BG Energy Holdings Limited Annual Report and Accounts 2010 Contents Parent Company Financial Statements 1 Board of Directors of BG Energy Holdings Limited 2 Directors’ report 59 Auditors’ report 5 Auditors’ report 60 Principal accounting policies 6 Principal accounting policies 61 Accounts 10 Financing and financial risk factors 62 Notes to the accounts 12 Accounts 65 Shareholder information 17 Notes to the accounts 1 Board of Directors

Frank Chapman (57) Robert Booker (44) Chairman Robert Booker was appointed to the BG Energy Holdings Limited Board Frank Chapman was appointed to the BG Energy Holdings Limited Board in February 2009. He joined BG Group plc in 2006. He is responsible for in October 1999. He was appointed Chief Executive of BG Group plc in all matters relating to human resources strategy and policy. He was October 2000, having been appointed to the Board of BG plc in February appointed to his current position as BG Group Executive Vice President, 1997. He joined British Gas plc in November 1996 as Managing Director, Human Resources, in February 2009, having previously been General Exploration and Production. He is an engineer and has worked in the oil Manager, Performance & Reward. He is a chartered accountant and and gas industry for 36 years. Prior to joining BG Group, he spent a total holds a Masters in Finance from London Business School. Formerly, he of 22 years with Royal Dutch Shell plc and BP plc. worked as a senior HR consultant for Ernst & Young and Mercer Human Resource Consulting in the UK and Canada. Ashley Almanza (47) Ashley Almanza was appointed to the BG Energy Holdings Limited Chris Finlayson (54) Board in August 2002. He was appointed Chief Financial Officer† of Chris Finlayson was appointed to the BG Energy Holdings Limited Board BG Group plc in August 2002. He joined British Gas plc in 1993 and in August 2010 when he assumed his current position as BG Group has held a number of key management roles in BG Group including Executive Vice President & Managing Director, Europe and Central Asia. Group Finance Director and Group Financial Controller. He is currently He is responsible for the Group’s activities across Europe and Central responsible for Group finance, tax, treasury, investor relations, mergers Asia. Formerly, he worked for Royal Dutch Shell plc for over 33 years, and acquisitions, internal audit and secretariat. He is a chartered during which time he gained extensive technical and commercial accountant with a MBA from London Business School. Ashley was, experience in the oil and gas industry in a variety of international until 2010, the chairman of the Hundred Group of Finance Directors. settings and businesses.

Martin Houston (53) Sir John Grant KCMG (56) Martin Houston was appointed to the BG Energy Holdings Limited Sir John Grant was appointed to the BG Energy Holdings Limited Board Board in November 2000. He was appointed to the BG Group plc Board in September 2009. He joined BG Group plc in September 2009 as in February 2009. He joined British Gas plc in 1983 and was appointed BG Group Executive Vice President, Policy and Corporate Affairs, having BG Group Executive Vice President in 2000. Based in Houston and been President, BHP Billiton Europe since 2007. He is responsible for London, he is responsible for the Group’s activities in the Americas and government and public affairs, communications, social performance for the Group’s global Liquefied Natural Gas (LNG) activities. Martin has and Business Principles. Formerly, he had been a member of the gained extensive international experience from a wide variety of Diplomatic Service, holding posts in Stockholm, Moscow and Brussels, technical, commercial and management roles and has played a leading where he was the UK’s permanent representative to the European role in developing the Group’s LNG business. He is a fellow of the Union for four years. Geological Society of London and a Companion of the Institution of Gas Engineers. Sami Iskander (45) Sami Iskander was appointed to the BG Energy Holdings Limited Jørn Berget (58) Board in September 2009. He was appointed to his current position as Jørn Berget was appointed to the BG Energy Holdings Limited Board BG Group Executive Vice President & Managing Director, Africa, Middle in January 2005. He joined BG Group plc in November 2004. He is East and Asia in July 2009, having previously been Senior Vice President, Executive Vice President & Managing Director, BG Advance and is Operations and Developments in BG Advance. He is responsible for the responsible for the following BG Group functions: HSSE; geology & Group’s activities across Africa, the Middle East and Asia. Prior to joining geophysics; petroleum engineering; engineering; operations; well BG Group in 2008, Sami spent his career with Schlumberger and fulfilled engineering; contracts & procurement and strategy & portfolio a number of key leadership roles with them, the most recent as development. BG Advance is responsible for exploration, capital president of Schlumberger’s worldwide drilling and measurements projects and IT & technology and provides the Group with technical and business based in Houston. commercial assurance and services, including resourcing and development of staff capabilities. He joined BG Group from Royal Dutch Shell plc and has over 30 years’ international experience in the oil and gas industry, covering all aspects of the exploration and production business with assignments in Europe, the Gulf, the Far East, South America and the USA.

Fabio Barbosa (50) Fabio Barbosa was appointed to the BG Energy Holdings Limited Board on 30 March 2011. He will be appointed Chief Financial Officer and Executive Director (designate) of BG Group plc on 31 March 2011 and will stand for election at the forthcoming Annual General Meeting. He was, until June 2010, the chief financial officer at the Brazilian mining company Vale SA, the largest private sector company in Latin America and the second-largest metals and mining company in the world by market capitalisation. Prior to joining Vale †In December 2010 BG Group plc announced the intention in 2002, he spent seven years in the Brazilian Ministry of Finance, of Ashley Almanza to resign as an Executive Director and Chief Financial Officer of BG Group plc with effect from rising to the role of national treasury secretary. He is a former adviser 31 March 2011. to one of the executive directors of the World Bank.

BG Energy Holdings Limited 2010 2 Directors’ report

The Directors present their report and the audited Financial Statements TRANSMISSION AND DISTRIBUTION (T&D) for the year ended 31 December 2010 (the ‘Report’). The Group’s T&D activities are focused in Brazil and India, developing both markets and infrastructure for the delivery of gas. BUSINESS REVIEW AND PRINCIPAL ACTIVITIES BG Energy Holdings Limited (the ‘Company’) is a wholly owned The Group’s T&D businesses increased customer numbers and volumes subsidiary of BG Group plc, the ultimate holding company of the during 2010. BG Group of companies (the ‘BG Group’) and the entity through which BG Group plc holds all of its subsidiaries and subsidiary undertakings. KEY PERFORMANCE INDICATORS The Group has identified the key performance indicators that it believes The Company, its subsidiaries, subsidiary undertakings and share of are useful in assessing how well the Group is performing against its jointly controlled entities and associates (the ‘Group’) is an integrated strategic aims. The Directors believe that the key performance gas group with activities across the whole range of gas operations, indicators of the Group are the same as those identified by BG Group. from exploration to the final consumer. Broadly these activities are: For a detailed description and commentary of BG Group’s (and therefore the Group’s) key performance indicators, please refer to BG Group plc’s EXPLORATION AND PRODUCTION (E&P) Annual Report and Accounts 2010 – Key performance indicators for 2010 The Group explores for, develops, produces and markets gas and oil on pages 16 and 17. around the world. The Group uses its technical, commercial and gas chain skills to deliver projects at competitive cost and to maximise the PRINCIPAL RISKS AND UNCERTAINTIES sales value of its hydrocarbons. The Group is subject to a broad range of risks such as commodity prices, reserves development and project delivery, operational performance The Group’s total production was 235.7 million barrels of oil equivalent and Health, Safety, Security and Environment (HSSE). (mmboe) in 2010 (2009 234.9 mmboe). Production volumes increased by 0.8 mmboe as production growth from the USA, Tunisia and The Directors believe that the principal risks and uncertainties of the Australia was largely offset by lower production in the UK, Egypt and Group, which include those of the Company, are the same as those India and planned maintenance activity, particularly in Kazakhstan. faced by BG Group. These risks are not managed separately by the Net production in Egypt was 54.1 mmboe. Net production in the Group. For a detailed description of the principal risks and uncertainties UK totalled 49.0 mmboe, and in Kazakhstan, net production from the facing BG Group (and therefore the Group), please refer to BG Group Karachaganak field was 37.8 mmboe. In Trinidad and Tobago, the Group plc’s Annual Report and Accounts 2010 – Principal risks and produced 30.2 mmboe in 2010. Hydrocarbons were also produced in uncertainties on pages 34 to 39. Further detail on certain financial risks Tunisia, the USA, India, Thailand, Australia, Bolivia, and Brazil. The Group facing the Group is also provided in Financing and financial risk factors made significant advances in its key projects in Australia, Brazil and on pages 10 to 11 of this report. the USA in 2010. The Group also extended its excellent track record in exploration, with a 12% increase in total reserves and resources to reach 16.2 billion barrels of oil equivalent (boe).

LIQUEFIED NATURAL GAS (LNG) The Group’s LNG activities combine liquefaction and regasification facilities with the purchasing, shipping, marketing and sale of LNG.

BG Group has a portfolio of flexible, long-term LNG supply sourced from its own liquefaction plants in Egypt and Trinidad and Tobago and from third-party suppliers in Equatorial Guinea and Nigeria.

During 2010, the Group supplied LNG cargoes to 19 countries, delivering a total of 215 cargoes, including 55 to the USA. The Group has now supplied 22 of the 23 countries able to import LNG.

The Group approved the final investment decision for the first phase of the Queensland Curtis LNG (QCLNG) Project in Australia – the development of an 8.5 mtpa two-train liquefaction plant on Curtis Island in Queensland, together with the associated upstream and pipeline facilities. In Chile, construction of the import and regasification terminal in Quintero Bay was fully completed.

The environmental impact assessment Decree was issued by the Italian Ministry of the Environment and Territory for the Brindisi LNG terminal. See also note 25(E) on page 50 in relation to legal proceedings. Power Generation Until the third quarter of 2010, Power Generation (Power) was a stand-alone business segment. In 2010, the Group disposed of the majority of its assets in this business segment to focus the Group’s development efforts on other assets within the portfolio with the greatest value potential. Accordingly, these operations have been treated as discontinued. The remaining Power assets have been allocated to other business segments based on their activity and location. For further details see note 8, page 32.

BG Energy Holdings Limited 2010 3

RESULTS AND DIVIDEND BRANCHES For the year ended 31 December 2010, the profit before tax was $5 773m The Group, through various subsidiaries, has established branches in (2009 $5 874m). No dividend was proposed or paid during 2010 (2009 an a number of different countries in which the business operates. interim dividend of $3 294m was proposed and paid). Further details are set out in the Financial Statements, pages 12 to 58. EMPLOYEES The Group had 6 234 employees worldwide as at 31 December 2010, of SHAREHOLDERS which 4 285 were employed outside the UK. Employees are informed The Company is a direct wholly-owned subsidiary undertaking of about significant business issues and the Group’s performance using BG Group plc. BG Group plc is a public limited company registered in electronic mail, webcasts, BG Group’s intranet and in-house England & Wales and listed on the London Stock Exchange. publications, as well as DVDs and briefing meetings at each business location. When appropriate, consultation with employee and union DIRECTORS AND OFFICERS representatives also takes place. The names of the current Directors of the Company and their biographical details are given on page 1. During the year under review, The Group takes the issues of equality and diversity seriously and Chris Finlayson was appointed as a director on 11 August 2010. encourages its partners to do likewise. By using the talent and skills There were no resignations during the year. Fabio Barbosa was available in all groups and communities in the countries in which it appointed as a director on 30 March 2011. operates, the Group is able to build a strong foundation for the lasting success of its business. This is achieved by using appropriate BG Group maintains liability insurance for its Directors and officers. recruitment and selection techniques, ensuring quality of employment The directors, company secretary and members of the group executive opportunities and equal access to development opportunities. committee of BG Group plc have also been granted a qualifying third-party indemnity, under Section 234 of the Companies Act 2006 The Group is also committed to providing a work environment free (the ‘Act’), which remains in force. Neither BG Group plc’s indemnity nor from harassment and discrimination. This commitment is included in insurance provides cover in the event that the indemnified individual is BG Group’s policy on Human Resources. The policy is available on the proved to have acted fraudulently or dishonestly. BG Group website. The Group remains committed to the full and fair treatment of people with disabilities in relation to job applications, DIRECTORS’ REMUNERATION training, promotion and career development. Every effort is made to The aggregate emoluments paid to Directors during the period in find appropriate alternative jobs for those who are unable to continue respect of qualifying services was $6 547 947 (2009 $11 046 777). This in their existing job because of disability. The Group encourages its figure excludes amounts paid to Frank Chapman, Ashley Almanza and partners to take a similar approach to these issues where BG Group Martin Houston in 2010 whose emoluments are payable by BG Group policies are not able to be implemented directly. plc. Details of the emoluments paid to them during the period are set out in BG Group plc’s Annual Report and Accounts 2010. Employees are encouraged to become shareholders in BG Group plc and a significant number participate in BG Group’s share plans. During the period, the Company contributed to a defined benefit pension scheme or a personal pension plan for all Directors except Frank COMMUNITY INVOLVEMENT Chapman, Ashley Almanza and Martin Houston. Pension contributions During 2010, the Group donated around $0.6m to registered charities in respect of Frank Chapman, Ashley Almanza and Martin Houston were in the UK. paid by BG Group plc. The Group’s policy is not to make donations for political purposes. In The Chairman’s emoluments for the year ended 31 December 2010 were 2010, no donations were made in any EU member state for political $nil. Of the aggregate amount of emoluments paid to Directors during purposes, as defined in Section 364 of the Act. the period, $1 695 184 was paid to the highest paid Director. The accrued pension of the highest paid Director as at 31 December 2010 was FINANCIAL INSTRUMENTS $113,699 per annum. The Group uses certain financial instruments to manage financial risk. Further details of these instruments and details of the Group’s financial Two Directors employed by the Group exercised share options during risk management practices and policies are set out on pages 10 to 11 and the period, including the highest paid Director. Shares were received or 40 to 46. receivable under long-term incentive schemes in respect of qualifying services by four Directors employed by the Group during the period, SUPPLIERS including the highest paid Director. The Group aims to adopt fair payment practices in line with each country in which it operates and aims to pay all of its creditors promptly and in RESEARCH AND DEVELOPMENT accordance with contractual and other legal obligations. It is the Group’s The Act requires the Directors’ Report to state any activities in the policy to agree the payment terms with each supplier at the start of field of research and development undertaken by the Company. The business and to ensure that they are aware of the terms of payment. Company currently has no significant activities to report upon. The Group had 19 days’ purchases outstanding at 31 December 2010 See note 3 on page 23 for research and development expenditure (2009 19 days’) based on the average daily amount invoiced by suppliers included in the income statement. during the year.

BG Energy Holdings Limited 2010 4

Directors’ report continued

STATEMENT AS TO DISCLOSURE OF INFORMATION TO AUDITORS A copy of the Financial Statements of the Company is placed on the As required by Sections 418 and 419 of the Companies Act 2006, each BG Group website (www.bg-group.com). The work carried out by the of the Directors has approved this report and confirmed that, so far as Auditors does not involve consideration of the maintenance of the he is aware, there is no relevant audit information (being information BG Group website and, accordingly, the Auditors accept no responsibility needed by the Auditors in connection with preparing their audit report) for any changes that may have occurred to the Financial Statements of which the Company’s Auditors are unaware, and he has taken all the since they were initially presented on the website. steps that he ought to have taken as a Director in order to make himself aware of any relevant audit information and to establish that the Legislation in the UK governing the preparation and dissemination of Company’s Auditors are aware of that information. financial statements may differ from legislation in other jurisdictions.

GOING CONCERN By order of the Board The Directors consider that the Group’s business activities and financial Keith Hubber resources ensure it is well placed to manage its business risks successfully. Company Secretary 30 March 2011 The Directors are satisfied that the Group’s and the Company’s activities are sustainable for the foreseeable future, and that the Registered office: business is a going concern and the accounts have therefore been 100 Thames Valley Park Drive prepared on this basis. Reading Berkshire RG6 1PT STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR PREPARING THE FINANCIAL STATEMENTS Registered in England & Wales The Directors are responsible for preparing the Annual Report and the No. 3763515 Group and the parent Company Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have prepared the Group Financial Statements in accordance with International Financial Reporting Standards as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006, and the parent Company Financial Statements in accordance with applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). The Financial Statements are required by law to give a true and fair view of the state of affairs of the Group and the Company and of the profit or loss of the Group for that period.

The Directors consider that, in preparing the Financial Statements on pages 12 to 58 and on pages 61 to 64, the Company has used appropriate accounting policies, consistently applied and supported by reasonable and prudent judgements and estimates, and all applicable accounting standards have been followed. The Company has complied with UK disclosure requirements in this report in order to present a consistent picture to shareholders.

The Directors have responsibility for ensuring that the Company keeps accounting records that disclose with reasonable accuracy the financial position of the Company and of the Group and that enable them to ensure that the Financial Statements comply with the Companies Act 2006.

The Directors have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the 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 Auditors 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.

BG Energy Holdings Limited 2010 5 Independent Auditors’ report to the members of BG Energy Holdings Limited

We have audited the Group Financial Statements of BG Energy Holdings OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES Limited for the year ended 31 December 2010 which comprise the ACT 2006 Consolidated income statement, the Consolidated statement of In our opinion the information given in the Directors’ report for the comprehensive income, the Consolidated balance sheet, the financial year for which the Group Financial Statements are prepared Consolidated statement of changes in equity, the Consolidated cash is consistent with the Group Financial Statements. flow statement, the Principal accounting policies and the related notes. The financial reporting framework that has been applied in their MATTERS ON WHICH WE ARE REQUIRED TO REPORT preparation is applicable law and International Financial Reporting BY EXCEPTION Standards (IFRS) as adopted by the European Union. We have nothing to report in respect of the following matters where the Companies Act 2006 requires us to report to you if, in our opinion: RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS As explained more fully in the Statement of Directors’ Responsibilities ●● certain disclosures of Directors’ remuneration specified by law are not for preparing the Financial Statements set out on page 4, the Directors made; or are responsible for the preparation of the Group Financial Statements ●● we have not received all the information and explanations we require and for being satisfied that they give a true and fair view. Our for our audit. responsibility is to audit and express an opinion on the Group Financial Statements in accordance with applicable law and International OTHER MATTERS Standards on Auditing (UK and Ireland). Those standards require us to We have reported separately on the parent Company Financial comply with the Auditing Practices Board’s Ethical Standards for Auditors. Statements of BG Energy Holdings Limited for the year ended 31 December 2010. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior Nicholas Blackwood (Senior Statutory Auditor) consent in writing. for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS London An audit involves obtaining evidence about the amounts and 30 March 2011 disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements.

OPINION ON FINANCIAL STATEMENTS In our opinion the Group Financial Statements:

●● give a true and fair view of the state of the Group’s affairs as at 31 December 2010 and of its profit and cash flows for the year then ended;

●● have been properly prepared in accordance with IFRS as adopted by the European Union; and

●● have been prepared in accordance with the requirements of the Companies Act 2006.

BG Energy Holdings Limited 2010 6 Principal accounting policies

BASIS OF PREPARATION PRESENTATION OF RESULTS The Financial Statements of the Group for the year ended 31 December The Group presents its results in the income statement to separately 2010 have been prepared in accordance with International Financial identify the contribution of disposals, certain re-measurements and Reporting Standards (IFRS), and International Financial Reporting impairments in order to provide readers with a clear and consistent Interpretations Committee (IFRIC) interpretations as adopted by the presentation of the underlying operating performance of the Group’s European Union. In addition, the Financial Statements have been ongoing business. See note 2, page 19. prepared in accordance with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. The Financial Statements During 2010, the Group sold, or agreed to sell, the majority of the Power have been prepared primarily using historical cost principles except Generation business segment. Accordingly, these operations have been that, as disclosed in the accounting policies below, certain items, treated as discontinued. including derivatives, are measured at fair value. A single amount is presented on the income statement for discontinued The Financial Statements of the Company are prepared under UK GAAP. operations, comprising the post-tax results of these businesses and the Those Financial Statements and the principal accounting policies post-tax profit or loss recognised on re-measurement to fair value less adopted in relation to those statements are set out on page 60. The costs to sell and on disposal of these businesses. Comparative Auditors’ report for the Company’s Financial Statements is on page 59. information has also been restated to reflect the presentation of discontinued operations as a separate line item. See note 2, page 19 The preparation of Financial Statements in conformity with IFRS and note 8, page 32. requires management to make judgements and assumptions that affect the reported amounts of assets and liabilities and disclosure of SEGMENT REPORTING contingencies at the date of the Financial Statements and the reported The Group’s reportable segments are operating segments that engage revenues and expenses during the reporting period. Actual results could in different business activities for the Group. The Group’s Board and differ from these estimates. The Group believes that the accounting management review the results of operating segments. policies associated with exploration expenditure, depreciation, decommissioning, impairments, financial instruments including BUSINESS COMBINATIONS AND GOODWILL commodity contracts, and revenue recognition are the policies where In the event of a business combination, fair values are attributed to the changes in estimates and assumptions could have a significant impact net assets acquired. Goodwill, which represents the difference between on the Financial Statements. These are discussed on pages 6 to 9 and in the purchase consideration and the fair value of the net assets acquired, note 5, page 30, note 11, page 33 and note 20, page 40. One particular is capitalised and subject to an impairment review at least annually, factor that affects most of these policies is the estimation of or more frequently if events or changes in circumstances indicate that hydrocarbon reserves. The Group’s estimates of reserves of gas and oil the goodwill may be impaired. Goodwill is treated as an asset of the are reviewed and, where appropriate, updated quarterly. They are also relevant entity to which it relates, including non-US Dollar entities. subject to periodic review by external petroleum engineers. A number Accordingly, it is re-translated into US Dollars at the closing rate of of factors impact on the amount of gas and oil reserves, including exchange at each balance sheet date. available reservoir data, commodity prices and future costs, and the amount is subject to periodic revision as these factors change. PROPERTY, PLANT AND EQUIPMENT EXCLUDING DECOMMISSIONING ASSETS The gas and oil disclosure requirements of the Statement of All property, plant and equipment is carried at depreciated historical Recommended Practice issued by the Oil Industry Accounting cost. Additions represent new, or replacements of specific components Committee entitled ‘Accounting for Oil and Gas Exploration, of, property, plant and equipment. Development, Production and Decommissioning Activities’ have been omitted as they are shown in BG Group plc’s Annual Report and Contributions received towards the cost of property, plant and Accounts 2010 – Supplementary information – gas and oil (unaudited), equipment (including government grants) are included in creditors as pages 132 to 138. deferred income and credited to the income statement over the life of the assets. Finance costs associated with borrowings used to finance BASIS OF CONSOLIDATION major capital projects are capitalised up to the point at which the asset The Financial Statements comprise a consolidation of the accounts is ready for its intended use. of the Company and its subsidiary undertakings and incorporate the results of its share of jointly controlled entities and associates using SERVICE CONCESSION ARRANGEMENTS the equity method of accounting. All inter-company transactions are Infrastructure associated with public-to-private service concession eliminated on consolidation. Consistent accounting policies have been arrangements considered to be under the control of a regulator is used to prepare the consolidated Financial Statements. recognised as an intangible concession asset when there is no contractual right to receive cash from the regulator. Intangible Most of the Group’s exploration and production activity is concession assets are amortised over the concession period. Additions conducted through jointly controlled operations. The Group accounts to infrastructure are accounted for as a construction contract with the for its own share of the assets, liabilities and cash flows associated regulator, with revenues and associated costs recognised in the income with these jointly controlled operations, using the proportional statement using the percentage of completion method based on costs consolidation method. incurred to date.

