5.96 10.00 5.69 Forfeited 9.42 6.26 9.64 6.71 Outstanding as at 31 December 8.50 7.43 8.72 6.82 Exercisable as at 31 December n/a 7.43 n/a 6.82

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 49 Financial statements Notes to the accounts > continued

4 DISPOSALS, RE-MEASUREMENTS AND IMPAIRMENTS BG Group has separately identified profits and losses related to disposals of non-current assets, certain re-measurements of financial instruments, impairments of non-current assets and certain other exceptional items. A reconciliation of results before and after disposals, re-measurements and impairments is given in note 1, page 42. 2015 2014 $m $m Other operating income: Re-measurements of commodity-based contracts (117) 297 Other – 106 (117) 403 Operating costs (53) (181) Profits and losses on disposal of non-current assets and impairments: Disposals of non-current assets 2 553 967 Impairments (1 452) (8 956) Other (142) (131) 959 (8 120) Share of post-tax results from joint ventures and associates (45) (56) Finance income 278 – Finance costs (220) (644) 802 (8 598) Taxation (171) 3 512 Profit/(loss) for the year from continuing operations 631 (5 086)

OTHER OPERATING INCOME

Re-measurements included within Other operating income amount to a charge of $117m (2014: $297m credit), of which a charge of $4m (2014: $280m credit) FINANCIAL STATEMENTS represents non-cash mark-to-market movements on certain gas contracts. While the activity surrounding these contracts involves the physical delivery of gas, the contracts fall within the scope of IAS 39 and meet the definition of a derivative instrument. In addition, re-measurements include a net $113m charge (2014: $17m credit) representing unrealised mark-to-market movements associated with economic hedges. Further information on commodity instruments is given in note 17, page 60. Other operating income in 2014 included a credit of $106m in respect of final settlement of a legacy treaty dispute relating to investments formerly held by the Group.

OPERATING COSTS Operating costs in 2015 include a pre- and post-tax charge of $50m relating to the downward re-measurement of trade receivables in Egypt to reflect the time value of money associated with the outstanding debt based on a revised assumed repayment profile. This increases the total discount recognised to $150m following the pre-tax charge of $100m (post-tax $79m) recognised in 2014.

DISPOSAL OF NON-CURRENT ASSETS AND IMPAIRMENTS 2015 Disposal of non-current assets BG Group completed the sale of the Queensland Curtis (QCLNG) pipeline for gross proceeds of $4 597m, resulting in a pre-tax profit on disposal of $2 538m (post-tax $1 663m) in the Upstream segment. The Group completed the sale of two LNG vessels, for total gross consideration of $460m, resulting in a pre-tax loss on disposal of $15m (post-tax $14m) in the LNG Shipping & Marketing segment. Other disposals resulted in a pre-tax gain of $30m (post-tax $23m). Impairments There was a pre-tax impairment charge of $1 452m (post-tax $691m) relating to Upstream activities in the North Sea, Tunisia and certain other assets. This was driven by the impact of further falls in commodity prices and reserves revisions and reflected a forward Brent price curve for five years, reverting to the Group’s long-term price assumption for impairment testing of $75 real from 1 January 2015. The Group used the fair value less costs of disposal method to calculate the recoverable amount of the cash-generating units (CGU) consistent with a Level 3 fair value measurement as defined in note 17, page 60. In determining the fair value, the Group used a post-tax discount rate of 8% based on the Group weighted average cost of capital. Where appropriate, cash flows were adjusted to take into account any specific country risks. In the North Sea, the total pre-tax non-cash impairment charge was $787m (post-tax $307m) and the related recoverable amount was $806m. This was driven by lower commodity prices, a reserves downgrade reflecting underlying reservoir performance, and higher decommissioning costs on certain fields. In Tunisia, the total pre-tax non-cash impairment charge was $534m (post-tax $307m) and the related recoverable amount was $569m. This was driven by lower commodity prices and a reserves downgrade reflecting reservoir performance. Elsewhere, reduction in the Group’s assumptions of future commodity prices resulted in pre-tax impairment charges of $131m (post-tax $77m) in relation to certain other E&P assets. Other Other write-offs and provisions for certain other exceptional items resulted in a pre-tax charge to the income statement of $142m (post-tax $109m).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 50 Financial statements Notes to the accounts > continued

4 DISPOSALS, RE-MEASUREMENTS AND IMPAIRMENTS CONTINUED 2014 Disposal of non-current assets BG Group completed the sale of its 62.78% equity interest in the Central Area Transmission System (CATS) gas pipeline and associated infrastructure in the UK North Sea for total consideration of $797m, resulting in a pre- and post-tax profit on disposal of $782m in the Upstream segment. The Group completed the sale of six LNG steam vessels, which were previously held as finance leases and have subsequently been leased back under operating leases, for total gross consideration of $930m (net cash proceeds were $53m after repayment of the finance lease liabilities and settlement of associated cross-currency interest rate swaps and interest rate swaps). This resulted in a pre-tax profit on disposal of $216m (post-tax $170m) in the LNG Shipping & Marketing segment. Other disposals resulted in a pre-tax charge of $31m (post-tax $18m) in the Upstream segment. Impairments There was a pre-tax impairment charge of $8 956m (post-tax $5 928m) relating to Upstream activities in Australia, Egypt and certain other assets. This was driven mainly by the significant fall in global commodity prices. The Group used the fair value less costs of disposal method to calculate the recoverable amount of the cash-generating units consistent with a Level 3 fair value measurement as defined in note 17, page 60. In determining the fair value, the Group used a post-tax discount rate of 8% based on the Group weighted average cost of capital. Where appropriate, cash flows were adjusted to take into account any specific country risks. In Australia, the total pre-tax non-cash impairment charge was $6 824m (post-tax $4 540m). The Group entered into an agreement to sell its wholly owned subsidiary QCLNG Pipeline Pty Limited and, as a result, the remaining QCLNG assets were subject to a pre-tax impairment charge of $2 747m (post-tax $1 828m) principally reflecting the increase in tariffs payable to third parties post-completion. The remaining pre-tax impairment charge of $4 077m (post-tax $2 712m) in Australia was driven primarily by a reduction in the Group’s assumptions of future commodity prices. The recoverable amount of the CGU, excluding QCLNG Pipeline Pty Limited, which was classified as held for sale, was $15.0bn. In Egypt, there was a pre-tax impairment charge of $790m (post-tax $737m), principally driven by further reserve downgrades reflecting underlying reservoir performance and the Group’s expectation of limited LNG exports from Egyptian LNG for the foreseeable future. The recoverable amount of the CGU was $0.8bn. Elsewhere, the reduction in the Group’s assumptions of future commodity prices resulted in pre-tax impairment charges of $1 342m (post-tax $651m). The most significant impairment charges were in the North Sea $566m pre-tax (post-tax $172m), Tunisia $450m pre-tax (post-tax $255m) and the USA $227m pre-tax (post-tax $148m). Other impairments in 2014 resulted in pre-tax impairment charges of $99m (post-tax $76m). Other Other write-offs and provisions for certain other exceptional items resulted in a pre-tax charge to the income statement of $131m (post-tax $95m).

SHARE OF POST-TAX RESULTS FROM JOINT VENTURES AND ASSOCIATES In 2015, a pre- and post-tax charge of $40m was recognised, being the Group’s share of an impairment charge recognised by a joint venture. In addition, a pre- and post-tax charge of $5m (2014: $56m) was recognised in respect of the Group’s share of a write-off of assets under construction in Brazil following the bankruptcy of a contractor.

FINANCE INCOME AND COSTS Re-measurements presented in finance income and costs include mark-to-market movements on certain derivatives used to hedge foreign exchange and interest rate risk and foreign exchange movements on borrowings and certain intercompany balances. In addition, re-measurements in 2015 include a pre-tax credit of $76m (post-tax $61m) in relation to interest recognised on a consortium loan.

TAXATION In 2015, taxation included a net charge of $204m relating to disposals, re-measurements and impairments, a net charge of $659m reflecting the impact of foreign exchange movements on deferred and current tax balances, especially in Australia and Brazil, a $388m credit relating to changes in deferred tax balances due to changes in UK taxation rates and a net $304m credit resulting from a number of exceptional one-off and prior period taxation items. In 2014, taxation included a credit of $3 028m as a result of the impairment charges, and a net credit of $449m resulting from a number of exceptional one-off and prior period taxation items. These items included the full recognition of taxable losses in Australia following first LNG production at QCLNG and exceptional prior period adjustments and one-off changes to tax positions in a number of jurisdictions.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 51 Financial statements Notes to the accounts > continued

5 FINANCE INCOME AND COSTS 2015 2014 $m $m Interest receivable(a) 153 153 Net fair value gains and losses on derivatives and fair value hedge adjustments(b) 232 – Finance income 385 153

Interest payable (543) (548) Finance lease charges (89) (92) Interest capitalised(c) 397 532 Unwinding of discount on provisions and pension assets and liabilities(d) (132) (154) Net fair value gains and losses on derivatives and fair value hedge adjustments(b) (220) (644) Finance costs (587) (906)

Net finance costs – continuing operations (202) (753)

(a) Interest receivable includes net exchange gains of $nil (2014: $49m). (b) Comprises $73m gain (2014: $26m loss) associated with fair value hedge adjustments, $293m loss (2014: $238m loss) in respect of mark-to-market movements on derivatives, $223m gain (2014: $236m gain) on foreign exchange movements on borrowings, and $9m gain (2014: $616m loss) on foreign exchange movements on certain inter-company balances. (c) Finance costs associated with the Group’s central borrowings used to finance major capital projects are capitalised up to the point that the project is ready for its intended use. The weighted average interest cost applicable to these borrowings is 3.2% per annum (2014: 3.4%). Tax relief for capitalised interest is approximately $126m (2014: $162m). (d) Relates to the unwinding of the discount on provisions and retirement benefit schemes.

6 TAXATION 2015 2014 $m $m

Current tax FINANCIAL STATEMENTS UK corporation tax and 332 869 Overseas tax 55 1 321 Total current tax 387 2 190 Deferred tax 256 (3 469) Total tax charge/(credit) – continuing operations 643 (1 279)

Factors affecting the tax charge for the year The total tax charge/(credit) reconciles with that calculated using the statutory UK corporate tax rate of 20.25% (2014: 21.49%): 2015 2014 $m $m Profit/(loss)before taxation 2 971 (2 330) Tax on profit/(loss) before taxation at UK statutory corporation tax rate 602 (501) Effect on tax charge of: Non tax-deductible or non-taxable items 221 (145) Overseas taxes at different rates to UK statutory rate (63) (478) North Sea taxes at different rates to UK statutory rate (84) 380 Petroleum revenue tax (31) 2 Effect of changes in tax rate on deferred tax balances (388) – Adjustment recognised for current tax of prior periods (467) (194) Adjustment recognised for deferred tax of prior periods 282 (35) Recognition of deferred tax (74) (183) Foreign exchange movements on current and deferred tax balances 659 354 Other items (14) (479) Tax charge/(credit) – continuing operations 643 (1 279)

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 52 Financial statements Notes to the accounts > continued

6 TAXATION CONTINUED The net movement in deferred tax assets and liabilities is shown below: Other Accelerated tax Decommi- Unused tax temporary depreciation ssioning losses differences(a) Total $m $m $m $m $m As at 1 January 2014 (5 986) 548 2 433 282 (2 723) Credit/(charge) for the year 2 130 189 1 510 (360) 3 469 Charge to equity and other comprehensive income – – – 163 163 Currency translation adjustments 400 (42) (306) 13 65 Disposals 60 (31) – – 29 As at 31 December 2014 (3 396) 664 3 637 98 1 003 Credit/(charge) for the year 726 177 (1 164) 5 (256) Charge to equity and other comprehensive income – – – 142 142 Currency translation adjustments 83 (39) (219) 12 (163) Disposals 6 1 – – 7 As at 31 December 2015 (2 581) 803 2 254 257 733

2015 2014 $m $m Deferred tax liabilities (2 111) (2 946) Deferred tax assets 2 844 3 949 Net deferred tax asset as at 31 December 733 1 003

(a) Other temporary differences include deferred petroleum revenue tax, retirement benefit obligations and certain provisions.

