Drillsearch, BG Group to Jointly Explore Cooper Basin

- Drillsearch, BG Group to Jointly Explore Cooper Basin

Wednesday, July 27, 2011
Drillsearch Energy Ltd.

Drillsearch has formed a strategic joint venture with QGC, a BG Group company, to explore and develop unconventional shale and tight gas resources in the Cooper Basin.

The joint venture involves QGC farming into, and acquiring, a 60% interest in DLS's strategically located ATP 940P covering over 2,000km2 (500,000 acres) of the Central Cooper Basin Nappamerri Trough Shale Gas Fairway.

The agreement places DLS in the unique position in the Cooper Basin of having access to QGC's gas commercialization capacity to support the full scale exploration, appraisal and development of shale and tight gas resources. The Basin is well situated to supply growing gas demand from LNG exports and domestic users in Australia. QGC is currently developing the QCLNG project in Gladstone.
BG Group is an active player in the exploration, development and production of shale and tight gas in North America with major positions in the Marcellus and Haynesville shale gas plays. The Cooper Basin shale gas exploration joint venture with Drillsearch is BG's first shale gas investment in Australia

Drillsearch Chairman Jim McKerlie said, "The JV with QGC is a great outcome for Drillsearch. It is a clear indication that Drillsearch is delivering on its three-prong strategy in the Cooper Basin – Oil exploration on the Western Flank, development of conventional Wet Gas along the Wet Gas Fairway and now delivering a focused exploration and appraisal plan to the Company's unconventional projects in the Cooper Basin."

"With the farmin by QGC and exercise of the options, Drillsearch's share of this unconventional exploration and appraisal program is fully funded. The company has now secured funding for all three prongs of its strategy. We are encouraged by the three oil exploration successes in the Western Flank of the Cooper Basin and progress of Western Cooper Wet Gas which is looking to start production later this year."

Drillsearch Managing Director Brad Lingo said, "This joint venture is significant for both the Cooper Basin and Drillsearch. This landmark transaction puts Cooper Basin shale gas resources on the world stage. This transaction is a major achievement for Drillsearch validating not only the quality of the position the Company holds in the Nappamerri Trough Shale Gas Fairway but also the Company's capability as an exploration operator in the Cooper Basin."

"The transaction with QGC (part of the BG Group, a global leader in gas commercialization), is the most significant milestone in Drillsearch's 24 year history. Importantly, it positions Drillsearch at the forefront of emerging Cooper Basin unconventional resource developments. This provides us with a platform for outstanding long-term growth opportunities and further growth in the Company’s already extensive conventional and unconventional gas projects in the Cooper Basin."

Key features of the transaction include:

• Execution of a Joint Operating Agreement (JOA) establishing the future joint venture operations in ATP 940P. The focus of the joint venture is to explore and develop shale and tight gas resources in the Central Cooper Basin Nappamerri Trough Shale Gas Fairway;
• Execution of a Farm-in agreement whereby QGC are committing to a five year $130 million three stage exploration and pilot production appraisal program to acquire a 60% joint venture interest in DLS' 100% owned ATP 940P;
• DLS will hold a 40% joint venture interest in ATP 940P and be the operator of the joint venture through the exploration and pilot production appraisal stages with the aim to prove up sufficient shale and tight gas resources to support a full scale development project;
• QGC will fund $90 million of the first $100 million of the five year exploration, appraisal and pilot production program and thereafter QGC and DLS will fund the program on a 60/40 basis;
• Following the completion of the exploration and pilot production appraisal program, QGC will have the right to become the operator of the joint venture to take the shale and tight gas resources through to full scale development;
• QGC and DLS have entered into a Gas Marketing Heads of Agreement providing that, as part of a full scale commercial development, QGC offering to buy DLS' 40% share of gas production from ATP 940P and DLS having the right to supply additional gas from its other Cooper Basin permits up to an additional 10% of the ATP 940P joint venture gas production;
• DLS will issue options to QGC to subscribe for up to 31,622,454 DLS shares at 62 cents per share exercisable any time prior to February 15, 2012 for a 9.9% ownership stake providing DLS with a potential $19.6 million of additional funding;
• QGC will also reimburse DLS for 60% of its historical past costs, capped at $2.5 million; and
• QGC will have the right to withdraw from the joint venture after the end of either the first or second stage of the five year work program upon which QGC's 60% interest in ATP 940P reverts to DLS.