The results of undertakings acquired or disposed of are consolidated Further information on the adoption of IFRIC 12 ‘Service Concession from or to the date when control passes to or from the Company. Arrangements’ can be found in note 1, page 17.

BG Energy Holdings Limited 2010 7

DEPRECIATION AND AMORTISATION The Group performs impairment testing for gas and oil properties using Freehold land is not depreciated. Other property, plant and equipment, its proved plus probable reserves estimates, which are based on the except exploration and production assets, is depreciated on a straight- SEC definition. line basis at rates sufficient to write off the historical cost less residual value of individual assets over their estimated useful economic lives. ASSETS HELD FOR SALE Asset lives and residual values are reassessed annually. The depreciation When an asset or disposal group’s carrying value will be recovered periods for the principal categories of assets are as follows: principally through a sale transaction rather than through continuing use, it is classified as held for sale and stated at the lower of carrying Freehold and leasehold buildings up to 50 years value and fair value less costs to sell. No depreciation is charged in Mains, services and meters up to 60 years respect of non-current assets classified as held for sale. Plant and machinery 5 to 30 years Motor vehicles and office equipment up to 10 years INVENTORIES Inventories, including inventories of gas, liquefied natural gas (LNG) Exploration and production assets are depreciated from the and oil held for sale in the ordinary course of business, are stated at commencement of commercial production in the fields concerned, weighted average historical cost less provision for deterioration and using the unit of production method based on the proved developed obsolescence or, if lower, net realisable value. reserves of those fields, except that a basis of total proved reserves is used for acquired interests and for facilities. REVENUE RECOGNITION Revenue associated with exploration and production sales (of natural Exploration and production assets associated with unconventional gas, crude oil and petroleum products) is recorded when title passes activities, including coal seam and shale gas, are depreciated from to the customer. Revenue from the production of natural gas and oil commencement of commercial production in the fields concerned, in which the Group has an interest with other producers is recognised using the unit of production method based on proved plus probable based on the Group’s working interest and the terms of the relevant reserves, together with the estimated future development expenditure production sharing contracts (entitlement method). Differences required to develop those reserves. between production sold and the Group’s share of production are not significant. Intangible assets in respect of contractual rights and service concession arrangements are recognised at cost less amortisation. They are Sales of LNG and associated products are recognised when title passes amortised on a straight-line basis over the term of the related contracts to the customer. LNG shipping revenue is recognised over the period of or concession. the relevant contract.

Changes in depreciation and amortisation estimates are dealt Revenue from gas transmission and distribution activities is recognised with prospectively. in the same period in which the related volumes are delivered to the customer or when construction services under a service concession IMPAIRMENT OF NON-CURRENT ASSETS arrangement are provided to the regulator. Non-current assets subject to depreciation or amortisation are reviewed for impairments whenever events or other changes in circumstances All other revenue is recognised when title passes to the customer. indicate that the carrying amount may not be recoverable. EXPLORATION EXPENDITURE Any impairment of non-current assets (excluding financial assets) The Group uses the ‘successful efforts’ method of accounting for is calculated as the difference between the carrying values of cash exploration expenditure. generating units (including associated goodwill) and their recoverable amount, being the higher of the estimated value in use or fair value Exploration expenditure, including licence acquisition costs, less costs to sell at the date the impairment loss is recognised. Value is capitalised as an intangible asset when incurred and certain in use represents the net present value of expected future cash flows expenditure, such as geological and geophysical exploration costs, discounted on a pre-tax basis. Fair value less costs to sell is based on is expensed. A review of each licence or field is carried out, at least the best evidence available to the Group and may include appropriate annually, to ascertain whether proved reserves have been discovered. valuation techniques, market data or sales of comparable assets. Impairment reviews cover all operating segments. When proved reserves are determined, the relevant expenditure, including licence acquisition costs, is transferred to property, plant For the purposes of impairment testing, assets may be aggregated and equipment. Relevant exploration expenditure associated with into appropriate cash generating units based on considerations unconventional activities, including coal seam and shale gas, is including geographical location, the use of common facilities and transferred to property, plant and equipment on the determination of marketing arrangements. proved plus probable reserves. Exploration expenditure transferred to property, plant and equipment is subsequently depreciated on a unit of The Group uses a range of long-term assumptions to determine the net production basis. Expenditure deemed to be unsuccessful is written off present value of future cash flows for use in impairment reviews unless, to the income statement. by exception, short-term market assumptions are more appropriate to the asset under review. Particular assumptions that impact the Exploration expenditure is assessed for impairment when facts and calculations are commodity prices, exchange rates and discount rates. circumstances suggest that its carrying amount exceeds its recoverable Pages 10 to 11 include further detail in relation to commodity prices and amount. For the purposes of impairment testing, exploration and exchange rates. production assets may be aggregated into appropriate cash generating units based on considerations including geographical location, the use Exploration and production activities form the Group’s largest business of common facilities and marketing arrangements. segment, the results of which are sensitive to a number of factors, but particularly to commodity prices.

BG Energy Holdings Limited 2010 8

Principal accounting policies continued

DECOMMISSIONING COSTS Deferred income tax is provided on temporary differences arising on Where a legal or constructive obligation has been incurred, provision is investments in subsidiaries, jointly controlled entities and associates, made for the net present value of the estimated cost of except where the timing of the reversal of the temporary difference can decommissioning at the end of the producing lives of assets. be controlled and it is probable that the temporary difference will not reverse in the foreseeable future. When this provision gives access to future economic benefits, an asset is recognised and then subsequently depreciated in line with the life of LEASES the underlying producing asset, otherwise the costs are charged to the Assets held under finance leases are capitalised and included in income statement. The unwinding of the discount on the provision is property, plant and equipment at the lower of fair value and the present included in the income statement within finance costs. Any changes value of the minimum lease payments as determined at the inception to estimated costs or discount rates are dealt with prospectively. of the lease. The obligations relating to finance leases, net of finance charges in respect of future periods, are determined at the inception of The measurement of decommissioning provisions involves the use the lease and included within borrowings. The interest element of the of estimates and assumptions such as the discount rate used to rental obligation is allocated to accounting periods during the lease determine the net present value of the liability. The estimated cost of term to reflect the constant rate of interest on the remaining balance decommissioning is based on engineering estimates and reports. In of the obligation for each accounting period. addition, the payment dates of expected decommissioning costs are uncertain and are based on economic assumptions surrounding the The Group has certain long-term arrangements under which it has useful economic lives of the fields concerned. acquired all of the capacity of certain property, plant and equipment. In circumstances where it is considered that the Group has the majority FOREIGN CURRENCIES of the risks and rewards of ownership of the plant, the arrangement is Following a period of sustained international growth, the Group’s cash considered to contain a finance lease. flows and economic returns are now principally denominated in US Dollars. Accordingly, from 1 January 2010, the Group changed the Rentals under operating leases are charged to the income statement currency in which it presents its consolidated Financial Statements from on a straight-line basis over the lease term. Pounds Sterling (the functional currency of the Company) to US Dollars. For further information see note 1, page 17. FINANCIAL INSTRUMENTS The Group is exposed to credit risk, interest rate risk, exchange rate On consolidation, assets and liabilities denominated in currencies risk and liquidity risk. As part of its business operations, the Group other than US Dollars are translated into US Dollars at closing rates uses derivative financial instruments (“derivatives”) in order to manage of exchange. Non-US Dollar trading results of the parent company, exposure to fluctuations in interest rates and exchange rates. The subsidiary undertakings, jointly controlled entities and associates are Group enters into interest rate derivatives to manage the composition translated into US Dollars at average rates of exchange. Differences of floating and fixed rate debt. The Group enters into currency resulting from the retranslation of the opening net assets and the derivatives to hedge certain foreign currency cash flows and to results for the year are recognised in other comprehensive income. adjust the currency composition of its assets and liabilities. Certain Any differences arising from 1 January 2003, the date of transition to agreements are combined foreign currency and interest swap IFRS, are presented as a separate component of equity. transactions, described as cross-currency interest rate swaps. Other derivative financial instruments utilised by the Group’s treasury Share capital, share premium and other reserves are translated into operations include forward rate agreements and forward exchange US Dollars at the historic rates prevailing at the date of the transaction. contracts. The Group’s policy is to enter into interest or exchange rate derivatives only where these are matched by an underlying asset, Exchange differences on monetary assets and liabilities arising in liability or transaction. individual companies are taken to the income statement, with the exception of exchange differences on monetary items that form part Derivative financial instruments are initially recognised and of a net investment in a foreign operation. These differences are taken subsequently re-measured at fair value. to reserves until the related net investment is disposed of. Certain derivative financial instruments are designated as hedges in All other exchange movements are dealt with through the line with the Group’s risk management policies. Gains and losses arising income statement. from the re-measurement of these financial instruments are either recognised in the income statement or deferred in other comprehensive CASH AND CASH EQUIVALENTS income depending on the type of hedging relationship. When a hedging Cash and cash equivalents comprise cash in hand, deposits with instrument is sold or expires, any cumulative gain or loss previously a maturity of three months or less and other short-term highly liquid recognised in other comprehensive income remains in other investments that are readily convertible to known amounts of cash. comprehensive income until the hedged transaction is recognised in the income statement or is no longer expected to occur. DEFERRED TAX Deferred income tax is provided in full, using the liability method, on Movements in the fair value of derivative financial instruments not temporary differences arising between the tax bases of assets and included in hedging relationships are recognised in the income statement. liabilities and their carrying amounts in the Financial Statements. Currently enacted or substantively enacted tax rates are used in Loans held by the Group are initially measured at fair value and the determination of deferred income tax. Deferred tax assets are subsequently carried at amortised cost except where they form the recognised to the extent that it is probable that future taxable underlying transaction in an effective fair value hedge relationship profit will be available, against which the temporary differences when the carrying value is adjusted to reflect fair value movements can be utilised. associated with the hedged risks. Such adjustments are reported in the income statement.

BG Energy Holdings Limited 2010 9

Other financial instruments such as receivable balances are measured SHARE-BASED PAYMENTS at amortised cost less impairments. Liabilities associated with financial The cost of providing share-based payments to employees is charged guarantee contracts are initially measured at fair value and re-measured to the income statement over the vesting period of the related share at each balance sheet date. options or share allocations made by BG Group plc. The cost is based on the fair value of the options or shares allocated and the number COMMODITY INSTRUMENTS of awards expected to vest. The fair value of each option or share is Within the ordinary course of business the Group routinely enters into determined using either a Black-Scholes option pricing model or a sale and purchase transactions for commodities. The majority of these Monte Carlo projection model, depending on the type of award. Market transactions take the form of contracts that were entered into and related performance conditions are reflected in the fair value of the continue to be held for the purpose of receipt or delivery of the share. Non-market related performance conditions are allowed for using commodity in accordance with the Group’s expected sale, purchase or a separate assumption about the number of awards expected to vest; usage requirements. Such contracts are not within the scope of IAS 39. the final charge made reflects the number actually vesting.

Certain long-term gas sales contracts operating in the UK gas market RESEARCH AND DEVELOPMENT EXPENDITURE have terms within the contract that constitute written options, and All research expenditure is charged to the income statement as incurred. accordingly they fall within the scope of IAS 39. In addition, commodity instruments are used to manage certain price exposures in respect Development expenditure is charged to the income statement as of optimising the timing and location of physical gas and LNG incurred unless it meets the recognition criteria set out in IAS 38 commitments. These contracts are recognised on the balance sheet ‘Intangible Assets’. Where the recognition criteria are met, intangible at fair value with movements in fair value recognised in the income assets are capitalised and amortised over their useful economic lives. statement, see Presentation of results on page 6 and note 2, page 19.

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 recognised in the income statement when the underlying hedged transaction crystallises or is no longer expected to occur.

All other commodity contracts within the scope of IAS 39 are measured at fair value with gains and losses taken to the income statement.

Gas contracts and related derivatives associated with the physical purchase, storage and resale of third-party gas are presented on a net basis within other operating income.

PENSIONS The amount recognised on the balance sheet in respect of liabilities for defined benefit pension and post-retirement benefit plans represents the present value of the obligations offset by the fair value of plan assets and excluding actuarial gains and losses not recognised.

The cost of providing retirement pensions and related benefits is charged to the income statement over the periods benefiting from the employees’ services. Current service costs are reflected in operating profit and financing costs are reflected in finance costs in the period in which they arise. Actuarial gains and losses that exceed the greater of 10% of plan assets or plan obligations are spread over the average remaining service lives of the employees participating in the plan and are reflected in operating profit.

Contributions made to defined contribution pension plans are charged to the income statement when payable.

BG Energy Holdings Limited 2010 10 Financing and financial risk factors

FINANCING The Group does not, as a matter of course, hedge all commodity prices, As at 31 December 2010, net borrowings (comprising cash and cash but may hedge certain LNG contracts and other revenue streams from equivalent investments, finance leases, currency and interest rate time to time. In marketing its energy portfolio, the Group undertakes derivative financial instruments and short and long-term borrowings) commodity hedging and trading activities, including the use of futures were $6 974 million compared to $4 776 million as at 31 December 2009. contracts, financial and physical forward-based contracts and swap contracts. The stand-alone value of hedges can move significantly, All borrowing and investment of surplus funds is undertaken in potentially increasing the volatility of cash required for margin calls accordance with policies and/or parameters approved by the Finance and the accounting profit recognised within a particular quarter. Committee of the Board of BG Group plc (Finance Committee). BG Group’s principal borrowing entities are: the company and its The Group’s sensitivity to oil prices is set to increase due to the wholly-owned subsidiary undertakings, the majority of whose contribution of significant amounts of oil-related revenue, notably from borrowings are guaranteed by the Company (collectively ‘BGEH Brazil, and from oil-indexed LNG sales. However, the Group’s portfolio Borrowers’); and Comgás and Gujarat Gas Company Limited, who also includes a range of long-term gas contracts that are not directly conduct their borrowing activities on a stand-alone basis and whose or immediately linked to short-term changes in commodity prices. borrowings are made without recourse to other members of the Group. Additionally, some LNG purchase contracts contain provisions under which the gas suppliers share price risk with the Group. Projects are As at 31 December 2010, the Company had aggregate committed screened against a wide range of external sensitivities, including multicurrency revolving borrowing facilities of $1 200 million expiring benchmark commodity prices. in 2012, and $2 320 million expiring in 2013. The total level of committed facilities was increased and extended during 2010 in light of the Exchange rates growing scale of the Group’s activities. There are no restrictions on the The Group reports its financial results in US Dollars. Although a large application of funds under these facilities, which were undrawn as at percentage of the Group’s business activity is conducted in US Dollars, 31 December 2010. As at 31 December 2010, BGEH Borrowers had a a significant portion of the Group’s operating cashflows, capital $2.0 billion US Commercial Paper Programme, of which $1.2 billion was expenditure, operating expenses and income taxes accrue in (and unutilised, a $2.0 billion Euro Commercial Paper Programme of which asset and liability positions are held in) other currencies, including the $1.8 billion was unutilised, and a $7.5 billion Euro Medium-Term Note Australian Dollar, Brazilian Real and Pound Sterling. Consequently, the Programme, of which $3.1 billion was unutilised. In addition BGEH had Group’s results and financial position may be significantly affected by uncommitted borrowing facilities including multicurrency lines, exchange rate fluctuations. overdraft facilities of £45 million and credit facilities of $20 million, all of which were unutilised. During 2010, capital markets issuance The Group mitigates its exposure to net asset positions in certain by BGEH Borrowers comprised €750 million and £750 million bonds currencies other than the US Dollar (primarily, the Brazilian Real and maturing in 2019 and 2025 respectively, both under the Euro Medium- Pound Sterling) by denominating a portion of its after-swap borrowings Term Note Programme, and $350 million and $650 million bonds in such currencies, with the balance of after-swap borrowings maturing in 2015 and 2020 respectively, pursuant to Rule 144A and denominated in US Dollars. The Group hedges certain expected cash Reg S under the US Securities Act of 1933, as amended. flows into US Dollars. Currency hedging is also undertaken to mitigate currency exposure in certain cross-border transactions. As at 31 December 2010, Comgás had committed borrowing facilities of Brazilian Reais (BRL) 1 730 million ($1 038 million), of which Capital requirements, liquidity and interest rate risk BRL 316 million ($190 million) was unutilised, and uncommitted The Group has substantial capital expenditure requirements in its borrowing facilities of BRL 200 million ($120 million), of which business and operations. The Group’s capital requirements depend BRL 150 million ($90 million) was unutilised. Some of the borrowings of on a broad range of factors (including, for example, commodity prices, Comgás have restrictions on their use, being linked to capital projects. currency exchange rates, acquisitions and proceeds realised from disposals), some of which are outside the Group’s control, and may The Group proposes to meet its commitments from the operating cash cause capital requirements to vary materially from planned levels. flows of the business, existing cash and cash equivalent investments, Increases in the Group’s capital requirements could adversely affect the the money and capital markets and existing committed lines of credit. Group’s business and financial performance, and the Group’s ability to access finance on attractive terms may be limited. A credit crisis FINANCIAL RISK FACTORS affecting banks, financial markets and/or the economy more generally The principal financial risks faced by the Group are commodity price risk, could affect the Group’s ability to raise capital. exchange rate risk, interest rate risk, liquidity risk and credit risk. A description of these principal risks and the actions taken by The Group is also exposed to liquidity risks, including risks associated management to mitigate some of the exposure is outlined below. with refinancing borrowings as they mature and the risk that financial assets cannot readily be converted to cash without loss of value. Commodity prices The Group’s cash flows and profitability are sensitive to commodity The Group’s financing costs may be significantly affected by interest prices for natural gas, crude oil, LNG and other hydrocarbons. The rate volatility. Group’s exposure to commodity prices varies according to a number of factors, including the mix of production and sales. While industry costs The Group policy requires a specified minimum amount of committed tend to rise or fall with commodity prices in the long term, there is no borrowing facilities as back-up liquidity to fund operating and capital guarantee that movements in sales prices and costs would align in any requirements. In 2010, the Group’s committed facilities, which are held year. This can put pressure on investment and project economics which with a number of major international banks, were increased to depend in part upon the degree and timing of commitments in line with $3.5 billion and the expiry dates extended. Those facilities were particular cost structures. undrawn as at 31 December 2010.

BG Energy Holdings Limited 2010 11

The Group holds its financial assets primarily in short-term, highly liquid investments that are readily convertible to cash. The Group imposes limits on the amount of borrowings that mature within any specific period.

The Group’s interest rate management policy requires that borrowings are substantially floating rate. Exceptions from this policy require approval from the Group’s Finance Committee.

Credit The challenging credit environment witnessed during the past three years has highlighted the importance of managing credit risk. The Group’s exposure to credit risk takes the form of a loss that would be recognised if counterparties (including sovereign entities) failed, or were unable, to meet their payment or performance obligations. These risks may arise in all forms of commercial agreements and in certain agreements relating to amounts owed for physical product sales, the use of derivative instruments, and the investment of surplus cash balances. The Group is also exposed to political and economic risk events that exacerbate country risk and which may cause non-payment of foreign currency obligations to the Group by governments or government-owned entities, or which may otherwise impact successful project delivery and implementation. The impact of credit issues could also lead to the failure of companies in the sector, potentially including partners, contractors and suppliers.

Credit exposure risk is monitored centrally for individual transactions including concentration risk and the appropriateness of limits. The Group considers the financial and credit condition of counterparties (including sovereign entities) prior to entering into commercial contracts, trading sales agreements, swaps, futures and options contracts. The Group may also seek contractual or other forms of protection or mitigation, including cash collateral, letters of credit, security over assets or parent company guarantees. Where multiple transactions are undertaken with a single counterparty or group of related counterparties, the Group may enter into a netting arrangement. For physical commodity trading, the Group seeks to put in place bespoke master netting agreements or standard arrangements appropriate to the local market.

BG Energy Holdings Limited 2010 12 Consolidated income statement

The Group for the year ended 31 December 2010 2009 Restated(a) Disposals, Disposals, Business re-measurements Business re-measurements Performance and impairments Total Performance and impairments Total Notes $m $m $m $m $m $m Group revenue 2 17 166 – 17 166 15 441 – 15 441 Other operating income 2, 5 197 (591) (394) 226 161 387 Group revenue and other operating income 2 17 363 (591) 16 772 15 667 161 15 828 Operating costs 3 (10 851) – (10 851) (9 704) – (9 704) Profits and losses on disposal of non-current assets and impairments 5 – (284) (284) – (268) (268) Operating profit/(loss)(b) 2 6 512 (875) 5 637 5 963 (107) 5 856 Finance income 5, 6 155 22 177 99 2 101 Finance costs 5, 6 (294) (22) (316) (294) (35) (329) Share of post-tax results from joint ventures and associates 2 275 – 275 246 – 246 Profit/(loss) before tax 6 648 (875) 5 773 6 014 (140) 5 874 Taxation 5, 7 (2 492) 281 (2 211) (2 516) 22 (2 494) Profit/(loss) for the year from continuing operations 2, 5 4 156 (594) 3 562 3 498 (118) 3 380 Profit/(loss) for the year from discontinued operations 8 – 194 194 – (218) (218) Profit/(loss) for the year 4 156 (400) 3 756 3 498 (336) 3 162 Profit attributable to: Shareholders (earnings) 2 4 006 (399) 3 607 3 347 (336) 3 011 Non-controlling interest 2, 5 150 (1) 149 151 – 151 4 156 (400) 3 756 3 498 (336) 3 162

(a) See note 1, page 17 and note 8, page 32. (b) Operating profit/(loss) is before share of results from joint ventures and associates. Consolidated statement of comprehensive income for the year ended 31 December 2010 2009 Restated(a) $m $m Profit for the year 3 756 3 162

Net fair value losses on cash flow hedges (528) (227) Transfers to income statement on cash flow hedges(b) (288) (773) Transfers to non-current assets on cash flow hedges – 1 Net fair value gains on net investment hedges 20 24 Tax on cash flow and net investment hedges(c) 206 252 Fair value movements on ‘available-for-sale assets’, net of tax(d) 4 4 Currency translation adjustments(e) 1 321 2 378 Other comprehensive income for the year, net of tax(f) 735 1 659

Total comprehensive income for the year 4 491 4 821 Attributable to: Shareholders 4 325 4 621 Non-controlling interest 166 200 4 491 4 821

(a) See note 1, page 17. (b) During 2010, a pre-tax gain of $246m (2009 $702m) was transferred from the hedging reserve to revenue to match against the underlying transactions and a pre-tax gain of $42m (2009 $71m) was transferred from the hedging reserve to other operating income in respect of discontinued cash flow hedges. (c) Includes tax relating to cash flow hedges of $209m (2009 $260m) and tax relating to net investment hedges of $(3)m (2009 $(8)m). (d) Includes tax of $(2)m (2009 $2m). (e) In 2010, $(32)m (2009 $nil) was transferred to the income statement as part of the profit/(loss) on disposal of non-US Dollar denominated operations. (f) Includes other comprehensive income/(expense) in respect of joint ventures and associates of $(77)m (2009 $85m).