Deferred tax assets are recognised for deductible temporary differences, unutilised tax losses and unused tax credits to the extent that realisation of the related tax benefit through future taxable income is probable. To determine the future taxable income, reference is made to the latest available profit forecast which takes into account production volumes, LNG Shipping & Marketing supply volumes and commodity prices in the relevant jurisdictions. This requires assumptions regarding future profitability and is therefore inherently uncertain. 2015 2014 $m $m Temporary differences for which no deferred tax asset has been recognised Deductible temporary differences 1 462 2 211 Tax losses 2 941 2 192 Tax credits 531 554 Total deferred tax assets not recognised 4 934 4 957

To the extent unutilised, $252m of the unused tax losses will expire within five years (2014: $166m) and $1 214m of the unused tax losses will expire between six and 20 years (2014: $849m). The aggregate amount of taxable temporary differences associated with undistributed earnings of subsidiaries, joint ventures and associates, for which deferred tax liabilities have not been recognised, is approximately $2m (2014: $5m). No liability has been recognised in respect of these differences either because no liability is expected to arise on distribution under applicable tax legislation or 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. As at 31 December 2015, the Company had a deferred tax asset of $5m (2014: $2m).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 53 Financial statements Notes to the accounts > continued

7 DIVIDENDS 2015 2014 Cents per Pence per Cents per Pence per $m ordinary share ordinary share $m ordinary share ordinary share Prior year final dividend, paid in the year 499 14.37 9.52 547 15.68 9.51 Interim dividend, paid in the year 483 14.38 9.22 480 14.38 8.47 Total dividend, paid in the year 982 28.75 18.74 1 027 30.06 17.98

The final dividend of 14.37 cents per ordinary share ($499m) in respect of the year ended 31 December 2014 was paid on 22 May 2015 to shareholders on the register at the close of business on 24 April 2015. The interim dividend of 14.38 cents per ordinary share ($483m) in respect of the year ending 31 December 2015 was paid on 11 September 2015 to shareholders on the register as at 14 August 2015. Following the Combination with Shell on 15 February 2016, BG Group shareholders will not receive a further BG Group dividend for 2015. However, as the effective date of the Combination** with Shell occurred prior to the record date for Shell’s fourth quarter dividend (being 19 February 2016), BG Group shareholders were entitled to receive that Shell dividend. On 4 February 2016 Shell announced a fourth quarter 2015 dividend of 47 cents per Shell share (equivalent to 20.93 cents per BG share based on the default consideration of 383 pence in cash and 0.4454 Shell B shares for each BG share held). On 23 March 2016, BG Group plc paid an interim ordinary dividend to the holder of the Shell Dividend Access Share of $401m.

8 EARNINGS PER ORDINARY SHARE – CONTINUING OPERATIONS Earnings per ordinary share has been calculated by dividing the earnings for the year for the continuing operations of the Group of $2 328m (2014: $(1 051)m) by 3 413m (2014: 3 408m), being the weighted average number of ordinary shares outstanding during the year. The average number of shares outstanding excludes treasury shares and shares held by employee share plans. Earnings per ordinary share excluding disposals, re-measurements and impairments has been presented in order to reflect the underlying performance of the Group. 2015 2014 Basic earnings per Basic earnings per ordinary share ordinary share

$m cents $m cents FINANCIAL STATEMENTS Earnings excluding disposals, re-measurements and impairments 1 697 49.7 4 035 118.4 Disposals, re-measurements and impairments (see note 4, page 49) 631 18.5 (5 086) (149.2) Earnings including disposals, re-measurements and impairments 2 328 68.2 (1 051) (30.8)

The earnings figure used to calculate diluted earnings per ordinary share is the same as that used to calculate earnings per ordinary share given above, divided by 3 429m, being the weighted average number of ordinary shares in issue during the year as adjusted for dilutive equity instruments relating to the employee share schemes. A reconciliation of the weighted average number of ordinary shares used as the denominator in calculating the basic and diluted earnings per ordinary share is given below. In 2014, potentially issuable ordinary shares were excluded from the diluted earnings per ordinary share calculation, as their inclusion would have decreased the loss per ordinary share. 2015 Shares 2014 Shares m m Basic 3 413 3 408 Dilutive potential ordinary shares: Equity instruments outstanding during the year(a) 16 – Diluted basis 3 429 3 408

Diluted earnings per ordinary share (excluding disposals, re-measurements and impairments) (cents) 49.5 118.4 Diluted earnings per ordinary share (including disposals, re-measurements and impairments) (cents) 67.9 (30.8)

(a) The weighted average number of anti-dilutive equity instruments excluded from the calculation of diluted earnings per ordinary share was 15m at 31 December 2014.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 54 Financial statements Notes to the accounts > continued

9 GOODWILL

The Group 2015 2014 $m $m Cost and net book value as at 1 January – 25 Currency translation adjustments – (2) Charge for impairment (see note 4, page 49) – (23) Cost and net book value as at 31 December – –

For the purpose of impairment testing, goodwill is allocated to cash-generating units; these represent the lowest level at which goodwill is monitored. During 2014, there was a goodwill impairment charge of $23m recognised as a consequence of the significant fall in global commodity prices.

10 INTANGIBLE ASSETS

The Group Expenditure on unproved gas and oil reserves Other(a) Total 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m Cost as at 1 January 5 023 4 800 393 373 5 416 5 173 Additions 629(b) 746(b) – 24 629 770 Disposals and unsuccessful exploration expenditure(c) (394) (256) – – (394) (256) Transfers from/(to) property, plant and equipment 14 (100) – – 14 (100) Other movements (7) 8 3 (3) (4) 5 Currency translation adjustments (115) (175) (2) (1) (117) (176) Cost as at 31 December 5 150 5 023 394 393 5 544 5 416 Amortisation as at 1 January (2 009) (1 048) (272) (261) (2 281) (1 309) Charge for the year – – (10) (11) (10) (11) Charge for impairment (see note 4, page 49) – (961) – – – (961) Amortisation as at 31 December (2 009) (2 009) (282) (272) (2 291) (2 281) Net book value as at 31 December 3 141 3 014 112 121 3 253 3 135

(a) Other includes capacity rights in the Caspian Pipeline Consortium export pipeline which are amortised on a straight-line basis over the term of the contract and have an average remaining useful life of 22 years (2014: 23 years). Other also includes the contractual rights in respect of the purchase of LNG regasification services and related gas sales. These rights are amortised on a straight-line basis over the term of the contract. (b) Broadly equivalent to cash flows attributable to investing activities arising from exploration and evaluation. The Group’s net book value includes capitalised interest of $20m (2014: $nil). (c) Disposals and unsuccessful exploration expenditure includes $363m of intangible assets written off (2014: $232m).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 55 Financial statements Notes to the accounts > continued

11 PROPERTY, PLANT AND EQUIPMENT

The Group Motor vehicles Land and Plant and and office Exploration and buildings machinery equipment production Total $m $m $m $m $m Cost as at 1 January 2015 129 9 834 1 961 56 982 68 906 Additions – 973 94 4 204 5 271 Disposals, transfers and other movements(a) – (224) (36) 108 (152) Currency translation adjustments (9) (67) (98) (1 957) (2 131) Cost as at 31 December 2015 120 10 516 1 921 59 337 71 894 Accumulated depreciation as at 1 January 2015 (58) (1 949) (1 189) (29 855) (33 051) Charge for the year – (104) (194) (2 894) (3 192) Charge for impairment (see note 4, page 49) – (1) – (1 451) (1 452) Disposals, transfers and other movements – 208 40 2 250 Currency translation adjustments 2 27 64 714 807 Accumulated depreciation as at 31 December 2015 (56) (1 819) (1 279) (33 484) (36 638) Net book value as at 31 December 2015 (b)(c)(d) 64 8 697 642 25 853 35 256

The Group Motor vehicles Land and Plant and and office Exploration and buildings machinery equipment production Total $m $m $m $m $m Cost as at 1 January 2014 138 11 735 1 869 52 117 65 859 Additions – 994 213 6 900 8 107 Disposals, transfers and other movements(a) – (650) (22) 49 (623)

Currency translation adjustments (9) (88) (99) (2 084) (2 280) FINANCIAL STATEMENTS Reclassified as held for sale – (2 157) – – (2 157) Cost as at 31 December 2014 129 9 834 1 961 56 982 68 906 Accumulated depreciation as at 1 January 2014 (49) (938) (1 035) (21 612) (23 634) Charge for the year – (145) (213) (2 436) (2 794) Charge for impairment (see note 4, page 49) (12) (1 228) (25) (6 792) (8 057) Disposals, transfers and other movements – 252 24 569 845 Currency translation adjustments 3 31 60 416 510 Reclassified as held for sale – 79 – – 79 Accumulated depreciation as at 31 December 2014 (58) (1 949) (1 189) (29 855) (33 051) Net book value as at 31 December 2014(b)(c)(d) 71 7 885 772 27 127 35 855

(a) Includes, within Exploration and production, a net transfer (to)/from Intangible assets of $(14)m (2014: $100m). (b) The Group’s net book value includes capitalised interest of $1 559m (2014: $1 398m) comprising Exploration and production $890m (2014: $873m) and Plant and machinery $669m (2014: $525m). A deferred tax liability is recognised in respect of this taxable temporary difference at current enacted rates. (c) Includes the net book value of decommissioning assets of $2 406m (2014: $2 908m) and expenditure on Plant and machinery and Exploration and production assets under construction of $5 743m (2014: $10 739m). (d) The net book value of assets capitalised and held under finance leases is shown below and comprises $992m (2014: $1 073m) included in Plant and machinery and $196m (2014: $228m) included in Exploration and production: as at 31 December 2015 2014 $m $m Cost 1 929 1 963 Accumulated depreciation (741) (662) Net book value 1 188 1 301

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 56 Financial statements Notes to the accounts > continued

12 INVESTMENTS

The Group as at 31 December 2015 2014 $m $m Joint ventures 729 796 Associates 3 546 2 709 Other investments(a) 33 42 4 308 3 547

(a) Includes an investment in Drillsearch Energy Limited and Azure Energy, LP (Azure).

During 2014, a charge for impairment of $168m was recorded against the carrying value of associates.

JOINT VENTURES AND ASSOCIATES INFORMATION The Group does not have any individually material joint ventures or associates. Analysis of BG Group’s share of profit after tax and comprehensive income from individually immaterial joint ventures and associates in aggregate is shown below: Joint ventures Associates for the year ended 31 December 2015 2014 2015 2014 $m $m $m $m Share of profit after tax from continuing operations 23 80 138 86 Share of total comprehensive income 23 80 138 86

As at 31 December 2015, the Group’s joint ventures had placed contracts for capital expenditure, the Group’s share of which amounted to $32m (2014: $23m). As at 31 December 2015, the Group had no contingent liabilities in respect of its joint ventures or associates (2014: $nil).

A list of all joint ventures and associates is given in note 26, page 74.

The Company Subsidiary undertakings 2015 2014 $m $m As at 1 January 4 104 4 288 Capital contribution(a) 64 70 Currency translation adjustments (228) (254) As at 31 December 3 940 4 104

(a) Represents the fair value of equity instruments granted to subsidiaries’ employees arising from equity-settled employee share schemes.

MATERIAL JOINT OPERATIONS The following joint operations are considered individually material to the Group. as at 31 December 2015 Principal place of business Activity West Delta Deep Marine(a) Egypt Exploration and production Karachaganak(b) Kazakhstan Exploration and production

(a) West Delta Deep Marine concession is operated by Burullus Gas Company S.A.E. in which the Group has a 25% interest. (b) Karachaganak concession is operated by Karachaganak Petroleum Operating B.V. in which the Group has a 29.25% interest.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 57 Financial statements Notes to the accounts > continued

13 INVENTORIES

The Group as at 31 December 2015 2014 $m $m Raw materials and consumables 636 613 Finished goods for resale 481 581 1 117 1 194

14 TRADE AND OTHER RECEIVABLES

The Group The Company as at 31 December 2015 2014 2015 2014 $m $m $m $m Amounts falling due within one year Trade receivables 946 1 228 – – Amounts owed by Group undertakings (see note 22, page 69) – – 784 1 786 Amounts owed by joint ventures and associates (see note 22, page 69) 18 42 – – Other receivables 780 1 225 – – Prepayments 619 387 – – Accrued income 1 304 2 160 – – 3 667 5 042 784 1 786 Amounts falling due after more than one year

Trade receivables 515 460 – – FINANCIAL STATEMENTS Other receivables 767 608 – – 1 282 1 068 – –

4 949 6 110 784 1 786

Trade receivables are stated net of provisions. When management considers the recovery of a receivable to be improbable, a provision is made against the carrying value of the receivable. The movement in this provision is as follows:

The Group 2015 2014 $m $m Provision as at 1 January 58 41 Charge to the income statement 98 17 Provision as at 31 December 156 58

As at 31 December 2015, $1 050m (2014: $928m) of trade and other receivables were past due but not provided for; an analysis of these receivables is as follows:

The Group 2015 2014 $m $m Less than three months past due 168 134 Between three and six months past due 88 196 Between six and 12 months past due 190 42 More than 12 months past due 604 556 1 050 928

Included within past due but not impaired receivables is a balance of $919m (2014: $729m) with Egypt General Petroleum Corporation (EGPC), none of which has been received post year end. This balance does not include a $150m downward re-measurement of the carrying amount, to reflect the time value of money associated with the outstanding debt based on the latest assumed repayment profile. The net amount of trade and other receivables with EGPC past due but not provided for after this re-measurement is $769m. $3m has been received post year end. The remaining balance of $131m relates to a diversified number of independent customers. Of this, $34m has been received post year end. For further information on the credit risk associated with trade receivables, including the EGPC balance, see note 17, page 60.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 58 Financial statements Notes to the accounts > continued

15 CASH AND CASH EQUIVALENTS

The Group as at 31 December 2015 2014 $m $m Cash at bank and in hand 415 371 Cash equivalent investments 6 785 4 924 7 200 5 295

Cash and cash equivalents comprise cash in hand, deposits with a maturity of three months or less and other short-term money market deposit accounts that are readily convertible into known amounts of cash.

Included within cash and cash equivalent investments in the current year is an amount equivalent to $279m (2014: $390m), which is not immediately available to the Group other than for funding local cash expenditure. This includes 2.1bn (2014: 2.8bn) Egyptian Pounds (equivalent to $267m (2014: $390m)), which is subject to foreign exchange restrictions.

For information on the interest rate composition of the Group’s financial assets see note 17, page 60.