The various agreements contain change of control provisions. The agreement under which QGC gains its interest in ATP 940P provides that, should a change of control occur (e.g., another entity gaining more than 50% of DLS shares), QGC can require (1) DLS to sell to QGC at an agreed price DLS' 40% in ATP 940P if that change of control occurs before the completion of the second stage of the exploration program at an agreed price, (2) DLS to sell to QGC at an agreed price a further 5% interest in ATP 940P if that change of control occurs after the completion of the second stage of the exploration program and (3) QGC may become the operator of ATP 940P. The Gas Marketing Heads of Agreement further provides that if DLS is subject to a change of control, QGC may terminate the gas marketing arrangements.

All of the Native Title and Environmental Approval process necessary for the award the ATP 940P to Drillsearch has been completed and the formal award of the permit is currently pending Queensland Government Ministerial approval. The commencement of the ATP 940 JV is subject to completion of this process and approval of the transfer of the interest in the permit once issued to QGC.

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BG 2Q Earnings Double on Commodity Prices, Output

- BG 2Q Earnings Double on Commodity Prices, Output

Tuesday, July 26, 2011
BG Group plc

BG Group reported its second quarter and half year results for 2011.

Second Quarter Key Points

• Earnings up 27%; cash generated by operations up 11%
• Interim dividend of 10.8 cents per share, up 10%
• Reserves and resources doubled in Brazil since 2010; upside potential now 8 billion boe net
• Brazil reservoir performance significantly reduces unit costs; unit resource value increased
• Lifted first one million barrels of equity oil from Lula field
• Assumed operatorship offshore Tanzania; agreements to operate offshore Kenya

BG Group's Chief Executive, Sir Frank Chapman said, "We made good progress in both our E&P and LNG businesses. In Brazil, we saw major increases in our reserves and resources; with the new resources delivering a higher unit value as their production is expected to require no additional surface facilities. We have invested $4.4B in organic growth in the first half and made good progress across our major growth projects in Australia, Brazil and the USA; progress that continues to de-risk the delivery of our growth program."

Second quarter

Revenue and other operating income increased by 26% to $5.115 billion, reflecting the benefit of higher commodity prices and a 3% increase in E&P production, with solid operational performance across the Group's assets.

As a result of the above and a lower exploration charge in the quarter, total operating profit increased by 43% to $2.152 billion.

Cash generated by operations increased by 11% to $2.581 billion as a result of higher profits and, as anticipated, the partial reversal of prior period margin calls on the Group's hedged LNG contracts.

As of 30 June 2011, the Group's net debt was $9.468 billion with an average maturity of around 8 years, and the gearing ratio was 24%. During the quarter, BG Group signed a cooperation agreement with Bank of China that allows for up to $1.5 billion of new funding alternatives to support the Group's major growth programme. The Group's undrawn committed facilities have been increased to $5.5 billion with maturities from 2012 to 2016.

Net finance costs amounted to $59 million for the quarter, against $25 million income in 2010, including foreign exchange gains of $7 million (2010 $71 million gain).

Capital investment (including acquisitions of $113 million) in the quarter was $2.537 billion and comprised investment in E&P ($1 918 million), LNG ($537 million) and T&D ($82 million). This investment focused primarily on the Group's major growth projects in Australia, Brazil and the USA and represents a 58% increase in underlying organic capital investment compared with second quarter 2010. More details on project developments are provided in the relevant segmental business highlights.

Half year

Revenue and other operating income of $9 918 million was 16% higher than in the same period in 2010, reflecting 48% and 14% increases in realised oil and gas prices, respectively. This revenue performance, combined with a lower exploration charge, was the main contributor to the 19% increase in total operating profit from $3.456 billion to $4.117 billion.