The accounting policies on pages 6 to 11 together with the notes on pages 17 to 58 form part of these accounts.

BG Energy Holdings Limited 2010 13 Consolidated balance sheet

as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 Restated(a) Restated(a) Note $m $m $m Assets Non-current assets Goodwill 11 820 781 600 Other intangible assets 12 7 193 9 266 6 422 Property, plant and equipment 13 28 263 19 778 15 146 Investments 14 2 824 2 953 2 345 Deferred tax assets 23 506 219 103 Trade and other receivables 16 206 125 136 Commodity contracts and other derivative financial instruments 20 283 608 1 345 40 095 33 730 26 097 Current assets Inventories 15 655 769 808 Trade and other receivables 16 6 060 4 799 5 278 Current tax receivable 231 168 131 Commodity contracts and other derivative financial instruments 20 550 1 635 2 211 Cash and cash equivalents 17 2 532 1 118 1 483 10 028 8 489 9 911

Assets classified as held for sale 18 227 – – Total assets 50 350 42 219 36 008

Liabilities Current liabilities Borrowings 19 (1 258) (1 158) (404) Trade and other payables 21 (8 257) (8 776) (6 934) Current tax liabilities (1 814) (1 579) (1 600) Commodity contracts and other derivative financial instruments 20 (1 426) (1 390) (2 088) (12 755) (12 903) (11 026) Non-current liabilities Borrowings 19 (8 446) (5 024) (2 727) Trade and other payables 21 (72) (63) (55) Commodity contracts and other derivative financial instruments 20 (901) (849) (760) Deferred tax liabilities 23 (3 134) (3 125) (2 955) Retirement benefit obligations 27 (260) (279) (256) Provisions for other liabilities and charges 22 (1 812) (1 537) (1 333) (14 625) (10 877) (8 086)

Liabilities associated with assets classified as held for sale 18 (104) – – Total liabilities (27 484) (23 780) (19 112)

Net assets 22 866 18 439 16 896

(a) See note 1, page 17.

The accounting policies on pages 6 to 11 together with the notes on pages 17 to 58 form part of these accounts.

BG Energy Holdings Limited 2010 14

Consolidated balance sheet continued

as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 Restated(a) Restated(a) Note $m $m $m Equity Ordinary shares 24 4 614 4 614 4 614 Share premium 504 504 504 Hedging reserve (457) 150 889 Translation reserve 3 148 1 827 (518) Retained earnings 14 701 11 023 11 226 Total shareholders’ equity 22 510 18 118 16 715 Non-controlling interest in equity 356 321 181 Total equity 22 866 18 439 16 896

(a) See note 1, page 17.

The accounts on pages 6 to 58 were approved by the Board and signed on its behalf on 30 March 2011 by:

Ashley Almanza Director

The accounting policies on pages 6 to 11 together with the notes on pages 17 to 58 form part of these accounts.

BG Energy Holdings Limited 2010 15 Consolidated statement of changes in equity

Called Share Non- up share premium Hedging Translation Retained controlling capital account reserve reserve(a) earnings(b) Total interest Total $m $m $m $m $m $m $m $m As at 1 January 2009 restated(c) 4 614 504 889 (518) 11 226 16 715 181 16 896 Total comprehensive income for the year – – (739) 2 345 3 015 4 621 200 4 821 Profit for the year – – – – 3 011 3 011 151 3 162 Hedges, net of tax – – (739) 16 – (723) – (723) Fair value movements on ‘available- for-sale assets’, net of tax – – – – 4 4 – 4 Currency translation adjustments – – – 2 329 – 2 329 49 2 378 Adjustment for share schemes – – – – 53 53 – 53 Tax in respect of share schemes(d) – – – – 23 23 – 23 Dividends – – – – (3 294) (3 294) (60) (3 354) As at 31 December 2009 restated(c) 4 614 504 150 1 827 11 023 18 118 321 18 439 Total comprehensive income for the year – – (607) 1 321 3 611 4 325 166 4 491 Profit for the year – – – – 3 607 3 607 149 3 756 Hedges, net of tax – – (607) 17 – (590) – (590) Fair value movements on ‘available- for-sale assets’, net of tax – – – – 4 4 – 4 Currency translation adjustments – – – 1 304 – 1 304 17 1 321 Adjustment for share schemes – – – – 52 52 – 52 Tax in respect of share schemes(d) – – – – 15 15 – 15 Dividends – – – – – – (131) (131) As at 31 December 2010 4 614 504 (457) 3 148 14 701 22 510 356 22 866

(a) Includes currency translation gains of $21m (2009 $36m) relating to joint ventures and associates. (b) Includes retained earnings in respect of joint ventures and associates of $466m (2009 $413m). (c) See note 1, page 17. (d) This consists of current tax of $21m (2009 $22m) and deferred tax $(6)m (2009 $1m).

The accounting policies on pages 6 to 11 together with the notes on pages 17 to 58 form part of these accounts.

BG Energy Holdings Limited 2010 16 Consolidated cash flow statement

for the year ended 31 December 2010 2009 Restated(a) Note $m $m Cash generated by operations 28 8 383 7 604 Income taxes paid (1 985) (2 067) Net cash inflow from operating activities 6 398 5 537 Cash flows from investing activities Dividends received 198 227 Proceeds from disposal of subsidiary undertakings and investments(b) 468 – Proceeds from disposal of property, plant and equipment and intangible assets 897 5 Purchase of property, plant and equipment and intangible assets (8 397) (6 767) Loans to and repayments from joint ventures and associates 92 (101) Investments in subsidiaries, joint ventures and associates (529) (1 094) Net cash outflow from investing activities (7 271) (7 730) Cash flows from financing activities Interest paid(c) (254) (216) Interest received 25 50 Dividends paid – (3 294) Dividends paid to non-controlling interest (108) (57) Net proceeds from issue of new borrowings(d) 3 559 2 904 Repayment of borrowings (348) (332) Funding movements with parent company (599) 2 752 Net cash inflow from financing activities 2 275 1 807 Net increase/(decrease) in cash and cash equivalents 1 402 (386) Cash and cash equivalents at 1 January 17 1 118 1 483 Effect of foreign exchange rate changes 30 21 Cash and cash equivalents at 31 December(e) 17 2 550 1 118

Major non-cash transactions included assets acquired during the year of $492m (2009 $99m) financed through finance lease arrangements. In 2009, the Group completed the exchange of equity interests in certain production assets. Other non-cash transactions in 2009 included $230m relating to the acquisition of property, plant and equipment settled using certain pre-existing receivables with the same counterparty.

The cash flows above are inclusive of discontinued operations (see note 8, page 32).

(a) See note 1, page 17. (b) Includes the disposal of Seabank Power Limited for $327m and the sale of Premier Power Limited for $141m net of $23m cash held at the date of disposal (see note 8, page 32). (c) Includes capitalised interest of $79m (2009 $49m). (d) Includes net cash flows relating to short maturity financing items. (e) The balance at 31 December 2010 includes cash and cash equivalents of $2 532m and cash included within assets held for sale of $18m.

The accounting policies on pages 6 to 11 together with the notes on pages 17 to 58 form part of these accounts.

BG Energy Holdings Limited 2010 17 Notes to the accounts

1 CHANGE IN ACCOUNTING POLICY, NEW ACCOUNTING STANDARDS AND POST BALANCE SHEET EVENTS

Change in presentation currency Following a period of sustained international growth, the Group’s cash flows and economic returns are now principally denominated in US Dollars. From 1 January 2010, the Group changed the currency in which it presents its consolidated Financial Statements from Pounds Sterling to US Dollars.

A change in presentation currency is a change in accounting policy which is accounted for retrospectively. Statutory financial information included in the Group’s Annual Report and Accounts for the year ended 31 December 2010 previously reported in Pounds Sterling has been restated into US Dollars using the procedures outlined below:

●● assets and liabilities denominated in non-US Dollar currencies were translated into US Dollars at closing rates of exchange. Non-US Dollar trading results were translated into US Dollars at average rates of exchange. Differences resulting from the retranslation of the opening net assets and the results for the year have been taken to reserves;

●● the cumulative translation reserve was set to nil at 1 January 2003 (i.e. the transition date to IFRS). All subsequent movements comprising differences on the retranslation of the opening net assets of non-US Dollar subsidiaries have been charged to the translation reserve. Share capital, share premium and other reserves were translated at the historic rates prevailing at the dates of transactions; and

●● all exchange rates used were extracted from the Group’s underlying financial records.

The exchange rates of US Dollar to Pound Sterling over the periods included in this Annual Report and Accounts are as follows:

US Dollar/Pound Sterling exchange rate 2010 2009 2008 Closing rate 1.5657 1.6149 1.4378 Average rate 1.5489 1.5510 1.8934

The impact of new accounting standards, amendments and interpretations on the Group’s Financial Statements for 2010 is set out below.

IFRIC 12 ‘Service Concession Arrangements’ The International Financial Reporting Interpretations Committee (IFRIC) issued IFRIC 12 ‘Service Concession Arrangements’ in November 2006. The interpretation provides guidance on the accounting by operators for public-to-private service concession arrangements and was applicable for the year ended 31 December 2010. IFRIC 12 requires infrastructure considered to be under the control of a regulator rather than an operator to be recognised as an intangible concession asset and amortised over the concession period. Prior to the adoption of IFRIC 12 such infrastructure was recognised as property, plant and equipment of the operator and depreciated over its useful economic life. The interpretation also requires additions to the infrastructure incurred by the operator to be accounted for as a construction contract with the regulator, with revenues and associated costs recognised in the income statement on a percentage of completion basis.

The Group has concluded that the Comgás concession in Brazil falls within the scope of the interpretation. Accordingly, on 1 January 2010 infrastructure which forms part of the transmission and distribution network operated by Comgás of approximately $1.6 billion (1 January 2009 $1.1 billion) was recognised as intangible assets resulting in a corresponding decrease to property, plant and equipment. Comparative information has been restated to reflect this arrangement. The application of this interpretation increased both revenue and operating costs by $148m (2009 $114m). There was no impact on net earnings, basic earnings per share or diluted earnings per share.

IFRS 3 (revised) ‘Business Combinations’ The International Accounting Standards Board (IASB) issued IFRS 3 (revised) in January 2008. The revised standard has introduced changes to the accounting for contingent consideration and transaction costs, as well as allowing an option to calculate goodwill based on the parent’s share of net assets only or including goodwill relating to non-controlling interests. The standard was applicable for the year ended 31 December 2010 but did not result in any changes to the Group’s Financial Statements.

IAS 27 (revised) ‘Consolidated and Separate Financial Statements’ The IASB issued IAS 27 (revised) in January 2008. The revisions require the effects of transactions with non-controlling interests to be recorded in equity when there is no change in control, and specify the accounting on loss of control. The standard was applicable for the year ended 31 December 2010 but did not result in any changes to the Group’s Financial Statements.

Amendment to IAS 39 ‘Financial Instruments: Recognition and Measurement: Eligible Hedged Items’ The IASB issued an amendment to IAS 39 in July 2008. The amendment clarifies how the existing principles underlying hedge accounting should be applied in the designation of a one-sided risk in a hedged item and inflation in a financial hedged item. The amendment was applicable for the year ended 31 December 2010 but did not result in any changes to the Group’s Financial Statements.

BG Energy Holdings Limited 2010 18

Notes to the accounts continued

1 CHANGE IN ACCOUNTING POLICY, NEW ACCOUNTING STANDARDS AND POST BALANCE SHEET EVENTS continued

Amendment to IFRS 2 ‘Share-based Payment: Group Cash-settled Share-based Payment Transactions’ The IASB issued an amendment to IFRS 2 in June 2009. The amendment clarifies the scope and accounting for group cash-settled share-based payment transactions in the separate or individual financial statements of the entity receiving goods or services when that entity has no obligation to settle the share-based payment transaction. The amendment was applicable for the year ended 31 December 2010 but did not result in any changes to the Group’s Financial Statements.

IFRIC 17 ‘Distribution of Non-cash Assets to Owners’ The IFRIC issued IFRIC 17 in November 2008. The interpretation clarifies how an entity should account for the distribution of non-cash assets when paying dividends to its owners. This interpretation was applicable for the year ended 31 December 2010 but did not result in any changes to the Group’s Financial Statements.

Improvements to IFRSs The IASB issued amendments to a number of IFRSs in April 2009 as part of its annual improvement project. These amendments were applicable for the year ended 31 December 2010 but did not result in any changes to the Group’s Financial Statements.

The following standards, amendments and interpretations have been issued by the IASB and IFRIC up to the date of this report, but have not been adopted by the Group in these Financial Statements and in some cases have not yet been endorsed by the European Union.

IFRS 9 ‘Financial Instruments’ The IASB issued IFRS 9 in November 2009 and subsequently added to the scope of the standard in October 2010. The standard introduces new requirements for the classification and measurement of financial assets and liabilities and is applicable for accounting periods beginning on or after 1 January 2013. The Group is currently reviewing the standard to determine the likely impact on the Group’s Financial Statements.

IAS 24 (revised) ‘Related Party Disclosures’ The IASB issued IAS 24 (revised) in November 2009. The revisions provide a partial exemption from the disclosure requirements for government- related entities and simplify the definition of a related party. The revisions are applicable for accounting periods beginning on or after 1 January 2011 and are not expected to have a material impact on the Group’s Financial Statements.

Amendment to IFRS 7 ‘Financial Instruments: Disclosures’ The IASB issued an amendment to IFRS 7 in October 2010. The amendment primarily introduces new disclosure requirements associated with the transfer and securitisation of financial assets. The revisions are applicable for accounting periods beginning on or after 1 July 2011 and are not expected to have a material impact on the Group’s Financial Statements.

Improvements to IFRSs The IASB issued amendments to a number of IFRSs in May 2010 as part of its annual improvement project. These amendments will be adopted by the Group for the year ended 31 December 2011 and are not expected to have a material impact on the Group’s Financial Statements.

Other amendments and interpretations Up to the end of 2010, IFRIC issued IFRIC 19 ‘Extinguishing Financial Liabilities with Equity’, applicable for accounting periods beginning on or after 1 July 2010 and amendments to IFRIC 14 ‘Prepayments of a Minimum Funding Requirement’, applicable for accounting periods beginning on or after 1 January 2011. The IASB issued amendments to IAS 32 ‘Classification of Rights Issues’, applicable for accounting periods beginning on or after 1 February 2010. These amendments and interpretations are not expected to have a material impact on the Group’s Financial Statements.

POST BALANCE SHEET EVENTS The Group has important businesses in Tunisia and Egypt. Recent events in these countries have had no material impact on the Group and management continues to monitor developments closely.

In March 2011, an increase in UK North Sea taxation was announced. The rate of supplementary charge on North Sea profits was increased from 20% to 32%. This will result in a one-off charge in 2011 of approximately $150m to reflect the increased tax rate on opening deferred tax balances. The increase in supplementary charge will lead to an increase in the Group’s effective tax rate in 2011. The impact on the Group’s tax rate will vary according to the prices realised on North Sea production.

BG Energy Holdings Limited 2010 19

2 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION The 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. The Group’s three principal operating and reporting segments in 2010 comprise Exploration and Production (E&P), Liquefied Natural Gas (LNG), and Transmission and Distribution (T&D). E&P comprises exploration, development, production and marketing of hydrocarbons with a focus on natural gas. LNG combines the development and use of LNG import and export facilities with the purchase, shipping and sale of LNG and regasified natural gas. T&D develops, owns and operates major pipelines, distribution networks and power stations, and supplies natural gas and electricity through these to the end customer. Other activities primarily comprise costs relating to business development expenditure and certain corporate activities. Following the disposal of the majority of the Group’s Power Generation (Power) businesses, the Power segment has been treated as discontinued operations. The Power businesses that remain with the Group have been allocated to other business segments based on their activity and location. Comparative information has been restated to reflect the presentation of discontinued operations as a separate line item. See note 8, page 32, for further details.

In 2010, the operations were structured in four main geographical areas: Europe and Central Asia region; Africa, Middle East and Asia region; Americas and Global LNG region; and Australia region.

Intra-group and inter-segment 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, non-current assets, net assets, gross assets and gross liabilities, depreciation and amortisation and capital investment attributable to the Group activities are shown on pages 19 to 22, analysed by operating segment. Additional information on capital investment is also provided on a regional basis.

The presentation of the Group’s results under International Financial Reporting Standards (IFRS) separately identifies the effect of the re-measurement of certain financial instruments and profits and losses on the disposal and impairment of non-current assets and businesses. Results excluding discontinued operations and disposals, certain re-measurements and impairments (‘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.

The disposals, re-measurements and impairments column includes unrealised gains and losses in respect of certain long-term UK 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. 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.

Under IFRS the results from jointly controlled entities (joint ventures) and associates are presented net of tax and finance costs on the face of the income statement. The Group also presents the operating profit of the Group including results of joint ventures and associates before interest and tax, as this approach provides additional information on the source of the Group’s operating profits.

The following tables provide a reconciliation between the overall results and Business Performance and operating profit, including and excluding the results of joint ventures and associates.

The geographical information provided for external revenue is based on destination.

GROUP REVENUE Analysed by operating segment

External Revenue Intra-group Revenue Total Group Revenue for the year ended 31 December 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m Group revenue(a)(b) Exploration and Production 7 781 6 999 777 414 8 558 7 413 Liquefied Natural Gas 6 304 5 761 45 80 6 349 5 841 Transmission and Distribution 3 081 2 681 – – 3 081 2 681 Segmental revenue 17 166 15 441 822 494 17 988 15 935 Less: intra-group revenue – – (822) (494) (822) (494) Group revenue 17 166 15 441 – – 17 166 15 441

(a) External revenue attributable to the UK is $3 773m (2009 $3 471m). External revenue attributable to non-UK countries is $13 393m (2009 $11 970m) and includes $2 791m from external customers attributable to Brazil representing 16% of Group revenue (2009 $2 114m, 14%). (b) No single customer accounted for more than 10% of external revenue in 2010. External revenue in respect of a single external customer amounted to $1 709m in 2009, recognised in the E&P and LNG segments.

BG Energy Holdings Limited 2010 20

Notes to the accounts continued

2 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 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m Group revenue 17 166 15 441 – – 17 166 15 441 Other operating income(a)(b) 197 226 (591) 161 (394) 387 Group revenue and other operating income 17 363 15 667 (591) 161 16 772 15 828 Operating profit/(loss) before share of results from joint ventures and associates(c) Exploration and Production 3 753 3 224 (322) (177) 3 431 3 047 Liquefied Natural Gas 2 101 2 079 (551) 72 1 550 2 151 Transmission and Distribution 636 660 (3) (2) 633 658 Other activities 22 – 1 – 23 – 6 512 5 963 (875) (107) 5 637 5 856 Pre-tax share of operating results of joint ventures and associates Exploration and Production 13 (1) – – 13 (1) Liquefied Natural Gas 348 326 – – 348 326 Transmission and Distribution 75 61 – – 75 61 436 386 – – 436 386 Total operating profit/(loss) Exploration and Production 3 766 3 223 (322) (177) 3 444 3 046 Liquefied Natural Gas 2 449 2 405 (551) 72 1 898 2 477 Transmission and Distribution 711 721 (3) (2) 708 719 Other activities 22 – 1 – 23 – 6 948 6 349 (875) (107) 6 073 6 242 Net finance income/(costs) Finance income 155 99 22 2 177 101 Finance costs (294) (294) (22) (35) (316) (329) Share of joint ventures and associates (49) (45) – – (49) (45) (188) (240) – (33) (188) (273) Taxation Taxation (2 492) (2 516) 281 22 (2 211) (2 494) Share of joint ventures and associates (112) (95) – – (112) (95) (2 604) (2 611) 281 22 (2 323) (2 589) Profit for the year from continuing operations 4 156 3 498 (594) (118) 3 562 3 380 Profit for the year from discontinued operations – – 194 (218) 194 (218) 4 156 3 498 (400) (336) 3 756 3 162 Profit attributable to: Shareholder (earnings) 4 006 3 347 (399) (336) 3 607 3 011 Non-controlling interest 150 151 (1) – 149 151 4 156 3 498 (400) (336) 3 756 3 162

(a) Other operating income includes the results of the purchase and re-sale of third-party gas in the UK, income arising from asset optimisation activities undertaken by the Group’s LNG operations and unrealised gains and losses arising from the mark-to-market movements of commodity based derivative instruments, including certain UK long-term gas sales contracts classified as derivatives under IAS 39. Further details of the use and valuation of commodity based financial instruments are shown in note 20, page 40. Further information on other operating income is given in note 5, page 30. (b) Business Performance Other operating income is attributable to segments as follows: E&P $25m (2009 $35m) and LNG $172m (2009 $191m). (c) Operating profit/(loss) before share of results from joint ventures and associates includes disposals and provisions for impairment of $(284)m (2009 $(268)m), attributable to segments as follows: E&P $(282)m (2009 $(266)m), T&D $(3)m (2009 $(2)m), and Other activities $1m (2009 $nil). Also included are: (i) non-cash re-measurements of $(591)m (2009 $161m), attributable to segments as follows: E&P $(40)m (2009 $89m) and LNG $(551)m (2009 $72m); and (ii) $382m (2009 $545m) of unsuccessful exploration expenditure written off and charged to the E&P segment.