16 BORROWINGS GROSS BORROWINGS

The Group as at 31 December 2015 2014 $m $m Amounts falling due within one year Bonds 2.5% US Dollar 350m bond due December 2015 – 349 2.875% US Dollar 750m bond due October 2016 750 – Fair value hedge adjustments – 1 750 350 Loans from financial institutions 451 1 169 Obligations under finance leases 67 67 1 268 1 586 Amounts falling due after more than one year Bonds and other loans 2.875% US Dollar 750m bond due October 2016 – 749 5.125% Pound Sterling 500m bond due December 2017 737 779 Floating rate US Dollar 300m bond due September 2018 300 300 3.0% Euro 1 000m bond due November 2018 1 085 1 209 3.625% Euro 500m bond due July 2019 542 603 3.625% Euro 250m bond due July 2019 275 308 3.94% Hong Kong Dollar 370m bond due October 2019 48 48 4.0% US Dollar 650m bond due December 2020 645 644 4.0% US Dollar 1 350m bond due October 2021 1 341 1 339 1.25% Euro 775m bond due November 2022 840 935 5.125% Pound Sterling 750m bond due December 2025 1 095 1 157 2.25% Euro 800m bond due November 2029 866 964 3.5% Euro 100m bond due October 2033 106 118 5.0% Pound Sterling 750m bond due November 2036 1 082 1 144 5.125% US Dollar 900m bond due October 2041 881 881 6.5% Pound Sterling 600m bond due November 2072(a) 881 932 6.5% US Dollar 500m bond due November 2072(a) 497 497 6.5% Euro 500m bond due November 2072(a) 541 603 Fair value hedge adjustments 83 175 11 845 13 385

Loans from financial institutions 2 250 1 076 Obligations under finance leases 1 378 1 460 15 473 15 921

Gross borrowings 16 741 17 507

(a) These bonds are long-dated, subordinated securities, which, although accounted for as debt, incorporate some features typical of equity, such as potential coupon deferral. The Group may, at its sole discretion, redeem all, but not part, of the securities at their principal amount on 30 November 2017, 30 November 2022 or any subsequent coupon date thereafter to maturity.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 59 Financial statements Notes to the accounts > continued

16 BORROWINGS CONTINUED NET BORROWINGS(a)

The Group as at 31 December 2015 2014 $m $m Amounts falling due within one year Cash and cash equivalents 7 200 5 295 Borrowings (1 268) (1 586) Commodity contracts and other derivative financial instruments(b) (5) 6 5 927 3 715 Amounts falling due after more than one year Borrowings (15 473) (15 921) Trade and other receivables(c) 172 172 Commodity contracts and other derivative financial instruments(b) (694) 36 (15 995) (15 713)

Net borrowings (10 068) (11 998)

(a) Net borrowings are defined on page 80. (b) Commodity contracts and other derivative financial instruments comprise treasury financial derivatives of $(699)m (2014: $42m). (c) Trade and other receivables comprise a finance lease receivable of $172m (2014: $172m). See note 17, page 60.

The following table shows a reconciliation of net borrowings:

The Group 2015 2014 $m $m FINANCIAL STATEMENTS Net borrowings as at 1 January (11 998) (10 610) Net increase/(decrease) in cash and cash equivalents 1 870 (908) Cash inflow from changes in borrowings (55) (1 461) Inception of finance leases – (247) Disposal of finance leases – 923 Currency translation and other re-measurements 115 305 Net borrowings as at 31 December (10 068) (11 998)

As at 31 December 2015, BG Group’s share of the net borrowings in joint ventures and associates amounted to approximately $0.3bn (2014: $0.3bn), including BG Group shareholder loans of approximately $0.3bn (2014: $0.4bn). These net borrowings are included in BG Group’s share of the net assets in joint ventures and associates.

MATURITY AND INTEREST RATE PROFILE OF THE GROUP’S BORROWINGS The following tables analyse the Group’s gross borrowings. These are repayable as follows:

Gross borrowings (including obligations under finance leases) Fixed rate borrowings Total gross borrowings 2015 2014 2015 2014 $m $m $m $m Within one year 1 017 417 1 268 1 586 Between one and two years 266 827 1 552 1 078 Between two and three years 271 73 1 901 1 424 Between three and four years 458 78 1 137 1 833 Between four and five years 284 1 009 950 1 058 After five years 7 135 7 816 9 933 10 528 9 431 10 220 16 741 17 507

For the purpose of the table above, borrowings with an initial maturity within one year are treated as floating rate. As part of its interest rate risk strategy, the Group has entered into swaps. The disclosure above is presented after the effect of these swaps. Further information on the fair value of the swaps is included in note 17, page 60. The weighted average post-swap interest rate of borrowings as at 31 December 2015 was 3.5% (2014: 3.7%). Post-swap fixed-rate borrowings mature between 2016 and 2072 (2014: mature between 2015 and 2072).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 60 Financial statements Notes to the accounts > continued

16 BORROWINGS CONTINUED

Obligations under finance Obligations under finance leases pre-swap Minimum lease payments leases 2015 2014 2015 2014 Amounts due: $m $m $m $m Within one year 161 162 67 67 Between one and five years 643 654 295 275 After five years 1 667 1 904 1 083 1 185 Less: future finance charges (1 026) (1 193) – – 1 445 1 527 1 445 1 527

The Group has finance lease obligations in respect of infrastructure and LNG ships. These lease obligations expire between 2024 and 2039 (2014: expire between 2024 and 2039).

CURRENCY COMPOSITION OF THE GROUP’S BORROWINGS The following table analyses the currency composition of the Group’s borrowings: 2015 2014 $m $m Currency: Pound Sterling 3 881 5 296 US Dollar 8 422 7 205 Euro 4 230 4 778 Other 208 228 16 741 17 507

The disclosure above does not include the impact of certain currency swaps as these are separately recognised under IAS 39 and presented in note 17, page 60. As at 31 December 2015, the Group had swapped $2 164m (2014: $2 291m) of Pound Sterling borrowings into US Dollars, $4 230m (2014: $4 778m) of Euro borrowings into US Dollars and $51m (2014: $50m) of other currencies into US Dollars.

COMPOSITION OF THE GROUP’S UNDRAWN COMMITTED FACILITIES The Group has undrawn committed borrowing facilities, in respect of which all conditions have been met, as follows: 2015 2014 Expiring: $m $m Within one year – 2 102 Between one and two years 5 040 2 180 Between two and three years – 3 040 Between three and four years 2 210 – 7 250 7 322

Unutilised committed borrowing facilities of $7 250m were canceled in February 2016.

17 FINANCIAL INSTRUMENTS TREASURY INSTRUMENTS The Group is exposed to credit risk, interest rate risk, exchange rate risk and liquidity risk. As part of its business operations, the Group uses derivative financial instruments (derivatives) in order to manage exposure to fluctuations in interest rates and exchange rates. The Group enters into interest rate derivatives to manage the fixed and floating composition of its debt. The Group enters into currency exchange rate derivatives to hedge certain currency cash flows and to adjust the currency composition of its assets and liabilities. Certain agreements are combined currency and interest swap transactions, described as cross-currency interest rate derivatives. The Group’s policy is to enter into interest or currency exchange rate derivatives only where these are matched by an underlying asset, liability or transaction. Further information on treasury risks is contained in the Principal risks and uncertainties section, pages 14 to 16.

COMMODITY INSTRUMENTS Within the ordinary course of business the Group routinely enters into sale and purchase transactions for commodities. The majority of these transactions take the form of contracts that were entered into and continue to be held for the purpose of the receipt or delivery of the commodity in accordance with the Group’s expected sale, purchase or usage requirements. Such contracts are not within the scope of IAS 39. Certain gas sales contracts fall within the scope of IAS 39. These contracts include pricing terms that are based on a variety of commodities and indices. They are recognised in the balance sheet at fair value with movements in fair value recognised in the income statement.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 61 Financial statements Notes to the accounts > continued

17 FINANCIAL INSTRUMENTS CONTINUED COMMODITY INSTRUMENTS CONTINUED Certain short-term market traded contracts for the purchase and subsequent resale of third-party commodities are within the scope of IAS 39 and are recognised in the balance sheet at fair value with movements in fair value recognised in the income statement. The Group uses various commodity-based derivative instruments to manage some of the risks arising from fluctuations in commodity prices. Such contracts include physical and net-settled forwards, futures, swaps and options. Where these derivatives have been designated as cash flow hedges of underlying commodity price exposures, certain gains and losses attributable to these instruments are deferred in other comprehensive income and subsequently recognised in the income statement when the underlying hedged transaction crystallises. Commodity derivatives that are not part of a hedging relationship are recognised in the balance sheet within Other commodity derivatives at fair value, with movements in fair value recognised in the income statement. Further information on commodity price exposure is contained in the Principal risks and uncertainties section, pages 14 to 16.

AMOUNTS RECOGNISED IN RESPECT OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE

The Group 2015 2014 as at 31 December Assets Liabilities Assets Liabilities Included in the balance sheet: $m $m $m $m Interest rate derivatives 87 (77) 102 (61) Currency exchange rate derivatives – – – (3) Cross-currency interest rate derivatives 61 (770) 183 (179) Gas contracts 55 – 82 (14) Other commodity derivatives 128 (140) 155 (124) 331 (987) 522 (381)

As at 31 December 2015, the Group also held non-derivative available-for-sale financial assets of $33m (2014: $42m) which are recognised in the balance sheet at fair value. FINANCIAL STATEMENTS

As at 31 December 2015, the Group had deposited cash of $166m (2014: $119m) and received cash of $16m (2014: $16m) in respect of collateral and margin payments associated with the use of commodity derivatives.

Derivative financial instruments expected to be realised within one year are presented within current assets and current liabilities. All other derivative financial instruments are classified as non-current. The maturity profile of derivative financial instruments is as follows:

2015 2014 Assets Liabilities Assets Liabilities $m $m $m $m Within one year 167 (141) 235 (128) Between one and five years 106 (567) 103 (163) After five years 58 (279) 184 (90) 331 (987) 522 (381)

The notional principal amounts of derivative financial instruments are as follows:

2015 2014 Within one Between one Within one Between one year and five years After five years Total year and five years After five years Total $m $m $m $m $m $m $m $m Interest rate derivatives – 2 687 1 240 3 927 1 300 780 2 200 4 280 Currency exchange rate derivatives 482 – – 482 599 – – 599 Cross-currency interest rate derivatives – 4 121 3 285 7 406 – 4 121 3 285 7 406 Other commodity derivatives 8 428 3 651 80 12 159 10 394 5 723 – 16 117

The notional principal amounts of gas contracts are $96m (2014: $293m). The amounts in respect of derivatives represent the gross combination of notional principals and accordingly do not show the extent to which these may offset. These notional principal amounts give an indication of the scale of derivatives held, but do not reflect the risks that the Group is exposed to from their use.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 62 Financial statements Notes to the accounts > continued

17 FINANCIAL INSTRUMENTS CONTINUED VALUATION All financial instruments that are initially recognised and subsequently re-measured at fair value have been classified in accordance with the hierarchy described in IFRS 13 ‘Fair Value Measurement’. Fair value measurement hierarchy The fair value hierarchy, described below, reflects the significance of the inputs used to determine the valuation of financial assets and liabilities measured at fair value. Level 1 fair value measurements are those derived directly from quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2 fair value measurements are those including inputs other than quoted prices included within Level 1 that are observable for the asset or liability directly or indirectly. The fair value of the Group’s interest rate and currency exchange rate derivatives and the majority of the Group’s commodity derivatives are calculated from relevant market prices and yield curves at the balance sheet date and are therefore based solely on observable price information. These instruments are not directly quoted in active markets and are accordingly classified as Level 2 in the fair value hierarchy. Level 3 fair value measurements are those derived from valuation techniques that include significant inputs for the asset or liability that are not based on observable market data. Where observable market valuations of commodity contracts are unavailable, the fair value on initial recognition is the transaction price and is subsequently determined using the Group’s forward planning assumptions for the price of gas, other commodities and indices. Due to the assumptions underlying their fair value, certain gas contracts are categorised as Level 3 in the fair value hierarchy. These contracts contain an underlying linkage to oil prices, and one of the assumptions used for their valuation is that observable commodity prices are liquid for four years (2014: four years). The fair values of the commodity contracts are calculated using the market yield curve at the balance sheet date.

The Group Financial assets Financial liabilities as at 31 December 2015 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $m $m $m $m $m $m $m $m Interest rate derivatives – 87 – 87 – (77) – (77) Cross-currency interest rate derivatives – 61 – 61 – (770) – (770) Gas contracts – 5 50 55 – – – – Other commodity derivatives 3 89 36 128 (88) (21) (31) (140) 3 242 86 331 (88) (868) (31) (987)

Financial assets Financial liabilities as at 31 December 2014 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total $m $m $m $m $m $m $m $m Interest rate derivatives – 102 – 102 – (61) – (61) Currency exchange rate derivatives – – – – – (3) – (3) Cross-currency interest rate derivatives – 183 – 183 – (179) – (179) Gas contracts – – 82 82 – (14) – (14) Other commodity derivatives 43 73 39 155 (69) (9) (46) (124) 43 358 121 522 (69) (266) (46) (381)

As at 31 December 2015, the Group also held available-for-sale financial assets of $33m (2014: $42m), the fair value of which is determined using Level 1 fair value measurements.