Cash generated by operations of $4.380 billion was 9% lower than last year, principally as a result of changes in working capital associated with margin calls on the Group's hedged LNG contracts. As already observed, the cash outflow associated with margin calls has reversed in the second quarter, a trend that is expected to continue in future periods when the underlying LNG contracts settle.

The $153 million increase in net finance costs was driven primarily by changes in foreign exchange (2011 foreign exchange losses of $15 million compared with a $122 million gain in 2010).

The Group's effective tax rate (including BG Group's share of joint venture and associates' tax but excluding prior period taxation) for the full year is expected to be 45% (2010 38.5%). The increase is primarily as a result of the change in UK North Sea taxation announced in March 2011. This led to an additional charge of $324 million consisting of a $121 million charge for the half year in addition to a one-off tax charge of $203 million in respect of the revision of opening deferred tax balances. The one-off charge was partially offset by an $8 million credit as a result of a reduction in the UK taxation rate applicable outside the UK North Sea (net $195 million). The Group's effective tax rate in future years is expected to be 43% to 44% in the near term and trend downwards thereafter as more of the Group's profits are generated from outside of the UK North Sea.

As previously announced, the Group is undertaking an extensive investment programme to deliver its growth. Capital investment in the half year (including acquisitions of $432 million) was $4 833 million and comprised investment in E&P ($3.744 billion), LNG ($936 million) and T&D ($153 million). This investment focused primarily on the Group's major growth projects in Australia, Brazil and the USA and represents a 28% increase in underlying organic capital investment compared with 2010. This expenditure is in line with the Group's previous guidance of $10 billion for the full year at reference conditions.

In line with the Group's financial performance, the Board has approved the payment of an interim dividend of 10.80 cents per share. This is half of the 2010 total dividend, in accordance with the Board's established policy. The interim dividend has been converted to Sterling at the average of the closing exchange rate for the three business days preceding this announcement and will be paid on 8 September 2011 as 6.63 pence per share to shareholders on the register as at August 5, 2011.

Disposals, re-measurements and impairments - continuing operations

A post-tax gain of $123 million for the quarter (2010 $443 million charge) was recorded in respect of disposals, re-measurements and impairments. This comprised a post-tax gain of $121 million (2010 $302 million charge) in relation to mark-to-market movements on long-term commodity contracts and economic hedges, a $24 million post-tax gain in respect of disposals of non-current assets and impairments (2010 $135 million charge) and a $22 million post-tax charge (2010 $6 million charge) in respect of re-measurements of treasury financial instruments.

A post-tax charge of $100 million for the half year (2010 $377 million charge) was recorded in respect of disposals, re-measurements and impairments.

Exploration and Production (E&P)

Second quarter

Revenue and other operating income increased by 35% to $2 787 million, reflecting the benefit of higher realized prices and a 3% increase in production volumes. Total operating profit of $1.420 billion was 90% higher as a result of the increase in revenue and other operating income and a lower exploration charge.

Higher production volumes in the quarter reflected continuing production build-up in the USA, Brazil and at Hasdrubal in Tunisia. In the UK North Sea, the Everest, Lomond and Erskine fields progressively returned to production following the shutdown in the first quarter. BG Group expects Buzzard to return to full capacity in the third quarter following a period of restricted production. Whilst there continued to be sporadic disruption from social unrest in Egypt and Tunisia, this had a relatively small impact on production in the second quarter.

BG Group continues to expect modest production growth in 2011, ahead of the strong ramp-up in production volumes which begins in 2012 and continues through the decade.

International gas price realizations were 17% higher at 39.02 cents per produced therm, reflecting changes in the production mix and the effects of higher oil prices. The average realized gas price in the UK increased by 48% to 44.43 pence per produced therm, as a result of higher contract and market prices.

The exploration charge of $120 million is $246 million lower than 2010 as a result of lower well write-off costs.

Unit operating expenditure increased to $8.93 per barrel of oil equivalent, reflecting the impact of higher commodity prices, adverse foreign exchange movements and changes in the production mix, including higher than portfolio average costs associated with the production start-up activities in Brazil. BG Group continues to expect unit operating costs to be between $8.50 and $9.00 per barrel of oil equivalent at an oil price of around $100 per barrel for the full year.