BG Energy Holdings Limited 2010 21

2 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION continued PROFIT FOR THE YEAR continued Analysed by operating segment

Disposals, re-measurements Total operating profit/(loss) Business Performance and impairments Total for the year ended 31 December 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m Exploration and Production 3 766 3 223 (322) (177) 3 444 3 046 Liquefied Natural Gas 2 449 2 405 (551) 72 1 898 2 477 Transmission and Distribution 711 721 (3) (2) 708 719 6 926 6 349 (876) (107) 6 050 6 242 Other activities 22 – 1 – 23 – 6 948 6 349 (875) (107) 6 073 6 242 Less: Pre-tax share of operating results of joint ventures and associates (436) (386) Add: Share of post-tax results from joint ventures and associates 275 246 Net finance costs (139) (228) Profit before tax 5 773 5 874 Taxation (2 211) (2 494) Profit for the year from continuing operations 3 562 3 380 Profit for the year from discontinued operations 194 (218) 3 756 3 162

JOINT VENTURES AND ASSOCIATES Analysed by operating segment

Pre-tax share of operating Share of net finance Share of post-tax results of joint ventures costs and tax of joint results from joint and associates ventures and associates ventures and associates for the year ended 31 December 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m Exploration and Production 13 (1) (5) – 8 (1) Liquefied Natural Gas 348 326 (132) (116) 216 210 Transmission and Distribution 75 61 (24) (24) 51 37 Continuing operations 436 386 (161) (140) 275 246 Discontinued operations 68 123 (30) (55) 38 68 504 509 (191) (195) 313 314

ASSETS AND LIABILITIES Analysed by operating segment

Non-current assets(a)(b) as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Exploration and Production 29 474 24 000 17 140 Liquefied Natural Gas 6 344 4 822 3 712 Transmission and Distribution 3 354 3 099 2 339 39 172 31 921 23 191 Other activities(c) – 982 1 458 39 172 32 903 24 649

(a) As at 31 December 2010, excludes derivative financial instruments, deferred tax assets and finance lease receivable and includes investments in joint ventures and associates of $2 791m (2009 $2 929m), attributable to segments as follows: E&P $626m (2009 $312m), LNG $1 834m (2009 $1 917m), T&D $331m (2009 $306m) and Discontinued operations $nil (2009 $394m). (b) As at 31 December 2010, amount attributable to the UK is $5 344m (2009 $5 403m). Amount attributable to non-UK countries is $33 828m (2009 $27 500) and includes $9 548m (2009 $6 801m) attributable to Australia representing 24% (2009 20%) of the Group total, $4 832m (2009 $3 622m) attributable to Brazil representing 12% (2009 11%) of the Group total and $4 745m (2009 $2 256m) attributable to the US representing 12% (2009 7%) of the Group total. (c) Includes assets associated with discontinued operations.

BG Energy Holdings Limited 2010 22

Notes to the accounts continued

2 SEGMENTAL ANALYSIS AND RESULTS PRESENTATION continued ASSETS AND LIABILITIES continued Analysed by operating segment

Total assets Total liabilities Net assets/(liabilities) as at 31 Dec 31 Dec 1 Jan 31 Dec 31 Dec 1 Jan 31 Dec 31 Dec 1 Jan 2010 2009 2009 2010 2009 2009 2010 2009 2009 $m $m $m $m $m $m $m $m $m Exploration and Production 32 879 26 771 20 695 (4 822) (3 985) (4 713) 28 057 22 786 15 982 Liquefied Natural Gas 9 232 8 258 7 545 (2 503) (2 730) (2708) 6 729 5 528 4 837 Transmission and Distribution 3 897 3 558 2 858 (823) (759) (760) 3 074 2 799 2 098 46 008 38 587 31 098 (8 148) (7 474) (8 181) 37 860 31 113 22 917 Other activities(a) 302 1 201 1 646 (266) (197) (292) 36 1 004 1 354 Net borrowings, net interest and tax 4 040(b) 2 431(b) 3 264 (19 070)(c) (16 109)(c) (10 639) (15 030) (13 678) (7 375) 50 350 42 219 36 008 (27 484) (23 780) (19 112) 22 866 18 439 16 896

(a) Includes assets and liabilities associated with discontinued operations and assets held for sale. (b) As at 31 December 2010, includes $2 532m of cash and cash equivalents (2009 $1 118m), $533m of financial derivatives (2009 $842m), $737m of deferred and current tax assets (2009 $387m), $134m finance lease receivable (2009 $nil) and amounts owed by parent undertaking of $66m (2009 $78m). (c) As at 31 December 2010, includes current tax liabilities of $(1 814)m (2009 $(1 579)m), deferred tax of $(3 134)m (2009 $(3 125)m), borrowings of $(9 704)m (2009 $(6 182)m), financial derivatives of $(469)m (2009 $(554)m) and amounts owed to parent undertaking of $(3 883)m (2009 $(4 612)m).

DEPRECIATION, AMORTISATION AND IMPAIRMENT Analysed by operating segment for the year ended 31 December 2010 2009 $m $m Exploration and Production(a) 2 199 1 749 Liquefied Natural Gas 147 74 Transmission and Distribution 148 115 Other activities 4 2 Continuing operations 2 498 1 940 Discontinued operations(b) 30 543 2 528 2 483

(a) In 2010, includes provision for impairment of $373m (2009 $269m). Further details of impairments are given in note 5, page 30. (b) In 2010, includes provision for impairment of $nil (2009 $464m). Further details of impairments are given in note 8, page 32.

CAPITAL INVESTMENT Analysed by operating segment

Capital expenditure(a) Capital investment(b) for the year ended 31 December 2010 2009 2010 2009 $m $m $m $m Exploration and Production 6 570 6 439 7 092 6 757 Liquefied Natural Gas 1 817 882 1 868 1 038 Transmission and Distribution 256 234 259 237 Continuing operations 8 643 7 555 9 219 8 032 Discontinued operations 28 44 28 44 8 671 7 599 9 247 8 076

Analysed by regional segment

Capital expenditure(a) Capital investment(b) for the year ended 31 December 2010 2009 2010 2009 $m $m $m $m Europe and Central Asia 1 107 1 167 1 114 1 247 Africa, Middle East and Asia 1 414 2 051 1 418 2 056 Americas and Global LNG 4 103 2 977 4 668 3 369 Australia 2 047 1 404 2 047 1 404 8 671 7 599 9 247 8 076

(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.

BG Energy Holdings Limited 2010 23

3 OPERATING COSTS Included within the Group’s operating costs charged to the income statement were the following items:

2010 2009 $m $m Raw materials, consumables and finished goods 4 106 3 730 Inventory adjustments to net realisable value(a) 4 18

Employee costs (see note 4(C), page 25) 1 114 914 Less: Own work capitalised (168) (165) Employee costs included within Other exploration expenditure and Research and development, below (77) (60) Employee costs included within Finance costs (11) (19) 858 670 Amounts written off Other intangible assets and Property, plant and equipment Depreciation and impairments of Property, plant and equipment (see note 13, page 35) 2 017 1 744 Amortisation and impairments of Other intangible assets (see note 12, page 34) 432 196 Less: impairments reported within Profits and losses on disposal of non-current assets and impairments (324) (269) 2 125 1 671

Unsuccessful exploration expenditure written off 382 545

Other operating charges: Other exploration expenditure(b) 383 390 Construction costs associated with regulated infrastructure 148 114 Operating lease rentals 311 394 Research and development 19 17 Tariffs, royalties, liquefaction and regasification costs 1 318 1 075

Net foreign exchange losses on operating activities 28 37

Other costs(c) 1 169 1 043

Continuing operations total 10 851 9 704

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

BG Energy Holdings Limited 2010 24

Notes to the accounts continued

3 OPERATING COSTS continued ACCOUNTANTS’ FEES AND SERVICES PricewaterhouseCoopers LLP has served as the Group’s independent external auditors for the two-year period ended 31 December 2010, for which audited financial statements appear in this Annual Report and Accounts. The auditors are deemed to be re-appointed under Section 487 of the Companies Act 2006 and accordingly PricewaterhouseCoopers LLP remains in office.

The audit fees relating to BG Energy Holdings Limited for the audit of the parent Company and the Group’s accounts for 2010 were $57 000 (2009 $56 000).

The following table presents the aggregate fees for professional services and other services rendered by PricewaterhouseCoopers LLP to BGEH Group:

2010 2009 $m $m Fees payable to the Group’s auditors and its associates for other services pursuant to legislation: The audit of the parent’s subsidiaries, pursuant to legislation 2.5 2.8 Other services pursuant to legislation(a) 0.3 0.3 Total fees payable pursuant to legislation 2.8 3.1

Tax services(b) 1.6 1.2 Services relating to corporate finance transactions entered into or proposed to be entered into by or on behalf of the Company or any of its associates 0.5 0.3 All other services(c) 1.0 0.5

5.9 5.1

In 2010, $33 000 of audit fees relates to audits of the pension schemes (2009 $31 000).

(a) Other services pursuant to legislation includes costs relating to the interim review and regulatory reporting. (b) Tax services also include fees billed for tax compliance services, including the preparation of original and amended tax returns and claims for refunds, tax consultations (such as assistance in connection with tax audits and appeals), transfer pricing and requests for rulings or technical advice from tax authorities, tax planning services, and expatriate tax planning and services. (c) All other services includes fees billed for quarterly reviews, attestation services, consultations concerning financial accounting and reporting standards, forensic accounting, control reviews and other advice.

BG Energy Holdings Limited 2010 25

4 DIRECTORS AND EMPLOYEES A) DIRECTORS’ REMUNERATION Directors’ remuneration is given in the Directors’ report on page 3.

B) KEY MANAGEMENT COMPENSATION Key management compensation analysed below represents amounts in respect of the Directors and the executive officers, defined as BG Group’s Group Executive Committee (GEC), excluding Frank Chapman, Ashley Almanza, Martin Houston and Keith Hubber, whose emoluments are payable by BG Group plc.

2010 2009 $m $m Salaries 5 5 Benefits(a) – – Bonuses(b) 6 5 Pension charge 2 1 Share-based payments(c) 6 5 Termination payments and payments in lieu of notice – 6 19 22

(a) Total benefits of $0.1m were paid to key management in 2010 (2009 $0.1m). (b) Bonus figures for 2010 represent payments under the Annual Incentive Scheme (AIS) in respect of the 2010 incentive year which were made in 2011. Bonuses for 2010 include remuneration to be given in the form of shares under the Voluntary Bonus Deferral Plan. Bonus figures for 2009 represent payments under the AIS in respect of the 2009 incentive year which were made in 2010. Bonuses exclude remuneration given in the form of deferred shares (2010 $352 000; 2009 $121 000). (c) Share-based payments include a charge for deferred shares awarded to key management under the AIS in respect of the previous incentive year.

C) EMPLOYEE COSTS

2010 2009 $m $m Wages and salaries(a) 687 606 Social security costs 70 59 Pension charge(b) 109 97 Share-based payments (see note 4(E), page 26) 60 68 Other including incentive schemes(c) 179 105 1 105 935

Less: attributable to discontinued operations 9 (21) Continuing operations 1 114 914

(a) Includes termination payments and payments in lieu of notice made to key management, see (B) above. (b) The pension charge for the year ended 31 December 2010 includes a gain of $18m (2009 $1m charge) for pension curtailments in respect of discontinued operations and a $11m charge (2009 $19m) which is presented within finance costs (see note 6, page 31). (c) For 2010 includes remuneration to be given in the form of shares under the Voluntary Bonus Deferral Plan.

In 2010, employee costs of $937m (2009 $770m) were charged to the income statement and $168m (2009 $165m) were capitalised.

D) AVERAGE NUMBER OF EMPLOYEES DURING THE YEAR

Employed in the UK Employed outside the UK 2010 2009 2010 2009 Number Number Number Number Exploration and Production 1 720 1 603 2 088 1 982 Liquefied Natural Gas 139 112 486 475 Transmission and Distribution 4 12 1 600 1 637 Discontinued operations 93 185 38 69 1 956 1 912 4 212 4 163

BG Energy Holdings Limited 2010 26

Notes to the accounts continued

4 DIRECTORS AND EMPLOYEES continued E) SHARE-BASED PAYMENTS The cost recognised in respect of share-based payments for 2010 was $60m (2009 $68m) of which $52m (2009 $54m) related to equity-settled share-based payment transactions and $8m (2009 $14m) related to cash-settled share-based payments.

BG Group plc’s Group Share Awards Details of BG Group plc’s Group Share Awards under the Group’s Long Term Incentive Plan (LTIP) are given in BG Group plc’s Annual Report and Accounts 2010. In 2010, awards of 3.3m ordinary shares (2009 2.5m ordinary shares) were made. In 2010, 2.0m of these awards were in the form of nil-cost options (2009 1.4m). The costs in respect of these awards are charged to the income statement over the vesting period, based upon the fair value of BG Group plc’s shares at the award date. In 2010, the amount recognised by the Group in respect of Group Share Awards was $26m (2009 $14m). Dividend equivalents accrue on the awards during the vesting period. Accordingly, the fair value of the shares awarded is based on the weighted average market value of BG Group plc’s shares on the award date, which was £10.66 in 2010 (2009 £10.19).

As at 31 December 2010, total awards of 7.0m shares (2009 4.2m) were outstanding, which included nil-cost options over 3.2m shares (2009 1.4m). Nil-cost options can be exercised between three and ten years from the grant date. During the year ended 31 December 2010, 0.2m nil-cost options were forfeited (2009 nil).

BG Group plc’s Performance Share Awards Details of BG Group plc’s Performance Share Awards under the Group’s LTIP are given in BG Group plc’s Annual Report and Accounts 2010. Details of the awards to Frank Chapman, Ashley Almanza and Martin Houston are given in BG Group plc’s Annual Report and Accounts 2010. In 2010, awards of 3.3m ordinary shares (2009 4.9m ordinary shares) were made. In 2010, 2.7m of these awards were in the form of nil-cost options (2009 3.7m).

The costs in respect of these awards are charged to the income statement over the vesting period, based upon the fair value of BG Group plc’s shares at the award date, adjusted for the probability of market-related performance conditions being achieved. In 2010, the amount recognised by the Group in respect of Performance Share Awards was $13m (2009 $7m).

The fair value of shares awarded during the year in respect of BG Group plc’s Performance Share Awards is estimated using a Monte Carlo projection model with the following assumptions: weighted average BG Group plc share price of £10.63 (2009 £10.19), exercise price of £nil (2009 £nil), a risk-free rate of 0.9% (2009 1.9%) and a vesting period of three years (2009 three years). The model also contains assumptions for both BG Group plc and each member of the industry peer group (as set out in BG Group plc’s Annual Report and Accounts 2010, page 63) in respect of volatility, average share price growth and share price correlation. Dividend equivalents accrue on the award during the vesting period. The fair value reflects the probability of market performance conditions being achieved. The fair value of shares awarded during the year was £5.97 per share (2009 £4.79 per share). The assumptions used in estimating the fair value of shares for the Performance Share Awards are based on US data because most of the companies selected as industry peers are US-based.

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.

As at 31 December 2010, total awards of 10.2m shares (2009 7.4m) were outstanding, which included nil-cost options over 6.0m shares (2009 3.5m). Nil-cost options can be exercised between three and ten years from the grant date. During the year ended 31 December 2010, 0.2m nil-cost options were forfeited (2009 0.2m)

BG Group plc’s Deferred Bonus Awards Deferred Bonus Awards are made under BG Group plc’s Deferred Bonus Plan which operates in conjunction with BG Group plc’s Annual Incentive Scheme (AIS) and is described in BG Group plc’s Annual Report and Accounts 2010. In 2010, awards of 0.1m ordinary shares were made (2009 0.2m ordinary shares). The charge to the income statement in respect of these awards was $1m (2009 $1m). The fair value of the shares awarded is based on the market value of BG Group plc’s shares at the award date, which was £11.76 (2009 £9.98).

BG Group plc’s Company Share Option Scheme Details of BG Group plc’s Company Share Option Scheme (CSOS) are given in BG Group plc’s Annual Report and Accounts 2010. Details of share options held by Frank Chapman, Ashley Almanza and Martin Houston under the CSOS are given in BG Group plc’s Annual Report and Accounts 2010. No grants have been made since 2007.

The costs of this scheme are charged to the income statement over the vesting period, based upon the fair value of the share options at the grant date and the likelihood of allocations vesting under the scheme. In 2010, the amount recognised by the Group in respect of the CSOS was $nil (2009 $19m).

BG Energy Holdings Limited 2010 27

4 DIRECTORS AND EMPLOYEES continued BG Group plc’s Long Term Incentive Scheme Details of BG Group plc’s Long Term Incentive Scheme (LTIS) are given in BG Group plc’s Annual Report and Accounts 2010. Details of notional allocations to Frank Chapman, Ashley Almanza and Martin Houston under the LTIS are given in BG Group plc’s Annual Report and Accounts 2010. No allocations have been made since 2007.

The costs of this scheme are charged to the income statement over the vesting period, based upon the fair value of the shares at the award date, adjusted for the probability of market-related performance conditions being achieved. In 2010, the amount recognised by the Group in respect of the LTIS was $3m (2009 $4m). As at 31 December 2010, no notional allocations of ordinary shares (2009 2.8m ordinary shares) were outstanding under BG Group plc’s LTIS.

BG Group plc’s Sharesave Plan Details of BG Group plc’s Sharesave Plan (the Sharesave Plan) are given in BG Group plc’s Annual Report and Accounts 2010. Details of share options held by Frank Chapman, Ashley Almanza and Martin Houston are given in BG Group plc’s Annual Report and Accounts 2010. In 2010, grants of 0.4m (2009 0.5m) share options were made under the Sharesave Plan.

The costs of this plan are charged to the income statement over the vesting period, based upon the fair value of the share option at the grant date and the likelihood of allocations vesting under the plan. In 2010, the amount recognised by the Group in respect of the Sharesave Plan was $3m (2009 $2m).

The fair value of share options granted during the year in respect of the Sharesave Plan is estimated using a Black-Scholes option pricing model with the following assumptions: BG Group plc share price of £11.91 (2009 £11.21), exercise price of £10.27 (2009 £8.63), dividend yield of 1.0% (2009 1.0%), volatility of 43% (2009 43%), a risk-free rate of 1.53% (2009 1.64%) and an expected life of three years (2009 three years). The fair value of share options granted during the year was £4.13 per share (2009 £4.35 per share).

Expected volatility was determined by calculating the historical volatility of BG Group plc’s share price over the previous three-year period. The expected life used in the model is based on the contractual terms in the Sharesave Plan.

BG Group plc’s Share Incentive Plan Details of BG Group plc’s Share Incentive Plan (SIP) are given in BG Group plc’s Annual Report and Accounts 2010. In 2010, awards of 0.5m ordinary shares (2009 0.4m ordinary shares) were made in conjunction with BG Group plc’s UK Flexible Benefits Plan and Partnership Shares Plan.

The charge to the income statement in respect of the award is based on the market value of BG Group plc’s shares at the grant date. The fair value of the shares awarded during the year was £11.79 per share (2009 £10.66 per share). In 2010, the amount recognised by the Group in respect of the SIP was $6m (2009 $7m).

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 BG Group plc’s shares.

A charge of $nil has been made in respect of cash-settled CSOS awards (2009 $5m), the terms of which are the same as the equity-settled CSOS awards, and a charge of $8m (2009 $9m charge) has been made in respect of social security costs on employee share option and share plans.

During the vesting period, the costs of the cash-settled CSOS awards are charged to the income statement based on the fair value of the share option at the balance sheet date and the likelihood of allocations vesting under the scheme.

The charge to the income statement in respect of social security costs has been calculated based on the fair value of the awards at the balance sheet date multiplied by the current employer’s social security rate. The fair value of the awards that had not vested at the balance sheet date has been estimated using the year-end share price or a Black-Scholes option pricing model, where appropriate.

To determine the social security costs in respect of the Performance Share Awards the following assumptions were used: BG Group plc share price of £12.96 (2009 £11.22), volatility of 43% (2009 43%), a weighted average risk-free rate of 1.02% (2009 1.45%) and a weighted average expected life of two years (2009 two years). The weighted average fair value of Performance Share Awards at the balance sheet date was £6.48 (2009 £5.31). For the Group Share Awards, the fair value of the award was based on the market price of BG Group plc’s shares at the balance sheet date.

BG Energy Holdings Limited 2010 28

Notes to the accounts continued

4 DIRECTORS AND EMPLOYEES continued F) ANALYSIS OF SHARE OPTIONS AS AT 31 DECEMBER 2010

Weighted Weighted Number average Normal average Date of of shares option price exercisable remaining grant m £ date contractual life Sharesave Scheme and Sharesave Plan options 2005 0.04 3.95 2010 4mths 2006 0.32 5.82 2011 1yr 4mths 2007 0.60 7.16 2011 7 mths 2008 0.34 7.66 2012 1yr 7mths 2009 0.51 8.63 2013 2yrs 7mths 2010 0.39 10.27 2014 3yrs 6mths Company Share Option Scheme options(a) 2001 0.18 2.5634 2011 10mths 2002 0.45 2.5175 2012 1yr 8mths 2003 1.09 2.7050 2013 2yrs 8mths 2004 1.79 3.4733 2014 3yrs 8mths 2005 3.72 4.9942 2015 4yrs 8mths 2006 4.55 6.8983 2016 5yrs 8mths 2007 5.55 7.9200 2017 6yrs 8mths

(a) For CSOS the normal exercisable date given above is the last date that the options are exercisable. This is the tenth anniversary of the grant date. Options can be exercised, subject to performance conditions, from the third anniversary of the grant date.

The table includes share options granted to three Directors who are not employed by the Group but who have options under the Company Share Option Scheme and the Sharesave Scheme.