Level 3 fair value measurements The movements in the year associated with financial assets and liabilities, measured at fair value and determined in accordance with Level 3, are shown below:

Total 2015 2014 $m $m Fair value as at 1 January 75 (87) Total gains or losses recognised in the income statement 59 139 Reclassification to Level 2 – 8 Settlements (69) 19 Currency translation adjustments (10) (4) Fair value as at 31 December 55 75

Total gains or losses recognised in the income statement are presented in Revenue and other operating income. As at 31 December 2015, the potential pre-tax change in the fair value of gas contracts, assuming a $20 per barrel change (2014: $20 per barrel) in the Brent price assumption, was $32m (2014: $79m).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 63 Financial statements Notes to the accounts > continued

17 FINANCIAL INSTRUMENTS CONTINUED FAIR VALUE ADJUSTMENTS ON FINANCIAL INSTRUMENTS

The Group 2015 2014 Included in the income statement: $m $m Interest rate and currency exchange rate derivatives not in a designated hedge relationship(a) (92) (176) Interest rate derivatives designated as fair value hedges (18) – Cross-currency interest rate derivatives designated as fair value hedges(a) (188) (71) Ineffectiveness on net investment hedges 4 10 Gas contracts (4) 280 Other commodity derivatives not in a designated hedge relationship (28) 73 Continuing operations (326) 116

(a) These amounts are offset by foreign exchange gains or losses on the underlying borrowings.

Fair value losses of $4m (2014: $17m) on available-for-sale financial assets are included within other comprehensive income.

HEDGE ACCOUNTING In line with the Group’s risk management policies, certain derivative and non-derivative instruments are designated as hedges of currency, interest rate and commodity price exposures in accordance with IAS 39. Fair value hedges As at 31 December 2015, the Group held a number of interest rate derivatives and cross-currency interest rate derivatives designated as hedges of the fair value risk associated with the Group’s fixed rate debt. The hedged items and the related derivatives have the same critical terms to ensure that they are an effective hedge under IAS 39. The fair value of derivative instruments designated as fair value hedges outstanding as at 31 December 2015 is $(235)m (2014: $(8)m). During 2015, adjustments of $73m (2014: $(26)m) have been made to hedged items in respect of the risks being hedged. FINANCIAL STATEMENTS Cash flow hedges The Group has forward commodity contracts, currency exchange rate derivatives, interest rate derivatives and cross-currency interest rate derivatives designated as hedges of highly probable forecast purchases and sales, and of interest flows and currency exposure on Group debt. As at 31 December 2015, an unrealised pre-tax loss of $44m (2014: $42m) was deferred in other comprehensive income in respect of effective cash flow hedges. The hedged transactions are expected to occur within 18 years (2014: 19 years) and the associated gains and losses deferred in other comprehensive income will be released to the income statement as the underlying transaction crystallises. As at 31 December 2015, deferred pre-tax losses of $6m (2014: $13m) are expected to be released to the income statement within one year. The fair value of derivative instruments designated as cash flow hedges outstanding as at 31 December 2015 is $(70)m (2014: $(30)m). The Consolidated statement of comprehensive income, page 37, identifies the amounts that have been transferred from other comprehensive income in respect of transactions completed during the year. These items are reported within the income statement to match against the underlying transaction. Hedges of net investments in foreign operations As at 31 December 2015, certain borrowings and currency derivatives have been designated as hedges of the currency risk associated with net investments in foreign operations. The portion of gains or losses on the hedging instruments determined to be an effective hedge are transferred to other comprehensive income to offset the gains or losses arising on the retranslation of net investments in foreign subsidiaries. The pre-tax loss on effective hedging instruments deferred within other comprehensive income as at 31 December 2015 is $912m (2014: $45m). The fair value of financial instruments designated as hedges of net investments in foreign operations outstanding as at 31 December 2015 is $(7 457)m (2014: $(5 682)m). FINANCIAL ASSETS (EXCLUDING NON-INTEREST BEARING SHORT-TERM RECEIVABLES) The Group’s financial assets consist of cash and cash equivalents of $7 200m (2014: $5 295m), loans made to joint ventures and associates of $348m (2014: $353m), a finance lease receivable of $172m (2014: $172m), available-for-sale assets of $33m (2014: $42m), receivables due within one year of $450m (2014: $520m) and receivables due after more than one year of $616m (2014: $519m). The currency and interest rate profile of financial assets is as follows:

The Group 2015 2014 Fixed rate Floating rate Non-interest Fixed rate Floating rate Non-interest financial assets financial assets bearing assets Total financial assets financial assets bearing assets Total $m $m $m $m $m $m $m $m Currency: US Dollar 303 7 910 17 8 230 231 6 295 22 6 548 Other – 573 16 589 – 328 25 353 303 8 483 33 8 819 231 6 623 47 6 901

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 64 Financial statements Notes to the accounts > continued

17 FINANCIAL INSTRUMENTS CONTINUED FINANCIAL ASSETS (EXCLUDING NON-INTEREST BEARING SHORT-TERM RECEIVABLES) CONTINUED Within floating rate financial assets, cash and cash equivalents earn interest at the relevant market rates. Periodic interest rate determinations in respect of floating rate loans to joint ventures and associates generally comprise London Interbank Offered Rate (LIBOR) plus or minus an agreed margin. As at 31 December 2015, floating rate receivables and loans to joint ventures and associates had an effective interest rate of between 1.52% and 4.07% (2014: between 1.27% and 4.52%) and are expected to expire between 2018 and 2022 (2014: between 2015 and 2022). The maturity profile of non-interest bearing loans to joint ventures and associates cannot be practicably estimated as repayments are based on the performance of the individual joint venture or associate.

As at 31 December 2015, fixed rate assets expire between 2016 and 2020 (2014: 2016 and 2024) and have effective interest rates of between 6% and 13% (2014: 6% and 15%).

OFFSETTING FINANCIAL ASSETS AND FINANCIAL LIABILITIES The following financial assets and financial liabilities are subject to offsetting, enforceable master netting arrangements or similar agreements:

The Group Amounts offset Amounts not offset Net Financial assets as at 31 December 2015 Net presented Gross liabilities in the balance Financial Cash collateral Gross assets offset sheet instruments received $m $m $m $m $m $m Derivative financial assets 935 (654) 281 (146) (4) 131 Trade and other receivables 1 286 (290) 996 – (1) 995 2 221 (944) 1 277 (146) (5) 1 126

The Group Amounts offset Amounts not offset Net Financial liabilities as at 31 December 2015 Net presented Gross assets in the balance Financial Cash collateral Gross liabilities offset sheet instruments paid $m $m $m $m $m $m Derivative financial liabilities (1 710) 723 (987) 146 79 (762) Trade and other payables (902) 221 (681) – – (681) (2 612) 944 (1 668) 146 79 (1 443)

The Group Amounts offset Amounts not offset Net Financial assets as at 31 December 2014 Net presented Gross liabilities in the balance Financial Cash collateral Gross assets offset sheet instruments received $m $m $m $m $m $m Derivative financial assets 1 098 (658) 440 (123) (16) 301 Trade and other receivables 988 (248) 740 – (4) 736 2 086 (906) 1 180 (123) (20) 1 037

The Group Amounts offset Amounts not offset Net Financial liabilities as at 31 December 2014 Net presented Gross assets in the balance Financial Cash collateral Gross liabilities offset sheet instruments paid $m $m $m $m $m $m Derivative financial liabilities (1 121) 740 (381) 123 5 (253) Trade and other payables (718) 166 (552) – 9 (543) (1 839) 906 (933) 123 14 (796)

For the financial assets and liabilities subject to enforceable master netting arrangements or similar arrangements above, each agreement between the Group and the counterparty typically requires net settlement of the relevant financial assets and liabilities. In the absence of such a requirement, financial assets and liabilities will be settled on a gross basis, however, each party to the master netting agreement or similar agreement will be required or have the option to settle all such amounts on a net basis in the event of default of the other party. Per the terms of each agreement, an event of default includes: failure by a party to make payment when due; failure by a party to perform any obligation required by the agreement (other than payment) if such failure is not remedied within a specified cure period after notice of such failure is given to the party; or bankruptcy.

FAIR VALUES OF OTHER FINANCIAL INSTRUMENTS The following financial instruments are measured at historical or amortised cost and have fair values that differ from their book values:

The Group 2015 2014 Book value Fair value Book value Fair value $m $m $m $m Financial instruments held or issued to finance the Group’s operations: Long-term borrowings (15 674) (17 222) (15 921) (17 770)

The fair values of long-term borrowings are within Level 1 ($12 511m) and Level 2 ($4 711m) of the fair value hierarchy and have been estimated based on quoted market prices where available, or by discounting all future cash flows by the relevant market yield curve at the balance sheet date.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 65 Financial statements Notes to the accounts > continued

17 FINANCIAL INSTRUMENTS CONTINUED THE COMPANY The Company’s financial instruments are all denominated in Pounds Sterling and consist of short-term receivables of $784m (2014: $1 786m) and short-term payables of $34m (2014: $48m). Short-term receivables comprise amounts owed by Group undertakings, of which $771m (2014: $1 768m) earns interest at LIBOR minus an agreed margin. The remaining short-term receivables of $13m (2014: $18m) were non-interest bearing. Short-term payables are due within one year and are non-interest bearing. The fair value of the financial instruments approximates book value.

FINANCIAL RISK FACTORS The principal financial risks arising from financial instruments are commodity price risk, exchange rate risk, interest rate risk and credit and liquidity risk. Additional quantitative information and market sensitivities in relation to certain principal market risks are included in the following sections. Liquidity risk The Group limits the amount of borrowings maturing within any specific period and the Group’s financial assets are primarily held as short-term, liquid investments that are readily convertible into known amounts of cash. These measures reduce liquidity risk. The undiscounted contractual cash flows receivable/(payable) under financial instruments as at the balance sheet date are as follows:

The Group Within one Between one Between two as at 31 December 2015 year and two years and five years After five years Total $m $m $m $m $m Non-derivative financial liabilities Borrowings (1 840) (2 063) (5 412) (21 195) (30 510) Short-term payables (1 064) – – – (1 064) (2 904) (2 063) (5 412) (21 195) (31 574) Outflows from derivative financial instruments Currency and interest rate derivatives (819) (2 073) (3 056) (4 079) (10 027) Gross-settled commodity derivatives (884) (253) (225) – (1 362)

Net-settled commodity derivatives (3) – (1) – (4) FINANCIAL STATEMENTS (1 706) (2 326) (3 282) (4 079) (11 393)

Non-derivative financial assets and inflows from derivative financial instruments 10 673 2 841 3 531 3 669 20 714

Total as at 31 December 2015 6 063 (1 548) (5 163) (21 605) (22 253)

The Group Within one Between one Between two as at 31 December 2014 year and two years and five years After five years Total $m $m $m $m $m Non-derivative financial liabilities Borrowings (2 251) (1 737) (6 083) (24 231) (34 302) Short-term payables (1 509) – – – (1 509) (3 760) (1 737) (6 083) (24 231) (35 811) Outflows from derivative financial instruments Currency and interest rate derivatives (310) (327) (4 963) (4 254) (9 854) Gross-settled commodity derivatives (1 213) (291) (559) (234) (2 297) Net-settled commodity derivatives (5) – – – (5) (1 528) (618) (5 522) (4 488) (12 156)

Non-derivative financial assets and inflows from derivative financial instruments 9 197 1 438 5 560 4 490 20 685

Total as at 31 December 2014 3 909 (917) (6 045) (24 229) (27 282)

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 66 Financial statements Notes to the accounts > continued

17 FINANCIAL INSTRUMENTS CONTINUED FINANCIAL RISK FACTORS CONTINUED Credit risk Credit risk is managed on a Group basis. Credit risk in financial instruments arises from cash and cash equivalents and derivative financial instruments, as well as credit exposures of commercial counterparties including exposures in respect of outstanding receivables and committed transactions. For banks and financial institutions, only independently rated parties with a minimum long-term credit rating of ‘A’ are normally accepted as a counterparty and credit limits are established based primarily on the credit ratings, although other credit assessment factors that determine credit quality, including the external environment, are taken into account when considering the awarding of or maintenance of a limit. Similarly, if a commercial counterparty is independently credit rated, the rating is primarily used to determine credit quality and limits, with other relevant assessment factors also considered. If there is no independent credit rating, credit quality is assessed in accordance with credit policies that take account of the counterparty’s financial position and other similar factors. Exposures are monitored by the relevant Group businesses and at a Group level. As at 31 December 2015, the Group’s maximum credit risk exposure (after the impact of any netting arrangements) under currency and interest rate related derivatives was $13m (2014: $167m) and commodity related derivatives $79m (2014: $79m). The Group’s credit risk exposure under receivables and other financial assets is represented by the book values. The Group considers its portfolio for credit related concentration risks where risks may result from strategic investments, commercial relationships or sales of product in a variety of locations. Mitigation may be considered where appropriate to diversify or reduce risk profile. As at 31 December 2015, the amount owed by Egypt General Petroleum Corporation (EGPC) in respect of domestic gas sales was $1.1bn (2014: $0.9bn), of which $0.9bn (2014: $0.7bn) was overdue. The Group considers that the current receivable balance remains fully recoverable as cash payments from EGPC continue to be received, however, in 2015, a $50m pre- and post-tax charge was recognised relating to the downward re-measurement of the receivable balance to reflect the time value of money associated with the outstanding debt based on a revised assumed repayment profile. This increases the total discount recognised to $150m following the $100m pre-tax charge ($79m post-tax) recorded in 2014. Discussions continue with the Egyptian government regarding potential future gas development programmes, subject to the negotiation of a higher domestic gas price and resolution of the outstanding receivables. Market risk Financial instruments used by the Group that are affected by market risks primarily comprise cash and cash equivalents, borrowings and derivative contracts. The principal market variables that affect the value of these financial instruments are UK and US interest rates, US Dollar to Pound Sterling exchange rates, UK and US gas prices, and Japan Custom-cleared Crude (JCC) and Brent oil prices. The table below illustrates the indicative post-tax effects on the income statement and other comprehensive income of applying reasonably foreseeable market movements to the Group’s financial instruments at the balance sheet date.