Capital investment of $1 918 million in the quarter comprised investment in the Americas ($673 million, including $113 million on acquisitions), Australia ($496 million), Europe and Central Asia ($443 million) and Africa, Middle East and Asia ($306 million).
Half year

Revenue and other operating income increased by 22% to $5.297 billion, principally as a result of higher realized prices. Total operating profit increased by 38% to $2.678 billion, reflecting the increase in revenue and other operating income and a lower exploration charge.

The Group's average realized gas price per produced therm increased by 14% to 41.12 cents, reflecting generally higher market prices and changes in the production mix.

Unit operating expenditure increased to $8.46 per barrel of oil equivalent, reflecting the impact of the UK North Sea shutdown during the first quarter, higher commodity prices and changes in the production mix.

Capital investment of $3 744 million in the half year comprised investment in the Americas ($1.450 billion, including $376 million on acquisitions), Australia ($899 million), Europe and Central Asia ($798 million, including $56 million on acquisitions) and Africa, Middle East and Asia ($597 million).

Second quarter business highlights

Bolivia

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

Brazil

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

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

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

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

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

In summary, as a consequence of the above BG Group now expects:

• Higher flow rates and recovery per well;
• Earlier achievement of plateau production from fewer wells;
• Lower unit costs and higher unit value.

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

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

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

Egypt

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

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

Kazakhstan

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

Kenya

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

Norway

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

Tanzania

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

USA

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

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BG Doubles Santos Basin Net Potential

- BG Doubles Santos Basin Net Potential

Thursday, June 30, 2011
BG Group

BG Group on Thursday issued a material upgrade for its interests in the pre-salt Santos Basin, offshore Brazil.

Mean Total Reserves and Resources* are now estimated to amount to some 6 billion barrels of oil equivalent (boe) net to BG Group, with an upside potential of 8 billion boe net. Existing discoveries account for 96% of the mean Total Reserves and Resources.

The mean Total Reserves and Resources represents a doubling of BG Group's previous best estimate of 3 billion boe prevailing at the time of the Group's February 2010 Strategy Presentation.

The aggregate range of Total Reserves and Resources net to BG Group is from 4 billion boe (P90) to 8 billion boe (P10)**.

These new estimates result from BG Group's internal analysis based on probabilistic modelling of its Santos Basin interests. The analysis used a wealth of drilling, appraisal and other data that BG Group has gained or developed in relation to those interests, including:

• a total of 29 wells drilled in our existing discoveries; two wells drilled on Lula since November 2010 proving particularly important in delineating the flanks of the field. Other wells have demonstrated excellent connectivity in the reservoir;
• a total of 19 drill stem tests on current discoveries;
• the shooting and analysis of over 14,400 square kilometers of 3D seismic;
• full analysis of a completed extended well test (EWT) on Lula Sul and early results from the Guara EWT indicating the very large hydrocarbon volumes connected to each of these wells;
• production from the first permanent floating production, storage and offloading vessel on Lula which commenced in October 2010;
• development plans that include enhanced recovery processes to improve ultimate recovery factors for these giant fields; and
• cost optimization, potential debottlenecking of facilities and greater well productivity enhancing the economic viability of later phases of development.

BG Group Chief Executive Sir Frank Chapman said: "The doubling of our estimated Santos Basin mean reserves and resources is clearly significant and demonstrates the continued rapid evolution of our understanding of these enormous discoveries. Robust economics and solid progress with the fast-track development program will see gross installed production capacity rising steadily to reach more than 2.3 million boe per day by 2017. I believe this - alongside progress with major ventures in Australia, the US and across our global portfolio - will transform the scope, scale and value of BG Group."

* Total Reserves and Resources are defined by BG Group as the aggregate of proved and probable reserves plus discovered resources and risked exploration.

** The Total Reserves and Resources upgrade announced today is based upon probabilistic modelling by BG Group of its interests in the Santos Basin, in accordance with Society of Petroleum Engineers (SPE) guidelines. The data has been analyzed, interpreted and verified by BG Group and not by the Operator or other Consortium partners.