G) WEIGHTED AVERAGE EXERCISE PRICE OF SHARE OPTIONS

2010 2009 Sharesave Sharesave Scheme and 2010 Scheme and 2009 Sharesave CSOS Sharesave CSOS Plan options options Plan options options £ £ £ £ Outstanding as at 1 January 6.86 6.11 5.76 5.76 Granted 10.27 – 8.63 – Exercised 4.10 5.69 3.86 4.76 Forfeited 7.09 7.92 6.11 7.51 Outstanding as at 31 December 7.87 6.04 6.86 6.11 Exercisable as at 31 December 3.95 6.04 4.03 5.16

BG Energy Holdings Limited 2010 29

4 DIRECTORS AND EMPLOYEES continued H) SUMMARY OF MOVEMENTS IN SHARE OPTIONS

Sharesave Scheme and Sharesave Plan CSOS options options m m 2009 Outstanding as at 1 January 2009 2.3 45.0 Granted 0.5 – Exercised (0.5) (13.2) Forfeited (0.1) (1.4) Outstanding as at 31 December 2009 – number 2.2 30.4 Exercisable as at 31 December 2009 – number 0.2 19.9 Option price range as at 31 December 2009 (£) 2.74 – 8.63 2.52 – 7.92 Option price range for exercised options (£) 2.19 – 7.16 2.52 – 7.92 Weighted average share price at the date of exercise for options exercised in the year (£) 10.80 10.89

2010 Outstanding as at 1 January 2010 2.2 30.4 Granted 0.4 – Exercised (0.3) (10.0) Forfeited (0.1) (3.1) Outstanding as at 31 December 2010 – number 2.2 17.3 Exercisable as at 31 December 2010 – number 0.1 17.3 Option price range as at 31 December 2010 (£) 3.95 – 10.27 2.52 – 7.92 Option price range for exercised options (£) 2.74 – 8.63 2.52 – 7.92 Weighted average share price at the date of exercise for options exercised in the year (£) 11.68 11.84

The table also includes movements in share options granted to three Directors who are not employed by the Group but who have options under the Company Share Option Scheme and the Sharesave Scheme.

BG Energy Holdings Limited 2010 30

Notes to the accounts continued

5 DISPOSALS, RE-MEASUREMENTS AND IMPAIRMENTS The Group has separately identified profits and losses related to disposals, impairments and certain re-measurements of derivative instruments. A reconciliation of results before and after disposals, re-measurements and impairments is given in note 2, page 19.

2010 2009 $m $m Other operating income: Re-measurements of commodity based contracts (591) 161 Profits and losses on disposal of non-current assets and impairments (284) (268) Finance income 22 2 Finance costs (22) (35) (875) (140) Taxation on disposals, re-measurements and impairments 281 22 Profit/(loss) for the year from continuing operations (594) (118) Profit/(loss) attributable to: Shareholders (earnings) (593) (118) Non-controlling interest (1) –

OTHER OPERATING INCOME Re-measurements included within Other operating income amount to a charge of $591m (2009 $161m credit), of which a charge of $132m (2009 $73m credit) represents non-cash mark-to-market movements on certain long-term UK gas contracts. Whilst 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 $459m charge (2009 $88m credit) representing unrealised mark-to-market movements associated with economic hedges. Further information on commodity instruments is given in note 20, page 40.

DISPOSAL OF NON-CURRENT ASSETS AND IMPAIRMENTS 2010 During the year, the Group’s Canadian exploration and production assets were sold. This resulted in a gain on disposal of $12m (post-tax $7m) in the E&P segment.

Following the Group’s decision to cease exploration activity and exit the concession in Oman, the Group’s Oman exploration assets were fully impaired. This resulted in a charge of $191m in the E&P segment (post-tax $138m).

Also during the year, the Group reviewed a number of its licences in the AMEA region and along with its partners decided to relinquish a licence in Nigeria. Following this review, certain exploration and production assets were impaired, resulting in a charge of $173m in the E&P segment (post-tax $127m).

In 2010, other plant disposals, write-offs and impairments resulted in a pre-tax credit to the income statement of $68m (post-tax credit $71m).

2009 During the first quarter of 2010, the Group committed to sell its Canadian exploration and production assets (see note 1, page 17). This decision provided additional information relevant for determining the fair value of these assets as at 31 December 2009. Accordingly, these assets were revalued to the lower of their carrying amount and fair value less costs to sell. This resulted in an impairment charge of $269m in the E&P segment (post-tax $193m).

In 2009, other plant disposals and write-offs resulted in a pre-tax credit to the income statement of $1m (post-tax credit $2m).

FINANCE INCOME AND COSTS Re-measurements presented in finance income and costs relate primarily to certain derivatives used to hedge foreign exchange and interest rate risk, offset by foreign exchange movements and hedge adjustments on certain borrowings in subsidiaries.

BG Energy Holdings Limited 2010 31

6 FINANCE INCOME AND COSTS

2010 2009 $m $m Interest receivable(a) 177 99 Net fair value gains and losses on derivatives and fair value hedge adjustments(b) – 2 Finance income 177 101

Interest payable (194) (188) Finance lease charges (108) (81) Other finance charges – (4) Interest capitalised(c) 79 49 Unwinding of discount on provisions and pension obligations(d) (71) (70) Exchange losses – (35) Net fair value gains and losses on derivatives and fair value hedge adjustments(b) (22) – Finance costs (316) (329)

Net finance costs – continuing operations (139) (228)

(a) Interest receivable includes net exchange gains of $104m (2009 $45m). (b) Net fair value gains and losses on derivatives and fair value hedge adjustments comprises $36m gain on hedge adjustments (2009 $13m loss) and $58m loss on interest rate and currency exchange rate derivatives (2009 $15m gain). (c) Finance costs associated with general Group 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 1.5% per annum (2009 1.9%). Tax relief for capitalised interest is approximately $23m (2009 $14m). (d) Amount in respect of pension obligations represents the unwinding of discount on the plans’ liabilities offset by the expected return on the plans’ assets. Also includes the unwinding of discount on decommissioning, other provisions and receivables.

7 TAXATION

2010 2009 $m $m Current tax UK – corporation tax at 28% and 50% 1 938 1 878 – petroleum revenue tax at 50% 42 22 – adjustments in respect of prior periods (233) (91) – less: double tax relief (776) (708) UK tax charge 971 1 101 Overseas tax charge 1 139 1 011 – adjustments in respect of prior periods 151 48 Current tax charge 2 261 2 160 Deferred tax Temporary differences (14) 362 Recognition of previously unrecognised deferred tax asset (50) (31) Deferred petroleum revenue tax at 50% 14 3 Tax charge – continuing operations 2 211 2 494

The tax credit relating to disposals, re-measurements and impairments is $281m (2009 $22m). This consists of a tax credit on unrealised re‑measurements of $184m (2009 $55m tax charge) and a tax credit on disposals and impairments of $97m (2009 $77m).

The total tax charge reconciles with the charge calculated using the statutory rates of UK corporation tax as follows:

2010 2009 $m $m Profit before taxation 5 773 5 874 Tax at UK statutory rates on profit 1 904 1999 Effect on tax charge of: Non tax-deductible or non-taxable items 23 98 Overseas or petroleum revenue taxes at different rates to UK statutory rates 439 421 Prior year and other adjustments including unrelieved overseas tax losses (155) (24) Tax charge – continuing operations 2 211 2 494

BG Energy Holdings Limited 2010 32

Notes to the accounts continued

8 DISCONTINUED OPERATIONS Following the disposal of the Group’s power stations in the USA and UK earlier in the year, BG Group announced in September 2010 that it had agreed to sell its interests in Santa Rita and San Lorenzo power stations in the Philippines. Together, these power stations represented the majority of the Group’s Power Generation business segment and are considered to be a separate major line of business for BG Group. As a result, these operations have been treated as discontinued.

The power businesses that remain with BG Group have been allocated to other business segments based on their activity and location. Comparative information has been restated to reflect the presentation of discontinued operations as a separate line item.

RESULTS FROM DISCONTINUED OPERATIONS

2010 2009 $m $m Revenue 242 456 Operating costs (218) (418) Operating profit 24 38 Finance (costs)/income (5) 1 Share of post-tax results from joint ventures and associates 38 68 Profit before tax 57 107 Taxation (5) (10) Profit after tax 52 97

Profits and losses on disposal of non-current assets and impairments 147 (464) Taxation (5) 149 Post-tax profits and losses on disposal of non-current assets and impairments 142 (315) Profit for the year from discontinued operations 194 (218)

DISPOSAL OF NON-CURRENT ASSETS AND IMPAIRMENTS 2010 The sale of the Group’s investment in Seabank Power Limited for cash proceeds of $327m resulted in a pre and post-tax profit on disposal of $167m.

The disposal of the Group’s subsidiary undertaking, Premier Power Limited for cash proceeds of $164m resulted in a pre-tax loss of $24m (post‑tax $29m).

The disposal of the Group’s US Power assets resulted in a pre and post-tax profit on disposal of $4m. Cash proceeds of $450m were received from this sale.

Net assets disposed of in respect of Premier Power Limited and US power assets were as follows:

$m Intangible assets 3 Property, plant and equipment 533 Net working capital 115 Cash 23 Provisions (41) Current tax liabilities (13) Net assets disposed 620

2009 During the first quarter of 2010, the Group announced the sale of its power plants in the USA for a total consideration of $450m. This announcement provided additional information relevant for determining the fair value of these assets as at 31 December 2009. Accordingly, the recoverable amount of the US power assets was determined on a fair value less costs to sell basis, based on the total consideration set out in the Sale and Purchase Agreement. This resulted in an impairment charge of $464m within discontinued operations (post-tax $315m).

BG Energy Holdings Limited 2010 33

8 DISCONTINUED OPERATIONS continued Cash flows relating to discontinued operations were as follows:

2010 2009 $m $m Loss before taxation 204 (357) Share of post-tax results of joint ventures and associates (38) (68) Depreciation of property, plant and equipment 30 79 Decrease in provisions – (2) Profits and losses on disposal of non-current assets and impairments (147) 464 Finance costs/(income) 5 (1) Movements in working capital (1) (4) Cash generated from operations 53 111 Income taxes received 53 – Net cash inflow from operating activities 106 111 Net cash (outflow)/inflow from investing activities (17) 43 Net cash inflow from financing activities 2 10

Net increase in cash and cash equivalents 91 164

9 DIVIDENDS No final dividend has been proposed by the Directors for 2010 (2009 $nil). No interim dividend was paid in the year (2009 $3 294m).

10 EARNINGS PER ORDINARY SHARE Earnings per share information has not been shown in these accounts as the Company does not have any publicly traded equity shares.

11 GOODWILL

THE GROUP 2010 2009 $m $m Cost as at 1 January 806 600 Disposals (25) – Currency translation adjustments 39 206 Cost as at 31 December 820 806 Cumulative impairment as at 1 January (25) – Charge for impairment (see note 8, page 32) – (25) Disposals 25 – Cumulative impairment as at 31 December – (25) Net book value as at 31 December 820 781

The net book value of goodwill as at 1 January 2009 was $600m.

For the purpose of impairment testing, goodwill is allocated to groups of cash generating units (CGU) and represents the lowest level at which goodwill is monitored. The Group tests goodwill annually for impairment or more frequently if there are indications that it might be impaired.

As at 31 December 2010, $817m of the goodwill recognised related to Comgás (2009 $778m), which is classified within the T&D segment. Comgás is defined as a CGU for impairment testing purposes. No goodwill impairment has been recognised in respect of this CGU.

The recoverable amount of the Comgás CGU is determined from value in use calculations, using cash flow projections based on approved financial plans covering a five-year period. The projected cash flows are adjusted for associated risks and are discounted using a nominal rate of 8% (pre-tax). The volume growth rate assumptions used in the plans were based on past performance and management’s expectations of market development. The annual volume growth rates in the business plan used to determine cash flows beyond the five-year period are between 5% and 9% and do not exceed the average long-term growth rate for the relevant markets.

BG Energy Holdings Limited 2010 34

Notes to the accounts continued

12 OTHER INTANGIBLE ASSETS

THE GROUP Expenditure on unproved gas and oil reserves Service concession asset(a) Other(b) Total 2010 2009 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m $m $m Cost as at 1 January 7 688 5 257 1 725 1 152 453 301 9 866 6 710 Additions 1 959(c) 2 508(c) 160 120 69 117 2 188 2 745 Disposals and unsuccessful exploration expenditure(d) (657) (545) (3) (4) (3) – (663) (549) Transfer to property, plant and equipment (4 284) (1 077) – – – – (4 284) (1 077) Other movements 205 47 – – – (25) 205 22 Currency translation adjustments 557 1 498 88 457 39 60 684 2 015 Cost as at 31 December 5 468 7 688 1 970 1 725 558 453 7 996 9 866 Amortisation as at 1 January (90) – (335) (182) (175) (106) (600) (288) Charge for the year – – (67) (66) (62) (38) (129) (104) Charge for impairment (see note 5, page 30) (303) (92) – – – – (303) (92) Disposals and transfers 267 – – 1 – – 267 1 Currency translation adjustments – 2 (17) (88) (21) (31) (38) (117) Amortisation as at 31 December (126) (90) (419) (335) (258) (175) (803) (600) Net book value as at 31 December 5 342 7 598 1 551 1 390 300 278 7 193 9 266

(a) Recognised following the adoption of IFRIC 12, see note 1, page 17. (b) Other includes contractual rights and software licences at Comgás. Contractual rights are amortised on a straight-line basis over the term of the contract, usually 5 years, and relate to the cost incurred in connecting consumers to the Comgás natural gas distribution system. Other also includes the contractual rights in respect of the purchase of LNG, regasification services and related gas sales at Elba Island in the USA, these rights are amortised on a straight-line basis over the term of the contract and have an average remaining life of 10 years (2009 11 years). (c) Broadly equivalent to cash flows attributable to investing activities arising from exploration and evaluation. (d) Disposals and unsuccessful exploration expenditure includes $382m (2009 $545m) in respect of unsuccessful exploration expenditure written off.

The Net book value of Other intangible assets as at 1 January 2009 was $6 422m.

Comgás operates under a concession arrangement with the local regulator (ARSESP) to distribute gas to a number of different market segments in the state of São Paulo, Brazil. The Comgás concession is a 30 year franchise, with a potential to extend for a further 20 years when the primary concession period ends in 2029. The arrangements between Comgás and the local regulator are classified as a service concession arrangement in accordance with IFRIC 12.

The regulator reviews the maximum margin that can be charged to each market segment every five years. Changes to the tariff primarily reflect the economic balance between investments, operating expenses, cost of capital, inflation, efficiency and changes in the cost of gas purchased by Comgás. At least once a year the Regulator adjusts the tariff for inflation and gas cost variances. The current tariff structure covering the period 2009 to 2014 was agreed with the regulator in 2009. There were no significant changes to the concession arrangement in 2010.

Under the terms of each tariff review, Comgás commits to a certain level of expenditure necessary to develop and maintain the gas distribution network within the concession area. Comgás is required to use the network infrastructure to supply gas to industrial, commercial, residential, natural gas vehicle, cogeneration and power customers. At the end of the concession period, ownership of the infrastructure passes to the regulator in exchange for consideration based on the residual value.

In accordance with IFRIC 12, which was applicable to the Group for the year ended 31 December 2010, all infrastructure associated with the service concession arrangement is recognised as an intangible concession asset with additions to the infrastructure being accounted for as a construction contract with the regulator. Comparative information has been restated accordingly. During the year, additions to infrastructure of $148m (2009 $114m) were recognised as revenue. No profit or loss has been recognised in respect of additions to infrastructure in 2010 or 2009. Additional information on the adoption of IFRIC 12 can be found in note 1, page 17.

BG Energy Holdings Limited 2010 35

13 PROPERTY, PLANT AND EQUIPMENT

Mains, Motor vehicles Exploration Land and services Plant and and office and buildings and meters machinery equipment production Total $m $m $m $m $m $m Cost as at 1 January 2010 152 173 5 193 1 109 24 148 30 775 Additions 9 14 1 853 248 4 359 6 483 Disposals, transfers and other movements(a) (37) – (1 433) (67) 3 817 2 280 Currency translation adjustments 1 7 10 – 387 405 Cost as at 31 December 2010 125 194 5 623 1 290 32 711 39 943 Accumulated depreciation as at 1 January 2010 (65) (38) (1 553) (385) (8 956) (10 997) Charge for the year(b) (2) (6) (174) (165) (1 679) (2 026) Charge for impairment(b) (see note 5, page 30) – – – (12) (9) (21) Disposals and transfers 12 – 993 12 250 1 267 Currency translation adjustments 2 (3) 28 1 69 97 Accumulated depreciation as at 31 December 2010 (53) (47) (706) (549) (10 325) (11 680) Net book value as at 31 December 2010(c)(d)(e) 72 147 4 917 741 22 386 28 263

Mains, Motor vehicles Exploration Land and services Plant and and office and buildings and meters machinery equipment production Total $m $m $m $m $m $m Cost as at 1 January 2009 121 141 3 991 741 18 871 23 865 Additions 20 8 1 103 308 3 415 4 854 Disposals, transfers and other movements(a) – – (9) (18) 765 738 Currency translation adjustments 11 24 108 78 1 097 1 318 Cost as at 31 December 2009 152 173 5 193 1 109 24 148 30 775 Accumulated depreciation as at 1 January 2009 (57) (30) (931) (236) (7 465) (8 719) Charge for the year(b) (2) (5) (142) (124) (1 373) (1 646) Charge for impairment(b) (see note 5, page 30) – – (439) – (177) (616) Disposals and transfers – – 3 4 622 629 Currency translation adjustments (6) (3) (44) (29) (563) (645) Accumulated depreciation as at 31 December 2009 (65) (38) (1 553) (385) (8 956) (10 997) Net book value as at 31 December 2009(c)(d)(e) 87 135 3 640 724 15 192 19 778 Net book value as at 1 January 2009 64 111 3 060 505 11 406 15 146

Comparative information has been restated following the adoption of IFRIC 12 ‘Service Concession Arrangements’, see note 1, page 17.

(a) Includes, within Exploration and production, a transfer from other intangible assets of $4 284m (2009 $1 077m) and an increase in the decommissioning asset of $250m (2009 $107m). (b) Depreciation charge and charge for impairment for the year is attributable to continuing and discontinued operations as follows:

Depreciation Impairment 2010 2009 2010 2009 $m $m $m $m Continuing operations 1 996 1 567 21 177 Discontinued operations 30 79 – 439 2 026 1 646 21 616

(c) The Group’s Net book value includes capitalised interest of $342m (2009 $295m) comprising Exploration and production $281m (2009 $243m) and Plant and machinery $61m (2009 $52m). A deferred tax liability is recognised in respect of this taxable temporary difference at current enacted rates. (d) Includes the net book value of decommissioning assets of $767m (2009 $614m) and expenditure on Plant and machinery and Exploration and production assets under construction of $10 434m (2009 $3 265m). (e) Assets capitalised and held under finance leases included in Plant and machinery are: as at 31 December 2010 2009 $m $m Cost 2 647 2 138 Accumulated depreciation (465) (355) Net book value 2 182 1 783

BG Energy Holdings Limited 2010 36

Notes to the accounts continued

14 INVESTMENTS

Joint ventures Associates Share of Share of net assets Loans net assets Loans Other investments Total investments $m $m $m $m $m $m Carrying value as at 1 January 2010 773 516 654 986 24 2 953 Investments 372 7 157 40 – 576 Disposals, transfers and other loan movements (303) (117) – (112) – (532) Reclassified as held for sale (203) (6) – – – (209) Share of retained profits less losses during the year(a) 51 – 65 – – 116 Currency translation adjustments and fair value movements (7) (20) (62) – 9 (80) Carrying value as at 31 December 2010 683 380 814 914 33(b) 2 824

Joint ventures Associates Share of Share of net assets Loans net assets Loans Other investments Total investments $m $m $m $m $m $m Carrying value as at 1 January 2009 431 400 555 943 16 2 345 Investments 318 80 9 70 – 477 Disposals, transfers and other loan movements – (17) – (31) – (48) Share of retained profits less losses during the year(a) 12 – 74 – – 86 Currency translation adjustments and fair value movements 12 53 16 4 8 93 Carrying value as at 31 December 2009 773 516 654 986 24(b) 2 953

(a) Comprises share of post-tax results for the year of $275m (2009 $246m) from continuing operations and $38m (2009 $68m) from discontinued operations, offset by share of dividends receivable by the Group of $197m (2009 $228m). (b) Includes an available-for-sale investment in Victoria Petroleum NL.

The Group owns a 16.73% interest in Victoria Petroleum NL, a company listed on the Australian Securities Exchange. This investment is classified as an available-for-sale financial asset and is measured at fair value, with movements in fair value recognised in other comprehensive income. The fair value of the investment has been determined by reference to quoted market prices. As at 31 December 2010, the fair value of this investment was $25m (2009 $16m).

Analysis of the Group’s share of assets, liabilities, income and expenses in joint ventures and associates is shown below:

Joint ventures Associates as at 31 December 2010 2009 2010 2009 $m $m $m $m Share of assets – non-current assets 1 170 1 639 2 468 2 416 – current assets 114 286 566 444 1 284 1 925 3 034 2 860 Share of liabilities – current liabilities (549) (239) (315) (273) – non-current liabilities (52) (913) (1 905) (1 933) (601) (1 152) (2 220) (2 206) Share of net assets 683 773 814 654

Joint ventures Associates for the year ended 31 December 2010 2009 2010 2009 $m $m $m $m Share of revenue 248 114 1 066 1 017 Share of operating costs (182) (90) (696) (655) Share of operating profit 66 24 370 362 Share of finance costs (1) – (48) (45) Share of tax (15) (8) (97) (87) Share of post-tax results from continuing operations 50 16 225 230

BG Energy Holdings Limited 2010 37

15 INVENTORIES as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Raw materials and consumables 374 441 357 Finished goods for resale 281 328 451 655 769 808

16 TRADE AND OTHER RECEIVABLES as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Amounts falling due within one year Trade receivables 1 845 1 686 1 679 Amounts owed by parent undertaking 66 78 79 Amounts owed by joint ventures and associates (see note 26, page 51) 37 36 72 Other receivables 633 484 515 Prepayments and accrued income 3 479 2 515 2 933 6 060 4 799 5 278 Amounts falling due after more than one year Other receivables 206 83 94 Prepayments and accrued income – 42 42 206 125 136

Total receivables 6 266 4 924 5 414

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:

2010 2009 $m $m Provision as at 1 January 68 46 Charge for the year 27 16 Transfers and other adjustments (1) 6 Provision as at 31 December 94 68

As at 31 December 2010, $441m (2009 $329m) of trade and other receivables were past due but not provided for, and an analysis of these receivables is as follows:

2010 2009 $m $m Less than 3 months past due 165 176 Between 3 and 6 months past due 192 39 Between 6 and 12 months past due 18 56 More than 12 months past due 66 58 441 329

17 CASH AND CASH EQUIVALENTS

31 Dec 31 Dec 1 Jan as at 2010 2009 2009 $m $m $m Cash at bank and in hand 553 482 480 Cash equivalent investments 1 979 636 1 003 2 532 1 118 1 483

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

The effective interest rates of the Group’s cash equivalent investments as at 31 December 2010 were between 0.1% and 7.7% (2009 nil and 5.2%). For further information on the interest rate composition of the Group’s financial assets see note 20, page 40.