Income statement Other comprehensive The Group Market movement income/(charge) income/(charge) 2015 2014 2015 2014 2015 2014 $m $m $m $m UK interest rates + 100 basis points + 100 basis points – (7) (125) (142) US interest rates + 100 basis points + 100 basis points 50 49 138 140 US$/UK£ exchange rates + 20 cents + 20 cents (325) (366) 1 738 1 506 UK gas prices + 20 pence/therm + 20 pence/therm (35) (48) – – US gas prices + 1 $/mmbtu + 1 $/mmbtu 83 86 – – JCC/Brent prices + 20 $/bbl + 20 $/bbl (58) (62) – –

The Company UK interest rates + 100 basis points + 100 basis points 6 14 – –

The above sensitivity analysis is based on the Group’s financial assets, liabilities and hedge designations as at the balance sheet date and indicates the effect of a reasonable increase in each market variable. The effect of a corresponding decrease in these variables is approximately equal and opposite. The following assumptions have been made: (i) the sensitivity includes a full year’s change in interest payable and receivable from floating rate borrowings and investments based on the post-swap amounts and composition as at the balance sheet date; (ii) fair value changes from derivative instruments designated as cash flow or net investment hedges are considered fully effective and are recorded in other comprehensive income; (iii) fair value changes from derivative instruments designated as fair value hedges are considered fully effective and entirely offset by adjustments to the underlying hedged item; and (iv) fair value changes from derivatives not in a hedge relationship are recorded in the income statement.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 67 Financial statements Notes to the accounts > continued

18 TRADE AND OTHER PAYABLES

The Group The Company as at 31 December 2015 2014 2015 2014 $m $m $m $m Amounts falling due within one year Trade payables 555 894 – – Amounts owed to Group undertakings (see note 22, page 69) – – 9 23 Amounts owed to joint ventures and associates (see note 22, page 69) 139 258 – – Other payables(a) 370 357 25 25 Accruals and deferred income 2 711 3 259 – – 3 775 4 768 34 48 Amounts falling due after more than one year Accruals and deferred income 184 136 – – 184 136 – –

3 959 4 904 34 48

(a) As at 31 December 2015, Group other payables include $19m (2014: $16m) relating to share-based payment transactions, of which $12m (2014: $10m) relates to awards that have already vested, and $172m (2014: $165m) relating to amounts provided in 2015 for payments to eligible employees under bonus schemes, including the BG Group Annual Incentive Scheme (AIS).

19 PROVISIONS FOR OTHER LIABILITIES AND CHARGES

The Group Decommissioning Other Total 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m FINANCIAL STATEMENTS As at 1 January 4 605  3 662 630 453 5 235 4 115 Charge for the year 26 17 278 172 304 189 Unwinding of discount 131 146 1 2 132 148 Additions 241 714 18 56 259 770 Change in discount rate – 808 – – – 808 Disposals (66) (119) – – (66) (119) Currency translation and other adjustments (300)(a) (504)(a) (24) 110(b) (324) (394) Amounts used (30) (83) (133) (139) (163) (222) Unused provisions credited to the income statement – – (157) (24) (157) (24) Reclassified as assets held for sale – (36) – – – (36) As at 31 December 4 607 4 605 613 630 5 220 5 235

(a) Includes a movement of $37m due to a change in inflation assumptions (2014: $(272)m). (b) 2014 includes $138m reclassified from elsewhere on the balance sheet.

A brief description of each provision together with estimates of the timing of expenditure is given below:

DECOMMISSIONING COSTS The estimated cost of decommissioning at the end of the producing lives of fields is reviewed at least annually and engineering estimates and reports are updated periodically. Provision is made for the estimated cost of decommissioning at the balance sheet date, to the extent that current circumstances indicate BG Group will ultimately bear this cost. The payment dates of expected decommissioning costs are uncertain and are based on economic assumptions surrounding the useful economic lives of the fields concerned. Useful economic lives of fields are affected by the estimation of hydrocarbon reserves and resources, which is in turn impacted by available reservoir data, commodity prices and future costs. Payments (on a discounted basis) of $973m (2014: $705m) are currently anticipated within one to five years; $813m (2014: $1 093m) within six to 10 years; and $2 821m (2014: $2 807m) over 10 years.

OTHER The balance as at 31 December 2015, includes provisions for onerous contracts of $174m (2014: $111m), field-related payments of $31m (2014: $124m), insurance costs of $73m (2014: $107m) and costs associated with disposals and restructuring of $113m (2014: $119m). The payment dates are uncertain, but are expected to be between 2016 and 2019 (2014: 2015 and 2018).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 68 Financial statements Notes to the accounts > continued

20 CALLED UP SHARE CAPITAL

Number of shares as at 31 December 2015 2014 2015 2014 m m $m $m Issued and fully paid up Equity: Ordinary shares of 10p each 3 622 3 621 580 579

For information on the rights and restrictions applying to the Company’s shares see Other disclosures section on page 27. During the year, the Company allotted 1.45m ordinary shares of 10p each (2014: 2.51m ordinary shares) with an aggregate nominal value of $223 245 (2014: $416 703) in connection with exercises of share options issued under the Company Share Option Scheme (CSOS) and the Sharesave Plan. The consideration received on these allotments amounted to $17m (2014: $28m). At 31 December 2015, the Company held 207.0m (2014: 209.9m) of its own shares. The market value of these shares as at 31 December 2015 was $3 005m (2014: $2 831m). The Company made the following transactions in respect of its own shares: (i) During 2015, the Company transferred 2.9m (2014: 2.8m) of its ordinary shares to eligible employees in accordance with the terms of the Share Incentive Plan, the Long-Term Incentive Plan (LTIP) and Global Partnership Plan. The shares transferred had a nominal value of $441 446 (2014: $469 193) and represented approximately 0.1% (2014: 0.1%) of the called up share capital at 31 December 2015. The cost of shares transferred was $10m (2014: $22m). (ii) The maximum number of shares held during the year was 209.9m ordinary shares (2014: 212.7m), representing approximately 5.8% (2014: 5.9%) of the called up share capital at 31 December 2015, and having a nominal value of $32 729 650 (2014: $35 233 224).

21 COMMITMENTS AND CONTINGENCIES A) CAPITAL EXPENDITURE As at 31 December 2015, the Group had contractual commitments for future capital expenditure amounting to $2 920m (2014: $4 195m) of which $2 899m related to acquisition of property, plant and equipment (2014: $3 998m) and $21m related to intangible exploration assets (2014: $197m). Included in the amount for contractual commitments for future capital expenditure is $729m (2014: $1 388m) relating to commitments under operating leases split between amounts due within one year $412m (2014: $723m), and amounts due between one and five years $317m (2014: $665m). B) DECOMMISSIONING COSTS ON DISPOSED ASSETS BG Group has contingent liabilities in respect of the future decommissioning costs of gas and oil assets disposed of to third parties should they fail to meet their remediation obligations. The amounts of future costs associated with these contingent liabilities could be significant. The Group has obtained indemnities and/or letters of credit against the estimated amount of certain of these potential liabilities.

C) FUTURE EXPLORATION WELL COSTS As at 31 December 2015, certain petroleum licences in which BG Group has an interest contained outstanding uncontracted obligations to drill exploration and appraisal wells. The uncontracted cost attributable to the Group in respect of these capital commitments is estimated to be $278m (2014: $384m).

D) LEASE COMMITMENTS Commitments under operating leases to be expensed to the income statement as at 31 December were as follows:

The Group Land and buildings Vessels and other FPSOs Total Restated(a) Restated(a) 2015 2014 2015 2014 2015 2014 2015 2014 $m $m $m $m $m $m $m $m Amounts due: Within one year 64 70 836 614 393 282 1 293 966 Between one and five years 171 203 3 361 2 658 1 830 1 579 5 362 4 440 After five years 121 152 3 503 2 120 2 623 2 695 6 247 4 967 356 425 7 700 5 392 4 846 4 556 12 902 10 373

(a) The Group has amended the comparative lease commitment disclosure for ‘Vessels and other’ to include subsea equipment leased from an associate company. The impact of including these amounts on the previously disclosed 2014 comparatives was to increase operating lease commitments for ‘Vessels and other’ from $4 629m to $5 392m.

Certain expenditure under operating leases is recovered from third parties under partnership agreements and is excluded from the table above. The longest dated lease, in respect of an FPSO, expires in 2029 (2014: expires in 2029).

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 69 Financial statements Notes to the accounts > continued

21 COMMITMENTS AND CONTINGENCIES CONTINUED E) LEGAL PROCEEDINGS In August 2009, two separate tax deficiency notices were issued against Petrobras by the São Paulo State Tax Authority based on alleged irregularities in connection with the import of a rig on behalf of the BM-S-9 Consortium (Petrobras (45% – Operator), BG E&P Brasil (30%) and Repsol Brasil (25%)). BG Group’s potential liability arises from indemnity provisions in favour of Petrobras, as set out in the Joint Operating Agreement.

The first tax deficiency notice was issued due to the São Paulo State Tax Authority’s contention that Petrobras should not benefit from lower tax rates on the importation of a rig. Petrobras’ initial appeal of this decision was rejected by the administrative courts. However, Petrobras’ challenges at the judicial courts level have been successful with first instance and second instance decisions confirming that the São Paulo State Tax Authority was not competent to decide unilaterally where customs clearance takes place or to consider if the Consortium would be entitled to the special tax treatment. These rulings are positive decisions for the Consortium. The São Paulo State Tax Authority has filed an appeal against the second instance judicial decision to the Brazilian Superior Court of Justice and a final decision is expected in 2016.

The second tax deficiency notice issued by the São Paulo Tax Authority reflects the view that Petrobras should have recorded transfers of goods to and from a rig as if the offshore rig and the onshore base were two distinct branches of Petrobras. As such, the authorities are charging a penalty. Petrobras’ appeal at the administrative courts was rejected and it is anticipated that judicial proceedings will be brought in a manner similar to the first tax deficiency notice referred to above. This process may take up to four years to be resolved.

In 2014, the Brazilian Federal Tax Authority issued tax assessments against Petrobras in respect of the treatment of cost allocation for FPSOs, offshore service vessels and rig hire for the years 2008 to 2011 (inclusive). Some of these FPSOs, vessels and rigs were allocated to the BM-S-9 and BM-S-11 consortia. Defences and administrative appeals have been submitted by Petrobras and are pending.

BG Group’s Australian subsidiary is defending claims brought by McConnell Dowell Constructors (Aust) Pty Limited and Consolidated Contracting Company Australia Pty Limited (together, ‘MCJV’). MCJV is the main contractor for the Export and Narrows pipelines project. In March 2014, MCJV initiated ICC arbitration proceedings relating to project variations, delay and completion of milestones. The claim has been retained by BG Group in the sales process of QCLNG Pipeline Pty Limited. The arbitration hearings are ongoing and an award is not expected before mid-2016.

Various issues have been in dispute for a number of years with the Government of India in relation to the interpretation of the production sharing contracts FINANCIAL STATEMENTS for the Panna/Mukta and Tapti fields and related matters. An arbitral award on the merits of the issues in dispute is expected in 2016.

Where practicable to estimate the financial effects in relation to the outstanding legal proceedings detailed above, amounts have either been provided for (see note 19, page 67), or been included within the other contingency liabilities amount in subsection (F) below.

The Company and its subsidiaries are, or may from time to time be, in connection with current or past operations, involved in a number of legal or arbitration proceedings, including, for example, claims, suits, actions, investigations and/or inquiries relating to commercial, tax, environmental or other matters, with third parties or governmental or regulatory authorities. While the outcome of some of these matters cannot readily be foreseen, it is currently considered that they will be resolved without material effect on the net asset position as set out in these Financial statements.

F) CONTINGENT LIABILITIES The amount of contingent liabilities as at 31 December 2015 (mainly the provision of guarantees, indemnities, contingent decommissioning obligations or warranties to third parties and various legal or arbitration proceedings in connection with the current and prior operations of the Group) amounted to $3 577m (2014: $7 188m), of which $142m (2014: $224m) related to the Company.