BG Group has interests in five blocks in the Santos Basin, offshore Brazil

• BM-S-9 (30%) containing the Guara, Carioca, Abare and Iguacu discoveries and prospects.
• BM-S- 10 (25%) containing the Parati and Macunaima discoveries and prospects.
• BM-S-11 (25%) containing the Lula, Cernambi and Iara discoveries and prospects.
• BM-S-50 (20%) containing prospects including Sagittario.
• BM-S-52 (40%) containing the Corcovado discovery.

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BG Group Signs MOU with Bank of China for $1.5B Funding

- BG Group Signs MOU with Bank of China for $1.5B Funding

Monday, June 27, 2011
BG Group plc

BG Group and Bank of China have signed a key cooperation agreement that enhances the existing close working relationship between the organizations and also allows for up to $1.5 billion of new funding options to support the Group's major growth program.

The Memorandum of Understanding (MOU) signed today builds upon existing commercial relationships between BG Group and Bank of China and confirms the intention to make extended credit facilities available that can be used to help deliver the Group's global growth plans - including its operations in China where the Group has an established commercial presence and where an initial offshore exploration program is underway.

The MOU also identifies other areas of potential cooperation including investment banking services, derivatives products, bank deposits, insurance and international settlement and trade finance facilities. Separately, BG Group already has a US$200m lending facility in place with Bank of China which is just one of a series of committed lending facilities that the company has with a group of international banks. These lending facilities in aggregate have been recently increased and extended and now total US$4.4 billion.

On signing the MOU with the Chairman of the Bank of China Gang Xiao, BG Group Chief Executive Sir Frank Chapman said, "This is a significant agreement for BG Group. It affirms and enhances our existing excellent relationship with the Bank of China. BG Group has a well established presence in China as a result of our LNG sales into this valuable and rapidly growing market, through a long-term sales and equity agreement with CNOOC in our QCLNG project in Australia, and with an extensive exploration program offshore China that has already produced a discovery.

"This agreement builds on our existing facilities with Bank of China and provides the option for substantial additional funding for our commitments in China and also our global growth program."

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BG Group Inks PSC for Blocks Offshore Keny

- BG Group Inks PSC for Blocks Offshore Keny

Tuesday, May 17, 2011
BG Group plc

BG Group has signed Production Sharing Contracts with the Government of Kenya for two offshore exploration blocks - L10A and L10B.

BG Group will be operator on both blocks and will hold a 40% equity interest in block L10A and a 45% interest in block L10B. The initial work program consists of a commitment to acquire seismic data during an initial exploration period of two years.

Blocks L10A and L10B together cover an area of more than 10,400 square kilometers in the southern portion of the Lamu Basin, offshore Kenya, located in water depths ranging from around 200 meters to in excess of 1 900 meters.

BG Group Executive Vice President and Managing Director, Africa Middle East & Asia, Sami Iskander, said, "BG Group looks forward to working with our partners and the Kenyan Government to play an active role in the exploration for oil and gas offshore Kenya."

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BG Norge Drills Duster

BG Norge Drills Duster

Monday, May 02, 2011
Norwegian Petroleum Directorate

BG Norge AS, operator of production license 522, is in the process of completing the drilling of wildcat well 6604/2-1.

The well has been drilled about 45 kilometers southwest of the discovery 6705/10-1 Asterix and 60 kilometers north of the discovery 6603/12-1 Gro.

The purpose of the well was to prove petroleum in reservoir rocks from the Upper Cretaceous (the Springar formation). It encountered the Springar formation with reservoir rocks and reservoir quality as expected, but the well is dry. Data acquisition and sampling were carried out.

This is the first exploration well in production license 522. The production license was awarded in the 20th licensing round in 2009.

The well was drilled to a vertical depth of 3511 meters below the surface of the sea and was terminated in the Springar formation. The water depth is 1262 meters. The well will now be permanently plugged and abandoned.

Well 6604/2-1 was drilled by the Aker Barents drilling facility, which is moving to production license 377S west of the Vega field in the North Sea to drill wildcat well 35/7-1 S, where Idemitsu Petroleum Norge AS is the operator.

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