BG Energy Holdings Limited 2010 38

Notes to the accounts continued

18 ASSETS HELD FOR SALE The major classes of assets and liabilities classified as held for sale are as follows:

THE GROUP as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Investments in joint venture entities 209 – – Cash and cash equivalents 18 – – Assets classified as held for sale 227 – –

Trade and other payables (7) – – Borrowings (97) – – Liabilities associated with assets classified as held for sale (104) – –

Net assets classified as held for sale(a) 123 – –

(a) There were no currency translation adjustments in respect of the above assets and liabilities recorded in the Consolidated statement of comprehensive income.

During 2010, the Group committed to a plan to dispose of its indirect 40% interests in First Gas Holdings Corporation and FGP Corp which own the Santa Rita and San Lorenzo power stations in the Philippines, respectively. Accordingly, these businesses have been reclassified as held for sale as at 31 December 2010, with sales completion expected in 2011 subject to receiving the necessary waivers and consents. The results of these businesses have been classified as discontinued operations, see note 8, page 32.

19 BORROWINGS Details of the Group’s financing and financial risk factors are disclosed on pages 10 to 11. as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Amounts falling due within one year Commercial paper and bonds 996 795 69 Bank loans and overdrafts 215 336 315 Obligations under finance leases 47 27 20 1 258 1 158 404 Amounts falling due after more than one year Bonds and other loans 5 397 2 469 487 Bank loans 663 594 411 Obligations under finance leases 2 386 1 961 1 829 8 446 5 024 2 727

Gross borrowings 9 704 6 182 3 131

As at 31 December 2010, Comgás had pledged trade receivables of $23m (2009 $23m) as security against certain of its borrowings. In the event of default under the loan agreements, the lender has the right to receive cash flows from the receivables pledged. Without default the entity will continue to collect the receivables and allocate new receivables as collateral.

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 2010 2009 2010 2009 $m $m $m $m Within one year 80 26 1 258 1 158 Between one and two years 49 30 645 194 Between two and three years 53 34 1 220 622 Between three and four years 61 32 191 1 237 Between four and five years 78 39 452 147 After five years 1 862 1 452 5 938 2 824 2 183 1 613 9 704 6 182

For the purpose of the table above, debt with an initial maturity within one year, such as commercial paper, is treated as floating rate debt.

BG Energy Holdings Limited 2010 39

19 BORROWINGS continued As part of its interest rate risk strategy the Group has entered into swaps that are designated as fair value or cash flow hedges of interest rate risk. The disclosure on page 38 is presented after the effect of these swaps. Further information on the fair value of the swaps is included in note 20, page 40.

The effective post-swap interest rates as at 31 December 2010 were between 0.4% and 11% (2009 0.2% and 11%). For amounts falling due within one year the effective post-swap interest rates were between 0.4% and 11% (2009 0.2% and 9%). Post-swap fixed rate borrowings mature between 2011 and 2037 (2009 mature between 2011 and 2037) and the interest rates are not subject to re-pricing prior to maturity.

Obligations under finance leases Minimum lease payments Obligations under finance leases 2010 2009 2010 2009 Amounts due: $m $m $m $m Within one year 146 103 47 27 Between one and five years 602 506 215 133 After five years 3 263 2 916 2 171 1 828 Less: future finance charges (1 578) (1 537) – – 2 433 1 988 2 433 1 988

The Group has finance lease obligations in respect of LNG ships and infrastructure. These lease obligations expire between 2024 and 2037 (2009 expire between 2024 and 2037).

CURRENCY COMPOSITION OF THE GROUP’S BORROWINGS The following table analyses the currency composition of the Group’s borrowings:

2010 2009 $m $m Currency: Pound Sterling 2 785 1 662 US Dollar 4 013 2 393 Euro 2 131 1 168 Brazilian Real 715 906 Other 60 53 9 704 6 182

The disclosure above does not include the impact of certain currency swaps as these are separately recognised under IAS 39 and presented in note 20, page 40. As at 31 December 2010, the Group had swapped $1 957m (2009 $849m) of Pound Sterling borrowings into US Dollars, $1 027m (2009 $1 084m) of Euro borrowings into Pounds Sterling, $1 104m (2009 $71m) of Euro borrowings into US Dollars, $156m (2009 $11m) of US Dollar borrowings into Brazilian Reais and $50m (2009 $48m) 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:

2010 2009 Expiring: $m $m Within one year – 374 Between one and two years 1 200 1 090 Between two and three years 2 320 1 040 After five years 190 286 3 710 2 790

BG Energy Holdings Limited 2010 40

Notes to the accounts continued

20 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 composition of floating and fixed rate debt. The Group enters into currency derivatives to hedge certain foreign currency cash flows and to adjust the currency composition of its assets and liabilities. Certain agreements are combined foreign currency and interest swap transactions, described as cross-currency interest rate swaps. The Group’s policy is to enter into interest or exchange rate derivatives only where these are matched by an underlying asset, liability or transaction.

Further information on treasury risks can be found on pages 10 to 11.

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 long-term gas sales contracts in the UK fall within the scope of IAS 39. These contracts include pricing terms which 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.

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 can be found on pages 10 to 11.

AMOUNTS RECOGNISED IN RESPECT OF FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE as at 31 December 2010 31 December 2009 1 January 2009 Assets Liabilities Assets Liabilities Assets Liabilities Included on the balance sheet: $m $m $m $m $m $m Interest rate derivatives 146 (79) 147 (23) 27 – Currency exchange rate derivatives 363 (221) 653 (512) 1 421 (1 070) Cross-currency interest rate derivatives 24 (169) 42 (19) 10 (139) Long-term UK gas contracts – (432) – (305) – (348) Other commodity derivatives 300 (1 426) 1 401 (1 380) 2 098 (1 291) 833 (2 327) 2 243 (2 239) 3 556 (2 848)

As at 31 December 2010, the Group also held non-derivative available-for-sale financial assets of $25m (2009 $16m) which are recognised in the balance sheet at fair value.

As at 31 December 2010, the Group had deposited cash of $437m (2009 $245m) and received cash of $3m (2009 $92m) in respect of collateral and margin payments associated with the use of commodity derivatives.

BG Energy Holdings Limited 2010 41

20 FINANCIAL INSTRUMENTS continued Derivative financial instruments classified as held-for-trading are presented within current assets and current liabilities. All other derivative financial instruments are classified as current or non-current according to the remaining maturity of the derivative.

2010 2009 Assets Liabilities Assets Liabilities Expiring: $m $m $m $m Within one year 550 (1 426) 1 635 (1 390) Between one and five years 138 (721) 500 (781) After five years 145 (180) 108 (68) 833 (2 327) 2 243 (2 239)

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

2010 2009 Between Between Within one and After five Within one and After five one year five years years Total one year five years years Total Expiring: $m $m $m $m $m $m $m $m Interest rate derivatives 7 1 789 3 199 4 995 8 1 505 1 526 3 039 Currency exchange rate derivatives 4 367 1 881 – 6 248 6 031 3 356 – 9 387 Cross-currency interest rate derivatives 40 1 655 2 610 4 305 10 1 518 358 1 886 Other commodity derivatives 37 589 14 518 718 52 825 39 104 16 128 1 003 56 235

The notional principal amounts of long-term UK gas contracts are $384m (2009 $460m). The amounts in respect of other commodity derivatives represent the gross combination of notional principals relating to all purchase and sale contracts and accordingly do not show the extent to which these contracts may offset. These notional principal amounts give an indication of the scale of derivatives held, but do not reflect the risk that the Group is exposed to from their use.

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 7 ‘Financial Instruments: Disclosures’.

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 long-term UK gas contracts are categorised as Level 3 in the fair value hierarchy. One of the assumptions used for their valuation is that the gas market in the UK is liquid for four years (2009 two years). As at 31 December 2010, the average four-year forward price for UK gas was 61p per therm (2009 average two-year forward price of 42p per therm). Beyond this period a seasonally adjusted UK gas price of 45p per therm (2009 45p per therm) has been used, along with an electricity price of £45 per megawatt hour (2009 £45 per megawatt hour), subject to annual inflation of 2.0%. The fair values of the long-term commodity contracts are then calculated using the market yield curve at the balance sheet date. Using these assumptions, the change in fair value of long-term UK gas contracts charged to the income statement in the year was $132m (2009 $73m credit).

BG Energy Holdings Limited 2010 42

Notes to the accounts continued

20 FINANCIAL INSTRUMENTS continued As at 31 December 2010, the potential change in the fair value of long-term UK commodity contracts, assuming changes in the price assumptions of gas (15 pence per therm), Brent ($10 per bbl) and electricity (£15 per megawatt hour), was $4m (2009 $116m).

Financial assets Financial liabilities as at 31 December 2010 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 – 146 – 146 – (79) – (79) Currency exchange rate derivatives – 363 – 363 – (221) – (221) Cross-currency interest rate derivatives – 24 – 24 – (169) – (169) Long-term UK gas contracts – – – – – (406) (26) (432) Other commodity derivatives 42 250 8 300 (314) (1 100) (12) (1 426) 42 783 8 833 (314) (1 975) (38) (2 327)

Financial assets Financial liabilities as at 31 December 2009 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 – 147 – 147 – (23) – (23) Currency exchange rate derivatives – 653 – 653 – (512) – (512) Cross-currency interest rate derivatives – 42 – 42 – (19) – (19) Long-term UK gas contracts – – – – – – (305) (305) Other commodity derivatives 8 1 375 18 1 401 (43) (1 321) (16) (1 380) 8 2 217 18 2 243 (43) (1 875) (321) (2 239)

As at 31 December 2010, the Group also held available-for-sale financial assets of $25m (2009 $16m), 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, is shown below.

Long-term UK gas contracts Other commodity derivatives Total 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m Fair value as at 1 January (305) (348) 2 46 (303) (302) Total gains or losses recognised in profit or loss (170) (13) 6 (18) (164) (31) Reclassification to Level 2 406 – (4) (5) 402 (5) Settlements 38 86 (8) (21) 30 65 Currency translation adjustments 5 (30) – – 5 (30) Fair value as at 31 December (26) (305) (4) 2 (30) (303)

Reclassifications to Level 2 during 2010 and 2009 are attributable to changes in the observability of market data. One of the assumptions underlying the valuation of long-term UK gas contracts is the liquidity in the UK gas market. Following a period of increased activity, the assumed period of liquidity in the UK gas market as at 31 December 2010 was increased from two years to four years, resulting in a transfer of $406m of financial liabilities from Level 3 to Level 2 in the fair value hierarchy.

Total gains and losses recognised in profit or loss are presented in other operating income. All of the gains or losses for the period are related to financial assets and liabilities held at 31 December 2010. All of the gains and losses for the period ended 31 December 2009 related to financial assets and liabilities held at 31 December 2009. A reasonably foreseeable change in the valuation assumptions underlying other commodity derivatives above would not significantly change their fair value measurement.

BG Energy Holdings Limited 2010 43

20 FINANCIAL INSTRUMENTS continued FAIR VALUE ADJUSTMENTS ON FINANCIAL INSTRUMENTS

2010 2009 Included in the income statement(a): $m $m Interest rate and exchange rate derivatives not in a designated hedge relationship (27) 111 Interest rate derivatives designated as fair value hedges (10) (15) Cross-currency interest rate derivatives designated as fair value hedges (30) 29 Commodity derivatives designated as fair value hedges 16 44 Ineffectiveness on cash flow hedges (24) - Ineffectiveness on net investment hedges (4) (3) Long-term UK gas contracts (see note 2, page 19) (132) 73 Other commodity derivatives not in a designated hedge relationship (508) (10) (719) 229

(a) Includes $70m charge (2009 $53m credit) recognised as Other operating income within Business Performance.

Fair value gains of $6m (2009 $6m) on available-for-sale financial assets are included within other comprehensive income. For further information see note 14, page 36.

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. Further information can be found on pages 10 to 11.

Fair value hedges As at 31 December 2010, the Group held a number of interest rate swaps and cross-currency interest rate swaps designated as hedges of the fair value risk associated with the Group’s fixed rate debt. The Group also held a number of commodity derivatives designated as hedges of the fair value risk associated with fixed price firm sales commitments. 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 2010 is $(27)m (2009 $5m). During 2010, adjustments of $20m (2009 $(57)m) have been made to hedged items in respect of the risks being hedged.

Cash flow hedges The Group has forward commodity contracts, currency exchange rate derivatives and interest rate derivatives designated as hedges of highly probable forecast purchases and sales, and of interest flows on floating rate debt. As at 31 December 2010, an unrealised pre-tax loss of $564m (2009 $179m) was deferred in other comprehensive income in respect of effective cash flow hedges. The hedged transactions are expected to occur within 27 years (2009 28 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 2010, deferred pre-tax losses of $507m (2009 $284m) 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 2010 is $(798)m (2009 $(357)m); these amounts exclude dedesignated cash flow hedges. During 2010, certain forecast commodity sales for which cash flow hedge accounting was used were no longer expected to occur. This resulted in the transfer of an unrealised pre-tax gain of $42m (2009 $71m) from other comprehensive income to the income statement.

Page 12 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 or non-current assets to match against the underlying transaction.

Hedges of net investments in foreign operations As at 31 December 2010, 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 and 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 2010 is $138m (2009 $158m). The fair value of financial instruments designated as hedges of net investments in foreign operations outstanding as at 31 December 2010 is $1 924m (2009 $730m).

BG Energy Holdings Limited 2010 44

Notes to the accounts continued

20 FINANCIAL INSTRUMENTS continued FINANCIAL ASSETS (EXCLUDING SHORT-TERM RECEIVABLES) The Group’s financial assets consist of cash and cash equivalents of $2 532m (2009 $1 118m), loans made to joint ventures and associates of $1 294m (2009 $1 502m), finance lease receivable of $134m (2009 $nil), available-for-sale assets of $25m (2009 $16m), other long-term investments of $8m (2009 $8m) and receivables due after more than one year of $74m (2009 $78m).

The currency and interest rate profile of financial assets is as follows:

2010 2009 Fixed rate Floating rate Fixed rate Floating rate financial financial Non-interest financial financial Non-interest assets assets bearing assets Total assets assets bearing assets Total $m $m $m $m $m $m $m $m Currency: Pound Sterling 11 12 376 399 124 20 392 536 US Dollar 186 2 770 39 2 995 65 1 670 45 1 780 Other – 620 53 673 – 370 36 406 197 3 402 468 4 067 189 2 060 473 2 722

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 2010, floating rate loans to joint ventures and associates had an effective interest rate of between 0.97% and 3.29% (2009 between 1.56% and 3.28%) and are expected to expire between 2013 and 2020 (2009 between 2011 and 2023).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 2010, fixed rate assets include a finance lease receivable of $134m (2009 $nil) which expires in 2016 and has an effective interest rate of 14.5% and other fixed rate receivables of $63m (2009 $189m) which are expected to expire between 2011 and 2019 (2009 between 2011 and 2015) and have effective interest rates of between 6% and 6.92% (2009 6% and 9.95%). The finance lease receivable is associated with an onshore Liquefied Petroleum Gas (LPG) plant in Tunisia.

Finance lease receivable Net investment Minimum lease payments in finance leases 2010 2009 2010 2009 Amounts receivable: $m $m $m $m Within one year 32 – 3 – Between one and five years 135 – 24 – After five years 122 – 107 – Less: future finance charges (155) – – – 134 – 134 –

FAIR VALUES OF OTHER FINANCIAL INSTRUMENTS The following financial instruments are measured at historic or amortised cost.

2010 2009 Book value Fair value Book value Fair value $m $m $m $m Financial instruments held or issued to finance the Group’s operations: Short-term borrowings (1 258) (1 258) (1 158) (1 158) Long-term borrowings (8 446) (8 691) (5 024) (5 145) Cash and cash equivalents 2 532 2 532 1 118 1 118 Short-term receivables 2 515 2 515 2 206 2 206 Short-term payables (1 435) (1 435) (1 117) (1 117) Amounts owed to parent undertaking (3 883) (3 883) (4 612) (4 612) Amounts owed by parent undertaking 66 66 78 78 Other financial liabilities (61) (61) (52) (52) Other financial assets 1 535 1 638 1 604 1 625

The fair value of cash and cash equivalents (current asset investments and cash at bank and in hand), short-term receivables, short-term payables and amounts owed to parent undertaking approximates book value due to the short maturity of these instruments. The fair values of the fixed rate borrowings and joint venture and associate loans 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. The fair values of floating rate borrowings and joint venture and associate loans approximate book value as interest rates on these instruments reset on a frequent basis. Fair values have not been obtained for the non- interest bearing loans to joint ventures and associates as repayment of these loans is linked to the performance of the individual joint venture or associate and other considerations and it is therefore not practicable to assign fair values.

BG Energy Holdings Limited 2010 45

20 FINANCIAL INSTRUMENTS continued 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. A description of these principal risks is outlined on pages 10 to 11. Additional quantitative information and market sensitivities in relation to certain principal market risks are included in the section below.

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, highly liquid investments that are readily convertible into known amounts of cash. These measures keep liquidity risk low. The Group proposes to meet its financial commitments from both the operating cash flows of the business and from use of the money and capital markets, including existing committed lines of credit. The undiscounted contractual cash flows receivable/(payable) under financial instruments as at the balance sheet date are as follows: as at 31 December 2010 Within one Between one Between two After year and two years and five years five years Total $m $m $m $m $m Non-derivative financial liabilities Borrowings (1 627) (1 013) (2 815) (8 392) (13 847) Short-term payables and amounts owed to parent undertaking (5 318) – – – (5 318) Other financial liabilities – – – (61) (61) (6 945) (1 013) (2 815) (8 453) (19 226) Outflows from derivative financial instruments Currency exchange and cross-currency interest rate derivatives (4 474) (993) (1 451) (2 249) (9 167) Gross settled commodity derivatives (1 349) (334) (231) (8) (1 922) Net settled commodity derivatives (510) (276) (7) – (793) (6 333) (1 603) (1 689) (2 257) (11 882)

Non-derivative financial assets and inflows from derivative financial instruments 12 713 2 748 3 510 3 808 22 779

Total as at 31 December 2010 (565) 132 (994) (6 902) (8 329)

as at 31 December 2009 Within one Between one Between two After year and two years and five years five years Total $m $m $m $m $m Non-derivative financial liabilities Borrowings (1 326) (425) (2 568) (4 084) (8 403) Short-term payables and amounts owed to parent undertaking (5 728) – – – (5 728) Other financial liabilities – – – (52) (52) (7 054) (425) (2 568) (4 136) (14 183) Outflows from derivative financial liabilities Currency exchange and cross-currency interest rate derivatives (6 183) (2 614) (2 480) (888) (12 165) Gross settled commodity derivatives (2 041) (517) (142) – (2 700) Net settled commodity derivatives (514) (199) (147) – (860) (8 738) (3 330) (2 769) (888) (15 725)

Non-derivative financial assets and inflows from derivative financial instruments 14 088 4 693 4 475 3 338 26 594

Total as at 31 December 2009 (1 704) 938 (862) (1 686) (3 314)

BG Energy Holdings Limited 2010 46

Notes to the accounts continued

20 FINANCIAL INSTRUMENTS continued FINANCIAL RISK FACTORS continued Credit risk Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, 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 on credit ratings and other assessment factors. If a commercial counterparty is independently credit rated, the rating is used to determine credit quality and limits. If there is no independent credit rating, credit quality is assessed in accordance with credit policies which take account of the counterparty’s financial position and other factors. Exposures are monitored by the relevant Group businesses and at a consolidated Group level.

As at 31 December 2010, the Group’s maximum credit risk exposure (after the impact of any netting arrangements) under interest rate related derivatives was $104m (2009 $115m), currency derivatives $123m (2009 $258m) and commodity related derivatives $292m (2009 $639m). The Group’s credit risk exposure under short-term receivables and other financial assets is represented by the book values. The Group has no significant concentration of credit risk, with exposures spread over a large number of counterparties and customers.

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 Pounds 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.

Disposals, re-measurements Market movement Business Performance and impairments Other comprehensive income 2010 2009 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m UK interest rates + 150 basis points + 150 basis points (63) (60) 22 18 (18) – US interest rates + 100 basis points + 100 basis points (9) (3) (21) (16) 73 53 US$/UK£ exchange rates + 20 cents + 20 cents – (36) (173) (155) 209 24 UK gas prices + 15 pence/therm + 15 pence/therm – (5) (508) (350) – – US gas prices + 1 $/mmbtu + 1 $/mmbtu (5) (11) (8) 131 171 34 JCC/Brent prices + 10 $/bbl + 10 $/bbl – – – – (284) (326)

The above sensitivity analysis is based on the Group’s financial assets, liabilities and hedge designations as at the balance sheet date and indicate 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:

(a) 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;

(b) fair value changes coming from derivative instruments designated as cash flow or net investment hedges are considered fully effective and are recorded in other comprehensive income;

(c) fair value changes coming from derivative instruments designated as fair value hedges are considered fully effective and entirely offset by adjustments to the underlying hedged item;

(d) fair value changes coming from derivatives not in a hedge relationship are recorded in the income statement; and

(e) fair value changes coming from certain long-term UK gas contracts arise entirely from sensitivity to the four-year (2009 two year) forward price for UK gas. The long-term gas price assumptions used in the valuation of such contracts are unaffected by reasonably foreseeable movements in UK gas prices.

BG Energy Holdings Limited 2010 47

21 TRADE AND OTHER PAYABLES as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Amounts falling due within one year Trade payables 809 790 832 Amounts owed to parent undertaking 3 883 4 612 1 731 Amounts owed to joint ventures and associates (see note 26, page 51) 169 21 55 Other payables(a) 457 306 276 Accruals and deferred income 2 939 3 047 4040 8 257 8 776 6 934 Amounts falling due after more than one year Other payables 61 52 42 Accruals and deferred income 11 11 13 72 63 55

Total payables 8 329 8 839 6 989

(a) As at 31 December 2010, includes $38m (2009 $44m) relating to cash-settled share-based payment transactions, of which $15m (2009 $21m) relates to awards that have already vested, and $157m (2009 $124m) relating to amounts provided in 2010 for payments to eligible employees under bonus schemes, including the BG Group Annual Incentive Scheme (AIS).