22 RELATED PARTY TRANSACTIONS In the normal course of business BG Group provides goods and services to, and receives goods and services from, its joint ventures and associates. The Group received and incurred the following income and charges from its joint ventures and associates: for the year ended 31 December 2015 2014 Income Charges Income Charges $m $m $m $m LNG cargo purchases, sales and other related costs 61 (463) 118 (720) Shipping, transportation costs and other related costs 3 (12) 2 (23) E&P operating costs – (377) – (298) 64 (852) 120 (1 041)

BG Group provides certain guarantees in respect of its obligations to its joint ventures and associates, and its share of obligations undertaken by its joint ventures and associates, in the normal course of business. As at 31 December 2015, a debtor balance of $18m (2014: $42m) (see note 14, page 57) and a creditor balance of $139m (2014: $258m) (see note 18, page 67) were outstanding with these parties.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 70 Financial statements Notes to the accounts > continued

22 RELATED PARTY TRANSACTIONS CONTINUED In addition, BG Group provides financing to some of these parties by way of loans. As at 31 December 2015, loans of $348m (2014: $353m) 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 12, page 56. Interest of $10m (2014: $9m) was charged on these loans during the year at interest rates of between 1.27% and 4.08% (2014: 1.25% and 3.99%). The maximum debt outstanding during the year was $353m (2014: $714m). BG Group has a finance lease arrangement with a joint venture company. As at 31 December 2015, the obligation was $124m (2014: $130m). The lease expires in 2027. BG Group has operating lease arrangements with associate companies in respect of FPSOs and subsea equipment. As at 31 December 2015, the obligation was $5 560m (2014: $4 609m). Charges paid during the year in respect of these leases are presented as E&P operating costs in the table. The last of these leases expires in 2029 (2014: 2029). William Backhouse, the son of Peter Backhouse, a former Non-Executive Director who resigned during 2014, was employed by BG International Limited, a wholly owned subsidiary of BG Group plc. 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 consistent with others employed in a similar role. As at 31 December 2015, a debtor balance of $784m (2014: $1 786m) (see note 14, page 57) and a creditor balance of $9m (2014: $23m) (see note 18, page 67) were outstanding between BG Group plc and other Group undertakings. BG Group plc grants equity instruments to subsidiaries’ employees in respect of equity-settled employee share schemes. In 2015, the fair value of equity instruments charged to the income statement was $58m (2014: $70m).

23 PENSIONS AND POST-RETIREMENT BENEFITS During the year ended 31 December 2015, a number of the Group’s UK employees were members of the BG Pension Scheme (BGPS), a defined benefit registered pension plan established under trust. The Trustee is BG Group Pension Trustees Limited. The BGPS is funded to cover future pension liabilities in respect of service up to the closure of the scheme. 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 that, together with the returns on the BGPS’s assets, are expected to be sufficient to fund the benefits payable. In common with all workplace pension schemes in the UK, the BGPS is subject to regulation by The Pensions Regulator. The Trustee is responsible for overall management and governance of the BGPS, including compliance with all applicable legislation and regulations. The Trustee also has responsibility for investment of the BGPS’s assets, following consultation with the Group. The BGPS closed to future accrual of benefits on 31 December 2013 and all active members became deferred pensioners with pensions calculated based on salaries up until the point of closure for such active members. These deferred pensions are generally revalued in line with movements in the Retail Prices Index. Certain benefits relating to individual transfers-in and purchases of additional pensionable service by employees retain a link to pensionable salary post-closure. The last full independent actuarial valuation of the BGPS for funding purposes showed that the aggregate market value of the plan assets at 31 March 2014 was £1 540m, representing 97% of the accrued liabilities. The next full funding valuation is expected to be performed with an effective date of 31 March 2017. As part of the funding agreement in respect of the 2011 actuarial valuation and the closure of the BGPS to future accrual of benefits, the Group and the Trustee established a Pension Funding Partnership (PFP) to address the deficit and to provide greater security to the Trustee. In December 2013, the Group acquired an interest in the PFP for £110m. It also contributed £350m to the BGPS and the Trustee used this to purchase its interest in the PFP. The PFP had an interest in loans secured on four of the Group’s LNG ships, the proceeds from which the PFP were to use to make annual distributions of £33m to the BGPS for 15 years and to pay a capital sum in 2028 of £172m which would have been used, if necessary, to fund any deficit in the BGPS at that time, measured on a ‘self-sufficiency’ funding basis. In December 2014, BG Group entered into an agreement for the sale of two of these LNG ships for proceeds of $460m, which completed in March 2015. The majority of the proceeds from this sale were utilised to support the funding of the BGPS and as such the amount of ongoing annual contributions will reduce to £16.5m and the capital sum due in 2028 was revised to £86m. The Group has taken advantage of the exemption conferred by Regulation 7 of the Partnerships (Accounts) Regulations 2008 and has, therefore, not appended the accounts of this qualifying partnership to these financial statements. Separate accounts for the PFP are not required to be, and have not been, filed at Companies House. For scheme funding purposes, the Trustee’s interest in the PFP is treated as an asset which reduces the BGPS actuarial funding deficit. However, the PFP is not a plan asset under IAS 19 for the purposes of the Group’s consolidated financial statements and therefore does not reduce the deficit/increase the surplus on an IAS 19 accounting basis. The Group is exposed to a number of risks relating to the BGPS. For example, additional contributions may be required if the life expectancy of the members increases or if investments underperform, compared with the assumptions adopted at the last valuation of the BGPS. The BG Supplementary Benefits Scheme (BGSBS) provides benefits broadly in excess of the ‘lifetime allowance’. This defined benefit plan is an unfunded, non-registered arrangement. The BGSBS was closed to future accrual of benefits on 31 December 2013, the same date as benefit accrual ceased in the BGPS. The Group has a small number of defined benefit plans outside the UK, that are not material in Group terms.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 71 Financial statements Notes to the accounts > continued

23 PENSIONS AND POST-RETIREMENT BENEFITS CONTINUED With effect from 2 April 2007, new UK employees have been offered membership of a defined contribution stakeholder pension plan, the BG Group Retirement Benefits Plan (BGGRBP). With effect from 1 April 2013, the Company enhanced the BGGRBP by increasing employer’s pension contributions to 20% of salary, irrespective of the contribution rate chosen by employees. Under the BG Group Flexible Benefits system, BGGRBP members can choose to increase this percentage via salary sacrifice or to receive a proportion of the 20% contribution as cash (subject to statutory tax and National Insurance deductions). With effect from 1 December 2013, existing BGPS employee members transferred to the BGGRBP for future service. A wide range of funds is available from which members may choose how the contributions will be invested. Independent actuaries reported on the financial position of the BGPS and the BGSBS as at 31 December 2015 in accordance with the requirements of IAS 19. The fair value of plan assets, the present value of plan liabilities and the net balance sheet surplus/(liability) were as follows:

as at 31 December 2015 2014 $m $m Fair value of plan assets 2 212 2 004 Present value of liabilities (2 076) (2 262) Net balance sheet surplus/ (liability)(a) 136 (258)

(a) As a result of the special contribution associated with the sale of two LNG ships, the funded BGPS is in a surplus position of $205m (2014: $183m deficit). The unfunded BGSBS is in a deficit position of $69m (2014: $75m deficit). The BGPS surplus and the BGSBS deficit are separately disclosed on the face of the balance sheet in the current year. The surplus of BGPS is considered recoverable as the Group would be entitled to a refund of any surplus in the event that the BGPS were wound-up.

The following table shows the movements in the defined benefit obligation (DBO), the fair values of plan assets and the net defined benefit obligation in the period, separately identifying the impact on the income statement and other comprehensive income: 2015 2014 $m $m Defined Fair values Net Defined Fair values Net benefit of plan surplus/ benefit of plan surplus/ obligation assets (liability) obligation assets (liability) FINANCIAL STATEMENTS At 1 January (2 262) 2 004 (258) (2 095) 1 927 (168) Pension (cost)/ credit to income statement: Past service cost – – – 15 – 15 Net interest (80) 81 1 (92) 85 (7) Subtotal recognised in the income statement: (80) 81 1 (77) 85 8

Remeasurement gains/(losses) in other comprehensive income: Return on plan assets (excluding amounts included in net interest) – (52) (52) – 119 119 Actuarial changes arising from changes in financial assumptions 20 – 20 (225) – (225) Actuarial changes arising from changes in demographic assumptions – – – (75) – (75) Experience adjustments 53 – 53 18 – 18 Currency translation adjustments 119 (122) (3) 124 (116) 8 Subtotal recognised in other comprehensive income: 192 (174) 18 (158) 3 (155)

Benefits paid 74 (74) – 68 (68) – Contributions by employer – 375 375 – 57 57

At 31 December (2 076) 2 212 136 (2 262) 2 004 (258)

Also recognised in the consolidated income statement was a $59m charge (2014: $73m) in relation to defined contribution schemes within continuing operations. As at 31 December 2015, $2 007m of the DBO relates to the funded BGPS (2014: $2 187m) and $69m relates to the unfunded BGSBS (2014: $75m). The weighted average duration of the DBO as at 31 December 2015 is 22 years. As at 31 December 2015, $1 377m of the DBO relates to deferred pensioners and $699m relates to pensions in payment. The valuations as at 31 December were based on the following significant assumptions: 2015 2014 % % Rate of price inflation and benefit increases(a) 3.1 3.1 Discount rate 3.8 3.7

(a) Rate of increase of the majority of deferred pensions and pensions in payment in excess of any Guaranteed Minimum Pension element.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 72 Financial statements Notes to the accounts > continued

23 PENSIONS AND POST-RETIREMENT BENEFITS CONTINUED The assumptions set out in the table above are those applicable to Pounds Sterling, being the currency in which the plans are denominated. If the discount rate used for the valuation of the BGPS and BGSBS was reduced by 0.1% to 3.7%, the DBO would increase by $44m. A 0.1% increase in the inflation rate would have a similar impact on the DBO. In determining the DBO as at 31 December 2015, mortality assumptions are based on the ‘Self Administered Pension Schemes’ (SAPS) S2 series (light) tables issued by the Institute and Faculty of Actuaries with a 98% multiplier for males and a 91% multiplier for females, appropriate to each member’s year of birth, together with an allowance for projected longevity improvements in line with the CMI’s ‘core projection’ model (2013 version), with a long-term rate of improvement of the projected mortality rates of 1.5% per annum. 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) as at 31 December 2015 2014 2015 2025 2014 2024 Male age 60 28.9 30.1 28.8 30.0 Male age 65 24.0 25.1 23.9 24.9 Female age 60 30.7 31.9 30.6 31.8 Female age 65 25.7 26.9 25.6 26.8

If the life expectancy of a member currently age 60 was increased by one year, with consistent changes for members at other ages, the DBO in respect of the BGPS and BGSBS would increase by $54m. While the BGPS portfolio remains weighted towards growth assets, following the closure to future accrual at the end of 2013, the Trustees, assisted by their Investment Consultant (Hymans Robertson) have developed a de-risking strategy. This strategy led to the implementation of a Liability Driven Investment (LDI) mandate in 2014 and, in 2015, to the appointment of a further three new managers to increase the diversification of the BGPS portfolio. As a result, the BGPS’s diversified investment portfolio is spread across eight (2014: five) investment managers. Under the LDI mandate, the LDI manager (Insight Investment Management) received the BGPS’s index-linked gilt portfolio, which they use, along with a combination of conventional investments and derivative instruments, to seek to hedge a proportion of the interest rate and inflation exposure associated with the BGPS’s liabilities. As at 31 December 2015, approximately 40% of both the interest rate risk and inflation risk associated with the BGPS’s liabilities was hedged. As at 31 December 2015, the BGPS held unquoted assets valued at $7m (2014: $4m) through its absolute return investment in the Lansdowne Developed Markets Fund and unquoted assets valued at $166m (2014: $nil) through the alternative credit investments in the M&G Illiquid Credit Opportunity Fund and the Henderson Multi-Asset Credit Fund. As at 31 December, the fair value of plan assets was as follows: 2015 2014 Percentage of Percentage of plan assets Value plan assets Value % $m % $m Absolute return strategies 25 549 15 305 Liability driven investments and index-linked gilts 25 546 30 590 Alternative credit 21 457 – – Equities(a) 20 446 38 753 Corporate bonds – – 10 204 Property funds 9 205 7 146 Money market funds and cash – 9 – 6 Fair value of plan assets 2 212 2 004

(a) Equities are invested across a globally diversified range of funds, which track general industry indices in each market.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 73 Financial statements Notes to the accounts > continued

24 ASSETS HELD FOR SALE

The Group as at 31 December 2015 2014 $m $m Property, plant and equipment – 2 078 Trade and other receivables – 10 Assets classified as held for sale – 2 088

Trade and other payables – (27) Provisions for other liabilities and charges – (36) Liabilities associated with assets classified as held for sale – (63)

Net assets classified as held for sale – 2 025

There were no assets held for sale as at 31 December 2015. Assets held for sale as at 31 December 2014 comprised QCLNG Pipeline Pty Limited in the Upstream segment and two LNG vessels in the LNG Shipping & Marketing segment, the disposals of which completed in 2015.

25 POST BALANCE SHEET EVENTS On 8 April 2015, the Boards of Royal Dutch Shell plc (Shell) and BG Group plc announced that they had reached agreement on the terms of a recommended cash and share offer to be made by Shell for the entire issued and to be issued share capital of BG Group plc to be effected by way of a Scheme of Arrangement under Part 26 of the Companies Act 2006 (the Scheme). On 27 January 2016, Shell shareholders voted to approve the Combination and, on 28 January 2016,

BG Group plc shareholders voted to approve the Scheme at a court-convened meeting and to approve a special resolution to implement the Scheme, including FINANCIAL STATEMENTS amendments to the BG Group plc articles, at a general meeting of BG Group plc. Following a court hearing on 11 February 2016, the Scheme became effective on 15 February 2016. On 15 February 2016, the Company’s shares were delisted on completion of the Combination and the Company was re-registered as a private limited company on 30 March 2016, with its immediate parent undertaking being Royal Dutch Shell plc.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 74 Financial statements Notes to the accounts > continued

26 SUBSIDIARY AND OTHER RELATED UNDERTAKINGS Subsidiary and other related undertakings are set out below in accordance with the Companies Act 2006. Unless otherwise stated, all Group owned shares are ordinary shares. The Group does not have any individually material joint ventures or associates requiring disclosure under IFRS 12. For further details concerning the Group’s joint ventures, associates and material joint operations, see also Note 12 – Investments.

as at 31 December 2015 Country of incorporation Group holding % A.C.N. 081 118 292 Pty Limited Australia 100.00% Alie Investments Limited United Kingdom 100.00% Atlantic 1 Holdings, LLC 26.00% Atlantic 2/3 Holdings, LLC United States 32.50% Atlantic 4 Holdings, LLC United States 28.89% Atlantic LNG 2/3 Company of Trinidad and Tobago Unlimited Trinidad and Tobago 32.50% Atlantic LNG 4 Company of Trinidad and Tobago Unlimited Trinidad and Tobago 28.89% Atlantic LNG Company of Trinidad and Tobago Trinidad and Tobago 26.00% Australian Oil & Gas Corporation Pty Limited Australia 100.00% BC 789 Holdings Pty Limited Australia 100.00% Berkshire Global Limited (In Liquidation) British Virgin Islands 100.00% Berkshire International Investments Limited (In Liquidation) British Virgin Islands 100.00% BG (Uruguay) S.A.(b) Uruguay 100.00% BG 123 Limited United Kingdom 100.00% BG 2/3 Investments Limited Trinidad and Tobago 100.00% BG 456 Limited(c) United Kingdom 100.00% BG 789 Limited(c) United Kingdom 100.00% BG ABC Limited United Kingdom 100.00% BG E&P, Inc. United States 100.00% BG Alpha LLP(a) (Strike off in progress) United Kingdom 100.00% BG Aruba Limited United Kingdom 100.00% BG Asia Pacific Holdings Pte Limited Singapore 100.00% BG Asia Pacific Pte Limited Singapore 100.00% BG Asia Pacific Services Pte Limited(d) Singapore 100.00% BG Asia, Inc. United States 100.00% BG Atlantic 1 Holdings Limited Saint Lucia 100.00% BG Atlantic 2/3 Holdings Limited Saint Lucia 100.00% BG Atlantic 4 Holdings Limited Saint Lucia 100.00% BG Atlantic Finance Limited United Kingdom 100.00% BG Bolivia Corporation Cayman Islands 100.00% BG Brasilia, LLC(a) United States 100.00% BG Canada Limited (d) Canada 100.00% BG Central Holdings Limited United Kingdom 100.00% BG Central Holdings Limited Saint Lucia 100.00% BG Central Investments Limited United Kingdom 100.00% BG Chile S.A. Chile 100.00% BG Comercio E Importacao Ltda. Brazil 100.00% BG CPS Pty Limited Australia 100.00% BG Cyprus Limited United Kingdom 100.00% BG Delta Limited United Kingdom 100.00% BG do Brasil Ltda. Brazil 100.00% BG E&P Brasil Ltda. Brazil 100.00% BG Egypt S.A. Cayman Islands 100.00% BG Employee Shares Trustees Limited United Kingdom 100.00% BG Energy Capital Plc United Kingdom 100.00% BG Energy Finance, Inc. United States 100.00% BG Energy Holdings Limited(e) United Kingdom 100.00% BG Energy Iberian Holdings S.L. Spain 100.00% BG Energy Marketing Limited United Kingdom 100.00% BG Energy Merchants Canada Limited Canada 100.00% BG Energy Merchants, LLC United States 100.00% BG Energy Trading Limited United Kingdom 100.00% BG Energy US Finance Limited (Strike off in progress) United Kingdom 100.00% BG Equatorial Guinea Limited United Kingdom 100.00% BG Exploration & Production Myanmar Pte Limited Singapore 100.00%

(a) Partnership interest (b) Bearer shares only (c) Ordinary shares and redeemable preference shares (d) Ordinary shares and preference shares (e) Ordinary shares held directly by BG Group Limited

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 75 Financial statements Notes to the accounts > continued

26 SUBSIDIARY AND OTHER RELATED UNDERTAKINGS CONTINUED as at 31 December 2015 Country of incorporation Group holding % BG Exploration America, Inc. United States 100.00% BG Exploration and Production India Limited Cayman Islands 100.00% BG Exploration and Production Limited United Kingdom 100.00% BG Exploration and Production Nigeria Limited Nigeria 100.00% BG Finance Investments Limited United Kingdom 100.00% BG Finance LLP(a) (Strike off in progress) United Kingdom 100.00% BG Gas Atlantic Holdings B.V. Netherlands 100.00% BG Gas Brazil E&P 12 B.V.(d) Netherlands 100.00% BG Gas Brazil Holdings B.V.(d) Netherlands 100.00% BG Gas Brazilian Investment B.V. Netherlands 100.00% BG Gas Global Holdings B.V. Netherlands 100.00% BG Gas International B.V. Netherlands 100.00% BG Gas International Holdings B.V. Netherlands 100.00% BG Gas Marketing Limited United Kingdom 100.00% BG Gas Netherlands Holdings B.V. Netherlands 100.00% BG Gas São Paulo Investments B.V. Netherlands 100.00% BG Gas Services Limited United Kingdom 100.00% BG Gas Supply (UK) Limited United Kingdom 100.00% BG Gas Supply Trinidad Limited Trinidad and Tobago 100.00% BG General Holdings Limited United Kingdom 100.00% BG General Investments United Kingdom 100.00% BG General Partner Limited United Kingdom 100.00% BG Global Employee Resources Limited United Kingdom 100.00% FINANCIAL STATEMENTS BG Global Energy Limited United Kingdom 100.00% BG Great Britain Limited United Kingdom 100.00% BG Group Company Secretaries Limited United Kingdom 100.00% BG Group Employee Benefit Trust Limited United Kingdom 100.00% BG Group Employee Shares Trustees Limited United Kingdom 100.00% BG Group Healthcare Trustee Limited United Kingdom 100.00% BG Group Mexico Exploration, S.A. de C.V Mexico 100.00% BG Group Mexico Services, S.A. de C.V Mexico 100.00% BG Group Pension Trustees Limited United Kingdom 100.00% BG Group Trustees Limited United Kingdom 100.00% BG Gulf Coast LNG, LLC(a) United States 100.00% BG Hasdrubal Limited United Kingdom 100.00% BG India Energy Private Limited India 100.00% BG India Energy Services Private Limited India 100.00% BG India Energy Solutions Private Limited India 100.00% BG Insurance Company (Singapore) Pte Limited Singapore 100.00% BG Intellectual Property Limited United Kingdom 100.00% BG International (AUS) 1 Pty Limited Australia 100.00% BG International (AUS) 2 Pty Limited Australia 100.00% BG International (AUS) 3 Pty Limited Australia 100.00% BG International (AUS) 4 Pty Limited Australia 100.00% BG International (AUS) 5 Pty Limited Australia 100.00% BG International (AUS) 6 Pty Limited Australia 100.00% BG International (AUS) 7 Pty Limited Australia 100.00% BG International (AUS) 8 Pty Limited Australia 100.00% BG International (AUS) 9 Pty Limited Australia 100.00% BG International (AUS) Alternate Limited Partnership Australia 100.00% BG International (AUS) Finance Pty Limited Australia 100.00% BG International (AUS) Investments Pty Limited Australia 100.00% BG International (AUS) Limited Partnership Australia 100.00% BG International (AUS) Pty Limited Australia 100.00% BG International (CNS) Limited United Kingdom 100.00% BG International Limited United Kingdom 100.00% BG International Services AB Sweden 100.00% BG Inversiones Argentinas S.A. (In Liquidation) Argentina 100.00% BG Limited United Kingdom 100.00%

(a) Partnership interest (b) Bearer shares only (c) Ordinary shares and redeemable preference shares (d) Ordinary shares and preference shares (e) Ordinary shares held directly by BG Group Limited

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 76 Financial statements Notes to the accounts > continued

26 SUBSIDIARY AND OTHER RELATED UNDERTAKINGS CONTINUED as at 31 December 2015 Country of incorporation Group holding % BG Italia Power S.p.A. Italy 100.00% BG Karachaganak Limited United Kingdom 100.00% BG Karachaganak Trading Limited United Kingdom 100.00% BG L10A Limited United Kingdom 100.00% BG Kenya L10B Limited United Kingdom 100.00% BG Lake Charles Operations, LLC(a) United States 100.00% BG LNG Investments Limited United Kingdom 100.00% BG LNG Regas India Private Limited India 100.00% BG LNG Services, LLC(a) United States 100.00% BG LNG Trading, LLC United States 100.00% BG LNG Transport No.3 Limited United Kingdom 100.00% BG LNG Transport No.5 Limited United Kingdom 100.00% BG Manatee Limited Trinidad and Tobago 100.00% BG Mauritius LNG Holdings Limited Mauritius 100.00% BG Mongolia Holdings Limited United Kingdom 100.00% BG Holdings Limited Mauritius 100.00% BG Myanmar Pte Limited Singapore 100.00% BG Netherlands Financing United Kingdom 100.00% BG Netherlands United Kingdom 100.00% BG Norge AS Norway 100.00% BG Norge Exploration Limited United Kingdom 100.00% BG Norge Limited United Kingdom 100.00% BG North America, LLC United States 100.00% BG North Investments Limited United Kingdom 100.00% BG North Sea Holdings Limited United Kingdom 100.00% BG Oil Marketing Pte Limited Singapore 100.00% BG OKLNG Limited United Kingdom 100.00% BG Omikron Limited United Kingdom 100.00% BG Overseas Holdings Limited United Kingdom 100.00% BG Overseas Investments Limited United Kingdom 100.00% BG Overseas Limited United Kingdom 100.00% BG Pacific Holdings Pty Limited Australia 100.00% BG Pacific Investments Limited (In Liquidation) British Virgin Islands 100.00% BG Pension Funding Scottish Limited Partnership(a) United Kingdom 100.00% BG Petroleo & Gas Brasil Ltda Brazil 100.00% BG Production Company (PA), LLC(a) United States 100.00% BG Production Company (WV), LLC(a) United States 100.00% BG Puerto Rico, Corp. Puerto Rico 100.00% BG Rosetta Limited United Kingdom 100.00% BG Singapore Gas Marketing Pte Limited Singapore 100.00% BG Singapore Gas Supply Pte Limited Singapore 100.00% BG Singapore Limited United Kingdom 100.00% BG South Asia LNG Limited United Kingdom 100.00% BG South East Asia Limited United Kingdom 100.00% BG Subsea Well Project Limited United Kingdom 100.00% BG Tanzania Holdings Limited United Kingdom 100.00% BG Tanzania Limited United Kingdom 100.00% BG Thailand Limited United Kingdom 100.00% BG Thailand Pte. Limited Singapore 100.00% BG Trinidad 5(A) Limited United Kingdom 100.00% BG Trinidad and Tobago Limited United Kingdom 100.00% BG Trinidad Block E Limited United Kingdom 100.00% BG Trinidad Central Block Limited Trinidad and Tobago 100.00% BG Trinidad LNG Limited United Kingdom 100.00% BG Tunisia Limited United Kingdom 100.00% BG Tunisia LPG S.A. Tunisia 100.00% BG UK Capital II Limited(d) United Kingdom 100.00% BG UK Capital Limited(d) United Kingdom 100.00% BG UK Holdings Limited United Kingdom 100.00%

(a) Partnership interest (b) Bearer shares only (c) Ordinary shares and redeemable preference shares (d) Ordinary shares and preference shares (e) Ordinary shares held directly by BG Group Limited

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 77 Financial statements Notes to the accounts > continued

26 SUBSIDIARY AND OTHER RELATED UNDERTAKINGS CONTINUED as at 31 December 2015 Country of incorporation Group holding % BG Upstream A Nigeria Limited Nigeria 100.00% BG US Gathering Company, LLC(a) United States 100.00% BG US Production Company, LLC(a) United States 100.00% BG US Services, Inc. United States 100.00% BG West Indies No. 2 Limited Saint Lucia 100.00% BG XYZ Limited United Kingdom 100.00% BGMEP, LLC Mongolia 100.00% BNG (Surat) Pty Limited Australia 100.00% Brazil Crude Services, LLC(a) United States 100.00% Brazil Shipping I Limited United Kingdom 100.00% Brazil Shipping II Limited United Kingdom 100.00% Brindisi LNG S.p.A. Italy 100.00% (Malaysia) S.A. Cayman Islands 100.00% British Gas Corporation Limited United Kingdom 100.00% British Gas International Limited United Kingdom 100.00% Burullus Gas Company S.A.E. Egypt 25.00% Condamine 1 Pty Limited Australia 100.00% Condamine 2 Pty Limited Australia 100.00% Condamine 3 Pty Limited Australia 100.00% Condamine 4 Pty Limited Australia 100.00% Condamine Power Station Pty Limited Australia 100.00% Dinarel S.A. Uruguay 50.00% Dragon LNG Group Limited United Kingdom 50.00% FINANCIAL STATEMENTS Dragon LNG Limited United Kingdom 100.00% Egypt LNG Shipping Limited Bermuda 25.00% El Behera Natural Gas Liquefaction Company S.A.E. Egypt 35.50% Exco Appalachia Midstream, LLC(a) United States 50.00% Exco Resources (PA), LLC(a) United States 50.00% Fahari Gas Marketing Company Limited United Republic of Tanzania 52.80% Gas Link S.A. Argentina 51.00% Gas Resources Limited Cayman Islands 100.00% Gasoducto Cruz Del Sur S.A Uruguay 40.00% Guara B.V. Netherlands 30.00% Hamilbent Pty Limited Australia 100.00% Hydrocarbons Offshore Services Limited (Strike off in progress) United Kingdom 100.00% Idku Natural Gas Liquefaction Company S.A.E. Egypt 38.00% Interstate Pipelines Pty Limited Australia 100.00% Iqara Holdings Limited (Strike off in progress) United Kingdom 100.00% Iqara Limited (Strike off in progress) United Kingdom 100.00% Karachaganak Petroleum Operating B.V. Netherlands 29.25% Karachaganak Project Development Limited United Kingdom 38.00% Lake Charles Exports, LLC United States 80.00% Laurentide E&P, LLC(a) United States 100.00% Mahanagar Gas Limited India 49.75% Methane Services Limited(d) United Kingdom 100.00% Mzalendo Gas Processing Company Limited United Republic of Tanzania 52.80% New South Oil Pty Limited Australia 100.00% Ome Resources Australia Pty Limited Australia 100.00% Petroleum Exploration Australia Pty Limited Australia 100.00% Petroleum Resources (Thailand) Pty Limited Australia 100.00% Point Fortin LNG Exports Limited Trinidad and Tobago 45.89% Prince Rupert LNG Exports Limited Canada 100.00% Prince Rupert LNG Limited Canada 100.00% Pure Energy Resources Pty Limited Australia 100.00% QCLNG Common Facilities Company Pty Limited Australia 100.00% QCLNG Land Pty Limited Australia 100.00% QCLNG Operating Company Pty Limited(f) Australia 75.00% QCLNG Train 1 UJV Manager Pty Limited Australia 100.00% QCLNG Train 2 Pty Limited Australia 100.00%