22 PROVISIONS FOR OTHER LIABILITIES AND CHARGES

Decommissioning Other Total 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m As at 1 January 1 154 981 383 352 1 537 1 333 Charge for the year – – 49 26 49 26 Unwinding of discount 49 40 9 11 58 51 Additions 135 107 39 – 174 107 Change in discount rate 115 – – – 115 – Disposals (12) – (15) – (27) – Foreign exchange and other adjustments – 37 (5) 46 (5) 83 Amounts used (13) (9) (48) (37) (61) (46) Unused provisions credited to the income statement (4) (2) (24) (15) (28) (17) As at 31 December 1 424 1 154 388 383 1 812 1 537

Provisions falling due within one year amount to $117m (2009 $86m).

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 current circumstances indicate the Group will ultimately bear this cost. The payment dates of total expected future decommissioning costs are uncertain, but are currently anticipated to be between 2011 and 2043.

OTHER A provision for onerous contracts was recognised in 2007 in respect of capacity contracts in the Interconnector pipeline, retained following disposal of the Group’s 25% equity interest in Interconnector (UK) Limited. The obligation associated with these contracts extends to 2018.

The balance as at 31 December 2010 includes provisions for onerous contracts of $191m (2009 $218m), field-related payments of $48m (2009 $6m), insurance costs of $40m (2009 $36m) and costs associated with acquisitions and disposals of $27m (2009 $24m). The payment dates are uncertain, but are expected to be between 2011 and 2018.

BG Energy Holdings Limited 2010 48

Notes to the accounts continued

23 DEFERRED TAX Deferred taxes are calculated in full on temporary differences under the liability method using currently enacted or substantively enacted tax rates. The net movement in deferred tax assets and liabilities is shown below:

2010 2009 $m $m As at 1 January 2 906 2 852 Disposals (20) – (Credit)/charge for the year (48) 178 Credit on fair value movements on hedges taken to other comprehensive income (206) (252) Charge/(credit) to equity in respect of share-based payments 6 (1) Currency translation adjustments and other movements (10) 129 As at 31 December 2 628 2 906

An analysis of the movements in deferred tax assets and liabilities is shown below. Deferred tax assets and liabilities are only offset if they relate to income taxes levied by the same taxation authority and the entity has a legally enforceable right to set off current tax assets against current tax liabilities.

Accelerated Deferred Retirement Other capital petroleum benefit Unused tax Unremitted temporary allowances revenue tax Provisions obligations losses earnings differences Total $m $m $m $m $m $m $m $m Deferred tax assets As at 1 January 2009 (12) – (4) (58) – – (29) (103) Charge/(credit) for the year (120) – 5 5 – – 5 (105) Credit to equity – – – – – – (1) (1) Currency translation adjustments and other movements 21 – 14 (6) – – (39) (10) As at 31 December 2009 (111) – 15 (59) – – (64) (219) Charge/(credit) for the year 451 – (51) 8 (580) – 30 (142) Credit to equity – – – – – – (200) (200) Currency translation adjustments and other movements 21 – – 1 – – 33 55 As at 31 December 2010 361 – (36) (50) (580) – (201) (506) Deferred tax liabilities As at 1 January 2009 3 051 118 (262) (17) (144) 10 199 2 955 Charge/(credit) for the year 1 478 3 (56) (2) (1 289) (11) 160 283 Credit to equity – – – – – – (252) (252) Currency translation adjustments and other movements 227 15 (59) (5) (93) 1 53 139 As at 31 December 2009 4 756 136 (377) (24) (1 526) – 160 3 125 Disposals (20) – 5 – – – (5) (20) Charge/(credit) for the year 728 14 (75) (2) (363) – (208) 94 Currency translation adjustments and other movements (58) (4) 10 (1) 1 – (13) (65) As at 31 December 2010 5 406 146 (437) (27) (1 888) – (66) 3 134 Net deferred tax liability as at 31 December 2010 5 767 146 (473) (77) (2 468) – (267) 2 628 Net deferred tax liability as at 31 December 2009 4 645 136 (362) (83) (1 526) – 96 2 906

The amount of the deferred tax asset of $506m (2009 $219m) expected to be recovered after more than 12 months is $346m (2009 $195m).

The deferred tax liability of $3 134m (2009 $3 125m) is shown after the offset of certain deferred tax assets relating to the same fiscal authority; the liability prior to such offset is $6 014m (2009 $5 282m). The net amount expected to be settled after more than 12 months is $3 153m (2009 $3 168m).

The aggregate amount of temporary differences associated with undistributed earnings of subsidiaries, joint ventures and associates for which deferred tax liabilities have not been recognised is approximately $4.4bn (2009 $5.0bn). 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.

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. The Group has unrecognised deductible temporary differences of $714m (2009 $1 130m) and unrecognised tax losses of $1 547m (2009 $1 649m) to carry forward against future taxable income. To the extent unutilised, $94m of these losses will expire by 2015. In addition, the Group has unrecognised capital losses of $327m (2009 $326m); these tax losses can only be offset against specific types of future capital gains. The Group also has unrecognised overseas tax credits of $428m (2009 $688m).

BG Energy Holdings Limited 2010 49

24 CALLED UP SHARE CAPITAL

Number of shares as at 31 Dec 31 Dec 1 Jan 31 Dec 31 Dec 1 Jan 2010 2009 2009 2010 2009 2009 m m m $m $m $m Equity: Ordinary shares of £1 each 2 898 2 898 2 898 4 614 4 614 4 614

25 COMMITMENTS AND CONTINGENCIES A) CAPITAL EXPENDITURE As at 31 December 2010, the Group had contractual commitments for future capital expenditure amounting to $13 021m (2009 $5 958m). As at 31 December 2010, the Group’s joint ventures and associates had placed contracts for capital expenditure, the Group’s share of which amounted to $890m (2009 $92m).

Included in the amount for contractual commitments for future capital expenditure is $2 267m (2009 $2 571m) relating to commitments under operating leases split between amounts due within one year $928m (2009 $1 337m), amounts due between one and five years $1 299m (2009 $1 140m), and amounts due after five years $40m (2009 $94m).

As at 31 December 2010, the Group had entered into commitments under finance leases commencing after that date of $nil (2009 $996m).

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 AND DEVELOPMENT COSTS As at 31 December 2010, certain petroleum licences and contractual agreements in which the Group has an interest, contained outstanding obligations to incur exploration and development expenditure, some of which were firm commitments and others contingent. The uncontracted cost attributable to the Group in respect of these commitments is estimated to be $951m (2009 $1 452m).

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

Land and buildings Vessels and other Total 2010 2009 2010 2009 2010 2009 $m $m $m $m $m $m Amounts due: Within one year 59 51 269 232 328 283 Between one and five years 162 142 761 276 923 418 After five years 220 207 2 374 7 2 594 214 441 400 3 404 515 3 845 915

Certain expenditure under operating leases is recovered from third parties under partnership agreements.

Included within Land and buildings are two operating leases over the Group’s headquarters, which are located at 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT. The leases expire in 2026. The Group also sub-leases a building at the Lake Charles LNG facility to third parties. Total minimum lease rentals receivable by the Group under this lease were $2m as at 31 December 2010 (2009 $nil).

Included within Vessels and other are operating leases over LNG ships and oil tankers. The last of these leases expires in 2014 (2009 2014).

The Group sub-leases one of its LNG ships to third parties (2009 one ship). The ship is leased to the Group under a lease included in the table above. Total future minimum lease rentals receivable by the Group under this lease were $1m as at 31 December 2010 (2009 $1m).

Also included within Vessels and other are operating leases over Floating Production Storage and Offloading (FPSO) vessels related to various drilling campaigns. The last of these leases commences in 2013 and expires in 2033.

BG Energy Holdings Limited 2010 50

Notes to the accounts continued

25 COMMITMENTS AND CONTINGENCIES continued E) LEGAL PROCEEDINGS Criminal charges have been brought in Italy against certain former employees and consultants of BG Group in connection with allegations of improper conduct associated with the authorisation process for the planned Brindisi LNG S.p.A. (Brindisi LNG) regasification terminal. BG Italia S.p.A. (BG Italia), a wholly owned subsidiary of BG Group, has also been charged in relation to some of these allegations under Italian Legislative Decree No. 231/2001, an Italian anti-corruption statute which imposes liability on corporate entities under certain circumstances in the event certain criminal acts are committed by management or employees of the company.

Charges have also been brought against certain former directors of Brindisi LNG, a wholly owned subsidiary of BG Italia, who are alleged to have unlawfully permitted the occupation and alteration of public land, namely the port area in Brindisi where the regasification terminal is due to be constructed, as a result of improperly authorised permits. The charges in relation to this offence against some of these former directors were extinguished via an ‘Oblazione’ granted by the court. The decision to grant the ‘Oblazione’ has been challenged by the Public Prosecutor.

The trial in relation to the criminal charges commenced on 4 February 2009. In addition, the Italian authorities may still be carrying out further investigations, the scope of which is unknown.

The Municipality of Brindisi, Province of Brindisi and Region of Puglia and three groups of environmentalists (Italia Nostra, Legambiente and ‘World Wildlife Fund’ WWF Italia) have separately commenced civil claims seeking damages against the accused individuals and against BG Italia. These claims have been brought within the framework of the criminal case.

In October 2007, BG Group received formal notification from the Ministry of Economic Development that the original ‘Article 8’ authorisation for the construction and operation of Brindisi LNG had been suspended pending the submission by BG Group of a full Environmental Impact Assessment (EIA) and confirmation from the Italian authorities as to the validity of the ‘Article 8’ authorisation. On 15 January 2008, BG Group commenced the EIA approval process by submitting an EIA. The EIA was re-published on 7 August 2009. On 1 July 2010, a positive EIA Decree was issued, subject to certain conditions. Several parties have challenged the EIA approval, including Brindisi LNG which is seeking to clarify the accompanying conditions.

There are various other ongoing legal proceedings relating to the Brindisi LNG regasification terminal, for example relating to consents necessary for the construction work and environmental procedures. The impact of these legal proceedings cannot yet be quantified but could delay or deny BG Group access to the Brindisi LNG terminal site.

BG Karachaganak Ltd, as one of the Karachaganak Contracting Companies (KCC), has made claims against the Republic of Kazakhstan (ROK). An arbitration process has been commenced by the KCC and Karachaganak Petroleum Operating B.V. (KPO). The arbitration relates to certain taxes, fines and penalties paid by KPO and the KCC. The ROK has also commenced arbitration in relation to certain unresolved items of expenditure incurred by the KCC which has led to the ROK making certain claims against the KCC. Both arbitrations are currently suspended while the KCC and the ROK are seeking a negotiated solution.

It is not practicable at this time to estimate: the financial effects; indicate the uncertainties relating to either the amounts or timing of any economic inflows or outflows; or the possibility of any reimbursements, in relation to the legal proceedings detailed above.

In addition, various Group undertakings 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 these matters cannot readily be forseen, it is currently considered that they will be resolved without material effect on the net asset position, as shown in these Financial statements.

F) OTHER CONTINGENT LIABILITIES The amount of other contingent liabilities as at 31 December 2010 (mainly the provision of guarantees, indemnities or warranties to third parties and various legal or arbitration proceedings in connection with the operations of various Group undertakings) amounted to $2 129m (2009 $1 354m). BG Group’s share of other contingencies in respect of its joint ventures and associates amounted to $nil (2009 $15m).

BG Energy Holdings Limited 2010 51

26 RELATED PARTY TRANSACTIONS In the normal course of business the Group provides goods and services to, and receives goods and services from, its joint ventures and associates. In the year ended 31 December 2010, the Group received and incurred the following income and charges from these joint ventures and associates:

2010 2009 Income Charges Income Charges $m $m $m $m LNG cargo purchases and sales 118 (834) 126 (809) Shipping and other transportation costs 23 (9) 70 (20) 141 (843) 196 (829)

As at 31 December 2010, a debtor balance of $37m (2009 $36m) (see note 16, page 37) and a creditor balance of $169m (2009 $21m) (see note 21, page 47) were outstanding with these parties.

In addition, the Group provides financing to some of these parties by way of loans. As at 31 December 2010, loans of $1 294m (2009 $1 502m) were due from joint ventures and associates. These loans are accounted for as part of the Group’s investment in joint ventures and associates and disclosed in note 14, page 36. Interest of $24m (2009 $34m) was charged on these loans during the year at interest rates of between 0.95% and 9.95% (2009 0% and 9.95%). The maximum debt outstanding during the year was $1 461m (2009 $1 502m).

A joint venture company provided the Group with a financing arrangement during the year. As at 31 December 2010, a loan of $97m was due to the joint venture (2009 $99m). The borrowing is classified as a liability held for sale (see note 18, page 38). Interest on the loan of $6m (2009 $6m) was payable during the year at an interest rate of 5.8% (2009 5.8%).

The Group has a finance lease arrangement with a joint venture company. As at 31 December 2010, the obligation was $149m (2009 $153m) (see note 19, page 38). Interest of $9m (2009 $9m) was paid during the year in respect of this lease. The lease expires in 2027.

William Backhouse, the son of Peter Backhouse, a non-executive Director, is employed by BG International Limited, a wholly owned subsidiary of the Group. 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 2010, a debtor balance of $66m (2009 $78m) and a creditor balance of $3 883m (2009 $4 612m) were outstanding between the Group and it’s ultimate parent, BG Group plc. In 2010, the Group received dividends of $1 619m (2009 $3 526m) from BG International Limited and BG Gas Marketing Limited, its subsidiary undertakings.

BG Energy Holdings Limited 2010 52

Notes to the accounts continued

27 PENSIONS AND POST-RETIREMENT BENEFITS The majority of the Group’s UK employees participate in 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 balance sheet date. It is subject to an independent valuation at least every three years, on the basis of which the independent qualified actuary certifies the rate of employers’ contributions that, together with the specified contributions payable by the employees and proceeds from the BGPS’s assets, are expected to be sufficient to fund the benefits payable.

For the year ended 31 December 2010, the employers’ contribution rate in respect of most BGPS members was effectively 35.2% of pensionable pay (excluding plan expenses). In addition, 3% of pensionable pay was contributed by most members either directly or by their employer via a salary sacrifice arrangement.

A full independent actuarial valuation of the BGPS for funding purposes was completed as at 31 March 2008. This showed that the aggregate market value of the plan assets at 31 March 2008 was £577m, representing some 83% of the accrued liabilities. The Group made payments of £27m in 2009 and 2010 and intends to make four further payments of £27m in the years to 2014 in order to reduce the plan’s deficit. Aggregate Company contributions for the year ending 31 December 2011 are expected to be $69m.

The BG Supplementary Benefits Scheme (BGSBS) provides benefits in excess of the ‘lifetime allowance’. This defined benefit plan is an unfunded, unregistered arrangement. There is also an unfunded post-retirement employee benefit plan for healthcare in respect of employees of Comgás.

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 (BGRBP). Life assurance and income protection benefits are also provided under separate plans; these benefits are fully insured. Members may choose the rate at which they contribute to the BGRBP, either directly or via salary sacrifice, and the additional employer’s contribution is determined by the rate that the member selects. A wide range of funds is available from which members may choose how the contributions will be invested. The cost of the BGRBP has been included in the amounts recognised in the consolidated income statement.

The Group also has a number of smaller defined contribution and defined benefit plans which are not material in Group terms.

Valuations of plan assets and expected liabilities as at 31 December 2010 were carried out by independent actuaries in accordance with the requirements of IAS 19. In calculating the charge to the income statement including any recognised actuarial gains and losses, a 10% corridor was applied. This means that a portion of actuarial gains and losses is recognised as income or expense only if it exceeds the greater of: a) 10% of the present value of the defined benefit obligation at that date (before deducting plan assets); and b) 10% of the fair value of any plan assets at that date.

These limits are calculated and applied separately for each defined benefit plan at each balance sheet date and the portion of actuarial gains and losses to be recognised in future years for each plan is the excess of actuarial gains and losses over and above the 10% limits divided by the expected average remaining working lives of the employees participating in that plan.

The fair value of plan assets, the present value of plan liabilities and the net balance sheet liability were as follows: as at 31 Dec 31 Dec 1 Jan 2010 2009 2009 $m $m $m Fair value of plan assets 1 290 1 073 728 Present value of plan liabilities (1 635) (1 665) (1 055) Deficit in plans (345) (592) (327) Unrecognised net loss 85 313 71 Net balance sheet liability (260) (279) (256)

BG Energy Holdings Limited 2010 53

27 PENSIONS AND POST-RETIREMENT BENEFITS continued PLAN ASSETS Movements in the fair value of plan assets during the period were as follows:

2010 2009 $m $m Reconciliation of the fair value of plan assets Fair value of plan assets as at 1 January 1 073 728 Movement in year: Expected return on plan assets 85 57 Actuarial gains 35 104 Company contributions (including curtailment costs) 112 105 Employee contributions 2 3 Transfers in 43 – Benefit payments (25) (23) Settlements (4) – Foreign exchange movements (31) 99 Fair value of plan assets as at 31 December 1 290 1 073

As at 31 December 2010, the fair value of plan assets and expected rates of return were as follows:

2010 2009 Expected rate Percentage of Expected rate Percentage of of return(a) plan assets Value of return(a) plan assets Value % % $m % % $m Equities 7.7 76 980 8.1 74 796 Absolute return strategies 7.7 9 113 8.1 10 107 Index-linked gilts 4.0 4 55 4.6 5 53 Corporate bonds 5.5 10 124 5.7 10 111 Property 7.2 1 15 – – – Money market funds and cash 4.0 – 3 4.6 1 6 Fair value of plan assets 1 290 1 073

(a) Long-term expected rate of return.

The expected rate of return on plan assets has been determined following advice from the funded plans’ independent actuary and is based on the expected return on each asset class together with consideration of the long-term asset strategy. A real return (relative to price inflation) of 4.1% (a premium of 3.6% over the yield on index-linked gilts) is expected on equities and absolute return strategies. The overall expected rate of return as at 31 December 2010 was 7.3%.

The actual return on plan assets was $120m (2009 $161m).

BG Energy Holdings Limited 2010 54

Notes to the accounts continued

27 PENSIONS AND POST-RETIREMENT BENEFITS continued DEFINED BENEFIT OBLIGATION Movements in the present value of defined benefit obligations during the period were as follows:

2010 2009 $m $m Reconciliation of the present value of the Defined Benefit Obligation (DBO) Present value of DBO as at 1 January 1 665 1 055 Movement in year: Current service cost 88 64 Interest cost 96 76 Employee contributions 2 3 Actuarial (gains)/losses (168) 324 Benefit payments (25) (23) Transfers in 43 – Curtailments (18) 5 Settlements (4) – Foreign exchange movements (44) 161 Present value of DBO as at 31 December 1 635 1 665

As at 31 December 2010, $1 466m of the DBO relates to funded defined benefit plans (2009 $1 516m) and $169m relates to wholly unfunded defined benefit plans (2009 $149m).

The valuations as at 31 December were based on the following assumptions:

2010 2009 Comgás Comgás BGPS and healthcare BGPS and healthcare BGSBS plan BGSBS plan % % % % Rate of price inflation and benefit increases(a) 3.5 4.5 3.9 4.5 Future increases in earnings 5.0 n/a 5.9 n/a Discount rate 5.5 10.8 5.7 11.2 Healthcare cost trend rate n/a 10.0 n/a 10.0

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

If the discount rate used for the valuation of the BGPS and BGSBS was reduced by 0.1% to 5.4%, the defined benefit obligation would increase by $33m and the service cost for 2011 would increase by $2m.

In determining the defined benefit obligation as at 31 December 2010 for the BGPS and BGSBS, mortality assumptions are based on the ‘00’ mortality series issued by the Institute and Faculty of Actuaries, appropriate to each member’s year of birth, with an allowance for projected longevity improvements in line with the CMI Bureau’s medium cohort tables, subject to a minimum rate of improvement on the projected mortality rates of 1% per annum. Based on these assumptions, the life expectancies of pensioners on the measurement date and also of pensioners in ten years time are as follows:

Life expectancy of pensioners (years) 31 Dec 2010 31 Dec 2020 Male age 60 27.6 28.7 Male age 65 22.7 23.7 Female age 60 30.2 31.1 Female age 65 25.1 26.1

If the life expectancy of a member currently age 60 was increased by one year, with consistent changes for members at other ages, the defined benefit obligation in respect of the BGPS and BGSBS would increase by $33m and the service cost for 2011 would increase by $2m.

The defined benefit obligation for the Comgás post-retirement employee benefit plan for healthcare was $109m (2009 $87m). The effect of a one percentage point increase or decrease in the assumed healthcare cost trend rates (with all other assumptions remaining constant) on the aggregate service and interest costs for the Comgás plan would be an increase or decrease of $1m (2009 $1m) and on the defined benefit obligation would be an increase of $13m or a decrease of $11m (2009 $10m increase or $8m decrease).