(a) Partnership interest (b) Bearer shares only (c) Ordinary shares and redeemable preference shares (d) Ordinary shares and preference shares (e) Ordinary shares held directly by BG Group Limited

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 78 Financial statements Notes to the accounts > continued

26 SUBSIDIARY AND OTHER RELATED UNDERTAKINGS CONTINUED as at 31 December 2015 Country of incorporation Group holding % QCLNG Train 2 UJV Manager Pty Limited Australia 100.00% QGC (B7) Pty Limited Australia 100.00% QGC (Berwyndale South) Pty Limited Australia 100.00% QGC (Exploration) Pty Limited Australia 100.00% QGC (Infrastructure) Pty Limited Australia 100.00% QGC Northern Forestry Pty Limited Australia 100.00% QGC Pty Limited Australia 100.00% QGC Sales Qld Pty Limited Australia 100.00% QGC Train 1 Pty Limited Australia 100.00% QGC Train 1 Tolling Pty Limited Australia 100.00% QGC Train 2 Tolling No.2 Pty Limited Australia 100.00% QGC Train 2 Tolling Pty Limited Australia 100.00% Queensland Curtis LNG Pty Limited Australia 100.00% Queensland Gas Company Pty Limited Australia 100.00% Rashid Petroleum Company S.A.E. Egypt 40.00% Roma Petroleum Pty Limited Australia 100.00% Ruvuma Pipeline Company Limited United Republic of Tanzania 52.80% Schooner Trustees Limited United Kingdom 100.00% Sga (Queensland) Pty Limited Australia 82.14% Sgai Pty Limited Australia 82.16% Starzap Pty Limited Australia 100.00% Sunshine 685 Pty Limited Australia 100.00% Sunshine Gas Pty Limited Australia 100.00% Tanzania LNG Limited United Republic of Tanzania 100.00% Thai Energy Company Limited Thailand 100.00% The Egyptian LNG Company S.A.E. Egypt 35.50% The Egyptian Operating Company for Natural Gas Liquefaction Projects S.A.E. Egypt 35.50% The International School of Port of Spain Limited Trinidad and Tobago 25.00% TRINLING Limited Trinidad and Tobago 50.00% Tunisian Processing S.A. Tunisia 100.00% Tupi B.V. Netherlands 25.00% Walloons Coal Seam Gas Company Pty Limited(f) Australia 75.00% Walloons Electricity Co. Pty Limited Australia 100.00% Westcoast Connector Gas Transmission Limited Canada 50.00%

(a) Partnership interest (b) Bearer shares only (c) Ordinary shares and redeemable preference shares (d) Ordinary shares and preference shares (e) Ordinary shares held directly by BG Group Limited (f) 100% of ordinary shares are Group owned, 100% of redeemable preference shares are held by CNOOC Gas and Power (AUS) Investment Pty Limited.

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 79 Additional information Presentation of non-GAAP measures

BG Group publishes certain additional BG Group also uses commodity instruments Realised gains and losses relating to the information in a non-statutory format to manage certain price exposures in respect instruments referred to above are included in in order to provide readers with an of optimising the timing and location of its Business Performance. This presentation best physical gas, LNG and oil sales commitments. reflects the underlying performance of the business increased insight into the underlying These instruments are also required to be measured since it distinguishes between the temporary timing performance of the business. The at fair value at the balance sheet date under IAS 39 differences associated with re-measurements under measures the Group uses are and, where practical, have been designated as IAS 39 rules and actual realised gains and losses. formal hedges. However, IAS 39 does not always explained below. BG Group has also separately identified profits allow the matching of fair values to the economically and losses associated with the disposal of BUSINESS PERFORMANCE hedged value of the related commodity, resulting in non-current assets, impairments of non-current Business Performance excludes discontinued unrealised movements in fair value being recorded assets and certain other exceptional items, including operations and disposals, certain re-measurements in the income statement. These movements in fair taxation, as they require separate disclosure in order and impairments and certain other exceptional value, together with any unrealised gains and losses to provide a clearer understanding of the results items (see below) as exclusion of these items associated with discontinued hedge-accounting for the period. provides a clear and consistent presentation of the relationships that continue to represent economic underlying operating performance of the Group’s hedges, are disclosed separately as disposals, For a reconciliation between Total Results and ongoing business. re-measurements and impairments. Business Performance, and details of disposals, re-measurements and impairments, see note 1, BG Group uses commodity instruments to manage BG Group also uses financial instruments, page 42, note 4, page 49 and note 8, page 53. price exposures associated with its marketing and including derivatives, to manage foreign exchange optimisation activity. This activity enables the Group and interest rate exposure. These instruments are NET BORROWINGS AND RETURN to take advantage of commodity price movements. required to be recognised at fair value or amortised ON AVERAGE CAPITAL EMPLOYED It is considered more appropriate to include both cost on the balance sheet in accordance with IAS 39. BG Group provides a reconciliation of net unrealised and realised gains and losses arising Most of these instruments have been designated borrowings and an analysis of the amounts from the mark-to-market of derivatives associated either as hedges of foreign exchange movements included within net borrowings as this is an with this activity in Business Performance. associated with the Group’s net investments important liquidity measure for the Group. in foreign operations, or as hedges of interest rate DISPOSALS, CERTAIN RE-MEASUREMENTS Return on average capital employed represents risk. Where these instruments represent economic AND IMPAIRMENTS Business Performance profit (excluding disposals, hedges but cannot be designated as hedges under BG Group’s commercial arrangements for marketing re-measurements and impairments) excluding IAS 39, unrealised movements in fair value, together gas include the use of gas sales contracts. While the net finance costs/(income) on net borrowings, with foreign exchange movements associated with activity surrounding these contracts involves the as a percentage of average capital employed. the underlying borrowings and certain inter- physical delivery of gas, certain gas sales contracts company balances, are recorded in the income FREE CASH FLOW are classified as derivatives under the rules of IAS 39, statement and disclosed separately as disposals, Free cash flow is defined in theGlossary , page 80. ‘Financial Instruments: Recognition and re-measurements and impairments. Measurement’, 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 contracts, and are disclosed separately as disposals, re‑measurements and impairments. ADDITIONAL INFORMATION

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015 80 Additional information Glossary of terms

FOR THE PURPOSE OF THIS REPORT THE FOLLOWING DEFINITIONS APPLY:

Unit of measurement Acronyms bbl Barrel API American OGP International Association billion or bn One thousand million CATS Central area transmission system of Oil and Gas Producers boe Barrels of oil equivalent. BG Group CNOOC China National Offshore OPEC The Organization of the uses a conversion factor of 1 boe Oil Corporation Petroleum Exporting Countries equals 6 000 cubic feet of natural gas DD&A Depreciation, depletion and QCLNG Queensland Curtis LNG boed Barrels of oil equivalent per day amortisation QGC QGC Pty Limited, Australia bopd Barrels of oil per day E&P Exploration and production ROACE Return on average capital employed. CO e Carbon dioxide equivalent EBIT Earnings before interest and tax Represents Business Performance 2 earnings over the past 12 months, kboed Thousand barrels of oil equivalent EBITDA Earnings before interest, tax, excluding net finance costs / income per day depreciation and amortisation, on net borrowings, as a percentage kbopd Thousand barrels of oil per day including post-tax results of joint of average capital employed over ventures and associates kt Thousand tonnes the past 12 months EY Ernst & Young LLP m Million SEC The United States Securities EU European Union and Exchange Commission mmboe Million barrels of oil equivalent FPSO Floating production, storage SPE-PRMS Petroleum Resources Management mmbtu Million British thermal units and offloading (vessel) System published by the Society mt Million tonnes GAAP Generally accepted of Petroleum Engineers, American mtpa Million tonnes per annum accounting principles Association of Petroleum Geologists, and the therm Approximate energy equivalent of GHG Greenhouse gas Society of Petroleum Evaluation burning 100 cubic feet of natural gas IAS International Accounting Standard Engineers IEA International Energy Agency TRCF Total recordable case frequency – IFRS International Financial Reporting total recorded incidents per million Standards work hours IPIECA The global oil and gas industry WDDM West Delta Deep Marine association for environmental and social issues Further acronyms are also defined in the LNG Liquefied natural gas Remuneration report on page 18.

Terms – explained

BG Group or BG Group plc and its subsidiary Fugitive Fugitive gas emissions refers to gases Risked Risked exploration resources are the Group undertakings, joint ventures and that escape from the production, exploration defined by BG Group as the best associated undertakings transportation or storage of oil and gas estimate (mean value) of recoverable Capital Expenditure on property, plant Gearing Ratio of net borrowings to total hydrocarbons from undiscovered investment and equipment, other intangible shareholders’ funds (excluding accumulations multiplied by the assets and investments, including balances associated with commodity chance of success business combinations financial instruments and related Spot A charter for a particular vessel to Capital Cash flows on purchase of property, plant deferred tax) plus net borrowings move a single cargo between specified investment and equipment and intangible assets, Lifting costs Costs of producing oil and gas after ports in the immediate future. The on a cash loans to joint ventures and associates, drilling is completed contract rate (‘spot’ rate) covers total operating expenses basis and investments in subsidiaries, joint LNG Shipping LNG shipping, marketing ventures and associates & Marketing and interests in regasification Spud(ded) To start the well drilling process trapped in underground coal businesses Tight Relatively impermeable reservoir rock. seam gas seams by water and ground pressure Net debt/net Comprise cash, current asset Stimulation of tight formations can Combination The acquisition of the entire issued borrowings investments, finance lease liabilities/ result in increased production from and to be issued share capital of BG assets, currency and interest rate formations that previously might have Group plc by Royal Dutch Shell plc derivative financial instruments and been abandoned or been produced announced 8 April 2015, and effective short and long-term borrowings. uneconomically on 15 February 2016. Excludes net borrowings in respect Total capital Expenditure on property, plant and the Company BG Group plc of assets classified as held for sale investment equipment, other intangible assets Probable Those additional reserves which and investments, including business Delivered Comprise all LNG volumes discharged combinations volumes in a given period, excluding LNG reserves analysis of geoscience and engineering utilised by the ships data indicate are less likely to be Total Operating profit plus share of pre-tax recovered than proved reserves but operating operating results from joint ventures Discovered Defined by BG Group as being the best more certain to be recovered than profit and associates resources estimate of discovered recoverable possible reserves. It is equally likely hydrocarbons where commercial and/ Total Defined by BG Group as being the that actual remaining quantities resources aggregate of proved and probable or technical maturity is such that the recovered will be greater than or less initiation of development is subject to reserves plus discovered resources than the sum of the estimated proved and risked exploration. Total resources certain conditions and therefore plus probable reserves sanction is not expected within the may also be referred to as total next few years Proved Those quantities of petroleum, reserves and resources reserves which, by analysis of geoscience and E&P EBIT/ E&P EBIT/EBITDA before exploration Unit Calculated by dividing production engineering data, can be estimated operating and other operating costs (royalties) EBITDA charge divided by net production for within reasonable certainty to be margin the period costs/ by the net production for the period. commercially recoverable, from a given expenditure This measure does not include the Extended A test to evaluate production date forward, from known reservoirs per boe impact of depreciation and well test and characteristics of a reservoir and under defined economic amortisation costs and exploration Forward A series of current market prices conditions, operating methods and costs as they are not considered to be curve or rates applicable to commodities government regulations. Proved costs associated with the operation of or financial instruments for specific developed reserves are those reserves producing assets dates in the future that can be expected to be recovered through existing wells and with Upstream Exploration & Production and LNG Free cash Net cash flow from operating and existing equipment and operating liquefaction businesses flow investing activities after tax and methods. Proved undeveloped reserves interest but before disposals comprise total proved reserves less Frontier Areas where little or no exploration total proved developed reserves acreage activity has taken place

BG GROUP ANNUAL REPORT AND ACCOUNTS 2015

BG Group Limited 100 Thames Valley Park Drive Reading, Berkshire RG6 1PT United Kingdom www.shell.com/investor Registered in England & Wales No. 3690065 Designed and produced by Addison Group www.addison-group.net