BG Energy Holdings Limited 2010 55

27 PENSIONS AND POST-RETIREMENT BENEFITS continued INCOME STATEMENT The following amounts have been recognised in the consolidated income statement in the year to 31 December:

2010 2009 $m $m Amounts recognised in the consolidated income statement Operating costs: Current service cost 88 64 Curtailment losses – 4 Recognised actuarial loss/(gain) 14 (2) Costs in respect of BGRBP defined contribution plan 14 11 Total charge to operating costs 116 77 Net finance costs: Expected return on plan assets (85) (57) Interest on plan liabilities 96 76 Total charge to finance costs 11 19 Curtailment (gains)/losses included in profit/loss from discontinued operations (18) 1 Total included within employee costs 109 97

FIVE YEAR HISTORY The history of experience adjustments is as follows: for the year ended 31 December 2010 2009 2008 2007 2006 $m $m $m $m $m Details of experience gains/(losses) for all plans Present value of defined benefit obligations (1 635) (1 665) (1 055) (1 577) (1 423) Fair value of plan assets 1 290 1 073 728 1 176 943 Deficit in the plans (345) (592) (327) (401) (480) Difference between the expected and actual return on plan assets: Amount ($m) 35 104 (314) 36 35 Percentage of plan assets (%) 2.7 9.7 43.1 3.1 3.7 Experience gains/(losses) on plan liabilities: Amount ($m) 50 2 – (14) 18 Percentage of the present value of plan liabilities (%) 3.1 0.1 – 0.9 1.3 Actuarial gains/(losses) on plan liabilities: Amount ($m) 168 (324) 288 48 (9) Percentage of the present value of plan liabilities (%) 10.3 19.5 27.3 3.0 0.6

BG Energy Holdings Limited 2010 56

Notes to the accounts continued

28 NOTES TO THE CONSOLIDATED CASH FLOW STATEMENT CASH GENERATED BY OPERATIONS for the year ended 31 December 2010 2009 $m $m Profit before taxation(a) 5 977 5 517 Share of post-tax results of joint ventures and associates (313) (314) Depreciation of property, plant and equipment 2 026 1 646 Amortisation of other intangible assets 129 104 Fair value movements in commodity-based contracts 677 (169) Profits and losses on disposal of non-current assets and impairments(b) 137 732 Unsuccessful exploration expenditure written off 382 545 Decrease in provisions for liabilities and retirement benefit obligations (54) (71) Finance income (177) (102) Finance costs 321 329 Share-based payments 50 53 Movements in working capital: Decrease in inventories 25 87 (Increase)/decrease in trade and other receivables (837) 82 Increase/(decrease) in trade and other payables 40 (835) Cash generated by operations 8 383 7 604

(a) Profit before taxation from discontinued operations was $204m (2009 $357m loss). (b) Profits and losses on disposal of non-current assets and impairments include a profit from discontinued operations of $147m (2009 $464m loss).

The cash flows above are inclusive of discontinued operations (see note 8, page 32).

BG Energy Holdings Limited 2010 57

29 PRINCIPAL SUBSIDIARY UNDERTAKINGS, JOINT VENTURES AND ASSOCIATES The principal subsidiary undertakings, joint ventures and associates listed are those that in the opinion of the Directors principally affect the figures shown in the Financial Statements. A full list of subsidiary undertakings, joint ventures and associates has been included in the Annual Return filed with the Registrar of Companies. as at 31 December 2010 Country of incorporation Activity Group holding %(a) BG International (AUS) Limited Partnership Australia Exploration and production 100.0 QGC Pty Limited (QGC) Australia Exploration and production 100.0 BG E&P Brasil Ltda. Brazil Exploration and production 100.0 Companhia de Gás de São Paulo (Comgás) Brazil Gas distribution 72.7 BG Bolivia Corporation Cayman Islands Exploration and production 100.0 BG Egypt S.A. Cayman Islands Exploration and production 100.0 BG Exploration and Production India Limited Cayman Islands Exploration and production 100.0 BG Delta Limited England Exploration and production 100.0 BG Energy capital plc(b) England Financing company 100.0 BG Gas Marketing Limited(b) England LNG marketing 100.0 BG Hasdrubal Limited England Exploration and Production 100.0 Holding company BG International Limited(b) England Exploration and production 100.0 BG International (CNS) Limited England Exploration and production 100.0 BG International (NSW) Limited England Exploration and production 100.0 Holding company BG Karachaganak Limited England Exploration and production 100.0 BG Norge Limited England Exploration & production 100.0 Holding company BG North Sea Holdings Limited(b) England Exploration and production 100.0 BG Overseas Holdings Limited England Holding company 100.0 BG Rosetta Limited(b) England Exploration and production 100.0 BG Trinidad and Tobago Limited England Exploration and production 100.0 BG Trinidad 5(a) Limited England Exploration and production 100.0 BG Tunisia Limited England Exploration and production 100.0 Methane Services Limited(b) England LNG shipping 100.0 Gujarat Gas Company Limited India Gas distribution 65.1 BG Italia Power S.p.A. Italy Power generation 100.0 BG Asia Pacific Pte Limited Singapore Exploration and production 100.0 BG Trinidad Central Block Limited Trinidad and Tobago Exploration and production 100.0 BG Energy Finance, Inc. USA Financing company 100.0 BG Energy Merchants, LLC USA Gas trading 100.0 BG LNG Services, LLC USA LNG regasification 100.0 BG LNG Trading, LLC USA LNG trading 100.0 BG North America, LLC USA Holding company 100.0 BG Production Company (PA), LLC USA Exploration and production 100.0 BG US Production Company, LLC USA Exploration and production 100.0

(a) There is no difference between the Group holding of ordinary shares and the Group’s share of net assets attributable to equity shareholders, except for Comgás where the Group’s share of net assets is 60.1%. (b) Shares are held by the Company; others are held by subsidiary undertakings.

BG Energy Holdings Limited 2010 58

Notes to the accounts continued

29 PRINCIPAL SUBSIDIARY UNDERTAKINGS, JOINT VENTURES AND ASSOCIATES continued The distribution of the profits of Comgás is restricted by Corporation Law in Brazil and the company’s by-laws which require 5% of the profit for the year to be transferred to the Legal Reserve, until it reaches 20% of the subscribed capital. Distribution of the profits of BG Group’s other subsidiary undertakings is not materially restricted.

All principal subsidiary undertakings operate in their country of incorporation with the exception of BG Asia Pacific Pte Limited, which operates across several countries; BG Bolivia Corporation, which operates in Bolivia; BG Norge Limited, which operates in the UK and Norway; BG North Sea Holdings Ltd, which operates in the UK and Algeria; BG LNG Trading, LLC, which operates in the UK and several other countries worldwide; BG Tunisia Limited, which operates in Tunisia; BG Trinidad and Tobago Limited, which operates in Trinidad and Tobago; BG Trinidad 5(a) Limited, which operates in Trinidad and Tobago; BG Rosetta Limited, which operates in Egypt; BG Egypt S.A., which operates in Egypt; BG Delta Limited, which operates in Egypt; BG Hasdrubal Limited, which operates in Tunisia; BG Karachaganak Limited, which operates in Kazakhstan; BG Exploration and Production India Limited, which operates in India; BG Gas Marketing Limited, which operates in the UK and several other countries worldwide; Methane Services Limited, which operates across several countries; and BG International Limited, which operates in the UK and several other countries worldwide.

JOINT VENTURES AND ASSOCIATES as at 31 December 2010 Country of incorporation Activity Issued share capital Group holding and operation % Joint ventures(a) Dragon LNG Group Limited England and Wales LNG regasification 10 000 shares of $0.01 50.0 Mahanagar Gas Limited India Gas distribution 89 341 600 shares of Rupees 10 49.8 First Gas Holdings Corporation Philippines Power generation 126 084 100 shares of Peso 10 40.0 TGGT Holdings, LLC USA Gas distribution $40 000 000(b) 50.0

Associates BBPP Holdings Ltda. Brazil Gas distribution 129 000 000 shares of Real 1 33.3 GNL Quintero S.A. Chile LNG regasification 1 000 shares of $nil(c) 40.0 El Behera Natural Gas Liquefaction Company S.A.E. Egypt LNG manufacture 30 000 shares of $100 35.5 Idku Natural Gas Liquefaction Company S.A.E. Egypt LNG manufacture 30 000 shares of $100 38.0 Genting Sanyen Power Sdn Bhd Malaysia Power generation 20 000 000 shares of Ringgit 1 20.0 Guará B.V. Netherlands(d) Leasing 18 000 shares of €1 30.0 Tupi B.V. Netherlands(d) Leasing 18 000 shares of €1 25.0 Atlantic LNG Company of Trinidad and Tobago Trinidad and Tobago LNG manufacture 243 851 shares of $1 000 26.0 Atlantic LNG 2/3 Company of Trinidad and Tobago Unlimited Trinidad and Tobago LNG manufacture 139 253 shares of $1 000 32.5 Atlantic LNG 4 Company of Trinidad and Tobago Unlimited Trinidad and Tobago LNG manufacture 222 686 shares of $1 000 28.9

(a) Joint ventures are jointly controlled entities where strategic and operating decisions require unanimous consent of the parties sharing control. (b) TGGT Holdings, LLC did not issue share capital, instead it granted membership interests and the amount above is based on the total amount equal to the contributions of EXCO Operating Company, LP and BG US Gathering Company, LLC. (c) Total issued capital is $195 882 353. The shares have no nominal value. (d) Guará B.V. and Tupi B.V. are incorporated in the Netherlands and operate in Brazil.

BG Energy Holdings Limited 2010 59 Independent Auditors’ report to the member of BG Energy Holdings Limited

We have audited the parent Company Financial Statements of MATTERS ON WHICH WE ARE REQUIRED TO REPORT BG Energy Holdings Limited for the year ended 31 December 2010 which BY EXCEPTION comprise the Balance sheet, Principal accounting policies and the We have nothing to report in respect of the following matters where related notes. The financial reporting framework that has been applied the Companies Act 2006 requires us to report to you if, in our opinion: in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). ●● adequate accounting records have not been kept by the parent Company, or returns adequate for our audit have not been received from branches RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS not visited by us; or As explained more fully in the Statement of Directors’ Responsibilities ●● the parent Company Financial Statements are not in agreement with the for preparing the Financial Statements set out on page 4, the Directors accounting records and returns; or are responsible for the preparation of the parent Company Financial Statements and for being satisfied that they give a true and fair view. ●● certain disclosures of Directors’ remuneration specified by law are not Our responsibility is to audit and express an opinion on the parent made; or Company Financial Statements in accordance with applicable law and ●● we have not received all the information and explanations we require for International Standards on Auditing (UK and Ireland). Those standards our audit. require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. OTHER MATTERS We have reported separately on the Group Financial Statements of This report, including the opinions, has been prepared for and only for BG Energy Holdings Limited for the year ended 31 December 2010. the Company’s member as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior Nicholas Blackwood (Senior Statutory Auditor) consent in writing. for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors SCOPE OF THE AUDIT OF THE FINANCIAL STATEMENTS London An audit involves obtaining evidence about the amounts and 30 March 2011 disclosures in the Financial Statements sufficient to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the Financial Statements.

OPINION ON FINANCIAL STATEMENTS In our opinion the parent Company Financial Statements:

●● give a true and fair view of the state of the Company’s affairs as at 31 December 2010;

●● have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

●● have been prepared in accordance with the requirements of the Companies Act 2006.

OPINION ON OTHER MATTERS PRESCRIBED BY THE COMPANIES ACT 2006 In our opinion the information given in the Directors’ Report for the financial year for which the parent Company Financial Statements are prepared is consistent with the parent Company Financial Statements.

BG Energy Holdings Limited 2010 60 Principal accounting policies under UK GAAP

BASIS OF PREPARATION AND ACCOUNTING PRINCIPLES FOREIGN CURRENCIES The preparation of Financial Statements in conformity with generally Transactions in foreign currencies are translated into Pound Sterling accepted accounting principles requires management to make at average rates of exchange. Foreign currency monetary assets and judgements and assumptions that affect the reported amounts of liabilities are translated into Pound Sterling at the rates of exchange assets and liabilities and disclosure of contingencies at the date of the ruling at the balance sheet date. Differences arising from changes in Financial Statements and the reported revenues during the reporting exchange rates are taken to the profit and loss account in the year in period. Actual results could differ from these estimates. which they arise.

These accounts have been prepared in accordance with applicable CASH AND CASH EQUIVALENTS accounting standards in the United Kingdom, using historical cost Cash and cash equivalents comprise cash in hand, deposits with a principles. A summary of the more important accounting policies, maturity of three months or less and other short-term highly liquid which have been applied consistently, is set out below. investments that are readily convertible to known amounts of cash.

EXEMPTIONS PENSIONS The Company is a wholly-owned subsidiary undertaking of BG Group plc The majority of employees of BG Energy Holdings Limited participate and is therefore exempt under Section 400 of the Companies Act 2006 in the BG Group Pension Scheme, which is a defined benefit multi- from the requirement to prepare consolidated accounts under UK GAAP. employer scheme and BG Energy Holdings Limited is unable to identify its share of the underlying assets and liabilities of the scheme in a As permitted by section 408 of the Companies Act 2006, no profit and consistent and reasonable basis. Accordingly, it is treated as a defined loss account is presented for the Company. contribution scheme in the Company’s Financial Statements.

The Company has taken advantage of the exemptions available to FINANCIAL INSTRUMENTS wholly-owned UK subsidiaries under Financial Reporting Standard (FRS) 1 The Company and Group’s Treasury Policy may be found on page 10. (Revised 1996) ‘Cash Flow Statements’, and accordingly has not prepared a cash flow statement; and within FRS 8 ‘Related Party Disclosures’ from Derivative financial instruments utilised by the Company are interest disclosure of transactions with other group companies. rate swaps, currency swaps, cross currency interest rate swaps, forward rate agreements, and forward exchange contracts. The Company only has one class of business and as a result is exempt from the segmental reporting requirements of the Companies Act. A derivative financial instrument is considered to be used for hedging purposes when it alters the risk profile of an existing underlying TANGIBLE FIXED ASSETS exposure of the Company in line with the Group’s risk management All tangible fixed assets are carried at depreciated historical cost. policies. Derivatives used for hedging purposes are accounted for on an Additions represent extensions to, or significant increases in, the accruals basis. During the year, there were no interest rate or exchange capacity of tangible fixed assets. rate derivatives used for trading purposes.

DEPRECIATION Termination payments made or received in respect of derivatives are Tangible fixed assets are depreciated on a straight-line basis at rates expensed to the profit and loss account. Interest differentials on sufficient to write off the historical cost of individual assets over their derivative instruments are recognised by adjusting the net interest estimated useful economic lives. The depreciation periods for the charge. Premiums or discounts on derivative instruments are amortised principal categories of assets are as follows: Motor vehicles and office over the shorter of the life of the instrument or the underlying exposure. equipment up to 10 years. Currency swap agreements and forward exchange contracts are Asset lives are kept under review and complete asset life reviews are retranslated at closing rates. Resulting gains and losses are offset conducted periodically. against the foreign exchange gains or losses on the related borrowings, or, where the instrument is used to hedge a committed future FIXED ASSET INVESTMENTS transaction, are deferred until the transaction occurs. Fixed asset investments, including investments in Joint Ventures and Associates, are stated at cost less provision for impairment.

DEFERRED TAX Provision is made in full, on an undiscounted basis, for the deferred tax arising on the difference between the accounting treatment and tax treatment for depreciation in respect of accelerated capital allowances and other timing differences. Deferred tax assets are recognised to the extent that they are regarded as recoverable.

BG Energy Holdings Limited 2010 61 Balance sheet

as at 31 December 2010 2009 Notes £m £m Fixed assets Tangible assets 2 1 1 Investments in subsidiary undertakings 3 15 948 15 019 Investments in joint ventures 3 295 390 Investments in associated undertakings 3 1 1 Other investments 3 1 1 16 246 15 412 Current assets Debtors: amounts falling due within one year 4 7 885 15 120 Debtors: amounts falling due after more than one year 4 13 283 4 084 21 168 19 204 Investments 5 93 269 Cash at bank and in hand 1 2 21 262 19 475 Creditors: amounts falling due within one year Other creditors 7 (13 960) (24 375) (13 960) (24 375) Net current assets/(liabilities) 7 302 (4 900) Total assets less current liabilities 23 548 10 512 Creditors: amounts falling due after more than one year Other creditors 7 (18 500) (6 903) (18 500) (6 903) Net assets 5 048 3 609 Capital and reserves Called up equity share capital 9, 10 2 898 2 898 Share premium account 10 316 316 Profit and loss account 10 1 834 395 BG Energy Holdings shareholder’s funds 10 5 048 3 609

Commitments and contingencies are shown in note 11, page 64. The accounts on pages 60 to 64 were approved by the Board and signed on its behalf on 30 March 2011 by:

Ashley Almanza Director

The accounting policies on page 60 together with the notes on pages 62 to 64 form part of these accounts.

BG Energy Holdings Limited 2010 62 Notes to the accounts

1 OPERATING COSTS Audit fees for the audit of the Company’s and the Group’s accounts for the year ended 31 December 2010 were £37 000 (2009 £36 000).

2 TANGIBLE FIXED ASSETS

Motor vehicles and office equipment 2010 2009 £m £m Cost: as at 1 January and 31 December 1 1 Depreciation: as at 1 January and 31 December – – Net book value as at 31 December 1 1

3 FIXED ASSET INVESTMENTS Fixed asset investments represent long-term investments.

Joint ventures Associated undertakings Subsidiary Other undertakings Shares Loans Shares Loans investments shares Total £m £m £m £m £m £m £m Carrying value as at 1 January 2010 72 318 1 – 1 15 019 15 411 Investments – 4 – – – 1 060 1 064 Disposals and other adjustments (21) (78) – – – (131) (230) Carrying value as at 31 December 2010 51 244 1 – 1 15 948 16 245

4 DEBTORS

2010 2009 £m £m Amounts falling due within one year Amounts owed by group undertakings 7 849 15 008 Amounts owed by group undertakings in respect of taxation 11 96 Other debtors 25 16 7 885 15 120 Amounts falling due after more than one year Amounts owed by group undertakings 13 243 4 055 Other debtors 39 28 Deferred corporation tax 1 1 13 283 4 084 Total debtors 21 168 19 204

BG Energy Holdings Limited 2010 63

5 CURRENT ASSET INVESTMENTS

2010 2009 £m £m Money market and similar current asset investments 93 269

6 BORROWINGS The Company’s treasury policy and other borrowings information disclosed on page 10 of this report form part of this note.

The Company has undrawn committed borrowing facilities in respect of which all conditions have been met, as follows:

2010 2009 £m £m Expiring: Within one year – 232 Between one and two years 766 – Between two and three years 1 482 1 319 2 248 1 551

7 OTHER CREDITORS

2010 2009 £m £m Amounts falling due within one year Amounts owed to parent undertaking 2 481 2 856 Amounts owed to group undertakings 11 409 21 461 Accruals and deferred income 10 10 Current tax payable 41 45 Other creditors 19 3 13 960 24 375 Amounts falling due after more than one year Amounts owed to group undertakings 18 465 6 894 Other creditors 35 9 18 500 6 903 Total other creditors 32 460 31 278

8 FINANCIAL INSTRUMENTS The fair and book values of derivative financial instruments at the balance sheet date were:

2010 2009 2010 2009 Book Value Book Value Fair Value Fair Value £m £m £m £m Interest rate related derivatives – – 16 7 Currency rate related instruments 3 23 (42) 19 Total 3 23 (26) 26

Further information on financial instruments is contained on page 40 of this report.

9 SHARE CAPITAL

2010 2009 Number Number of shares of shares 2010 2009 m m £m £m Allotted and fully paid up Equity: Ordinary shares of £1 each 2 898 2 898 2 898 2 898

BG Energy Holdings Limited 2010 64

Notes to the accounts continued

10 CAPITAL AND RESERVES

Profit Called up Share and loss share premium account capital account reserve Total £m £m £m £m As at 1 January 2009 2 898 316 341 3 555 Transfer from profit and loss account – – 2 032 2 032 Dividends – – (1 978) (1 978) As at 31 December 2009 2 898 316 395 3 609 Transfer from profit and loss account – – 1 439 1 439 Dividends – – – – As at 31 December 2010 2 898 316 1 834 5 048

The profit for the financial year, dealt with in the accounts of the Company was £1 439m (2009 £2 032m). As permitted by section 408 of the Companies Act 2006, no profit and loss account is presented for the Company.

No final dividend has been proposed by the Directors for 2010 (2009 £nil). No interim dividend was paid in 2010 (2009 £1 978m).

11 COMMITMENTS AND CONTINGENCIES A) CAPITAL EXPENDITURE As at 31 December 2010, the Company had not placed any contracts for capital expenditure (2009 £nil).

B) LEASE COMMITMENTS As at 31 December 2010, the Company had no commitments under operating leases (2009 £nil).

C) LEGAL PROCEEDINGS The Company is a party to legal actions and claims which arise in the ordinary course of business. While the outcome of some of these matters cannot readily be foreseen, it is considered that they will be resolved without material effect on the net asset position as shown in these Financial Statements.

D) GUARANTEES The Company has guaranteed the repayment of principal, any associated premium and interest on loans due by its subsidiary undertakings.

As at 31 December 2010, the Sterling equivalent amounted to £5 483m (2009 £3 127m).

E) OTHER CONTINGENT LIABILITIES The amount of other contingent liabilities as at 31 December 2010 (mainly the provision of indemnities to third parties in respect of the Company and its subsidiary undertakings, in the normal course of business) amounted to £284m (2009 £311m).

12 ULTIMATE PARENT COMPANY AND CONTROLLING PARTY The Company’s immediate and ultimate parent company and controlling party is BG Group plc, which is registered in England & Wales.

BG Group plc is the only company to consolidate the accounts of the Company. Copies of the consolidated accounts of BG Group plc may be obtained from the Company Secretary, BG Group plc, 100 Thames Valley Park Drive, Reading, Berkshire RG6 1PT.

13 PENSIONS AND POST-RETIREMENT BENEFITS The Company participates in the BG Pension Scheme (the Scheme), which is a multi-employer, registered defined benefit scheme established under trust. In addition, the BG Supplementary Benefits Scheme provides benefits in excess of the ‘lifetime allowance’, and is an unfunded, unregistered arrangement. (See pages 52 to 55 for further details of the Scheme). The Company is unable to identify its share of underlying assets and liabilities on a consistent and reasonable basis. Accordingly it accounts for contributions to the Scheme as if it was a defined contribution scheme under FRS 17. In 2010, contributions to the Scheme relating to the Company’s employees were borne by a direct subsidiary and have not been recharged to the Company. Therefore, contributions by the Company in 2010 were £nil (2009 £nil).

BG Energy Holdings Limited 2010 65 Shareholder information

HEADQUARTERS AND REGISTERED OFFICE ADDRESS 100 Thames Valley Park Drive Reading Berkshire RG6 1PT Telephone 0118 935 3222

CORPORATE HISTORY The Company was established in 1999 as a wholly-owned subsidiary undertaking of BG plc. With effect from 13 December 1999, BG was restructured so that BG Group plc became the new parent company of BG Energy Holdings.

The Company is a wholly-owned subsidiary undertaking of BG Group plc. BG Group plc is a public limited company listed on The London Stock Exchange and registered in England & Wales.

The Company’s share capital consists of ordinary shares with a nominal value of 100p each.

BG Energy Holdings Limited 2010 BG Energy Holding Limited 100 Thames Valley Park Drive Reading, Berkshire RG6 1PT United Kingdom www.bg-group.com

Registered in England & Wales No. 3763515

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