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The Integrated Gas Major

The Integrated Gas Major. 21st January 2003. Sean Sutcliffe Executive Vice President. Legal Notice.

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The Integrated Gas Major

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  1. The Integrated Gas Major 21st January 2003 Sean Sutcliffe Executive Vice President

  2. Legal Notice The following presentation includes "forward-looking information" within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. Certain statements included in this presentation, including without limitation those concerning (i) BG Group's strategy, outlook and growth opportunities; (ii) the 2003 and 2006 long term growth targets including certain financial targets; (iii) cost targets; (iv) the projects expected to contribute to the fulfillment of the growth targets; (v) commercialisation and project delivery activities; (vi) BG Group's positioning to deliver its future plans and to realise its potential for growth; (vii) future reserves; (viii) the economic outlook for the gas and oil industries; (ix) demand for gas as a source of energy; and (x) statements preceded by “believes”, “expects”, “anticipates”, “plans”, “intends” or similar expressions, contain certain forward-looking information concerning BG Group's operations, economic performance and financial performance. Although BG Group believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results could differ materially from those set out in the forward looking statements, as a result of, among other factors (i) changes in economic, market and competitive conditions, including oil and gas prices; (ii) success in implementing business and operating initiatives; (iii) changes in the regulatory environment and other government actions, including UK and international corporation tax rates; (iv) the failure to ensure the safe operation of BG Group's assets worldwide; (v) implementation risk, being the challenges associated with delivering capital intensive projects on time and on budget, including the need to retain and motivate staff; (vi) commodity risk, being the risk of significant fluctuations in gas and/or oil prices from those assumed; (vii) a major recession or significant upheaval in the major markets in which BG Group operates; (viii) risks encountered in the gas and oil exploration and production sector in general; (ix) fluctuations in exchange rates; (x) business risk management; and (xi) the Risk Factors included in BG Group's Annual Report and Accounts 2001. This presentation does not constitute or contain, and shall not be taken to constitute or contain, an invitation or inducement to any person to underwrite, subscribe for, otherwise acquire, or dispose of or invest in BG Group plc or any other entity, nor does it advise any person to do any of the foregoing.

  3. BG Group Introduction • Strategy • Skills and capabilities • Organisation • Capital allocation • Summary

  4. E&P LNG Power Transmission Distribution E&P StrategyBusiness model Resources Enabling Markets Delivering exceptional value to shareholders

  5. StrategyBusiness balance Upstream/downstream Estimated capex Oil/Gas Estimated capex Source: Deutsche Bank, 2001-2006E capex Similar upstream/downstream balance but BG focus on gas

  6. Skills and capabilitiesBG at work • Outstanding technical skills • Commercial ability for complex gas projects • Experts in project delivery • Partner of choice • Deep understanding of gas markets Key competitive advantages

  7. OrganisationBG Group Executive team Emma Nichol Company Secretary Bill Friedrich Deputy Chief Executive Frank Chapman Chief Executive Ashley Almanza Chief Financial Officer Martin Houston EVP Atlantic, Europe and Med. Basin Rick Waddell EVP South America Jon Wormley EVP UK Dave Roberts EVP Eastern Hemisphere Sean Sutcliffe EVP New Businesses David McManus EVP Skill Centres Peter Duffy EVP Human Resources Charles Bland EVP Policy and Corporate Affairs Internationally resourced with breadth of experience

  8. Capital allocationApproval Committees Board >£50mm Strategic and policy issues Group Executive Committee Business Development Committee Energy Trading Risk Management Investment Committee Exploration Committee Other Governance Policy and Risk HSSE <£50mm Funding of new opportunities Management of Approved budget Management of Approved budget Flexibility in control

  9. Capital allocation Reviews and processes • Board Planning Conference • Portfolio review • Opportunity screening • Budget process • Business Improvement Plans Operate on annual cycle

  10. Capital allocation Investment criteria • Hurdle rates and returns • Materiality and value adding • Strategic fit • Segmental balance • Political risk Broad based justification and fit

  11. Capital allocationHurdle rates andeconomic returns • Upstream RROR of 15% at mid cycle prices • Upstream has to make 8% RROR at $10 oil price • Downstream RROR of 8% before project financing • No cross subsidies between business segments • Strict investment discipline will drive financial returns Improving returns coupled with strong growth

  12. Capital allocationOptions beyond 2006 Norway Gas White Zone/ Faroes Karachaganak Gas Brindisi LNG Caspian/Kalamkas Kashagan expansion UK DCHP WDD gas Italy exploration US Iran LNG Spain exploration Gujarat Gas Trinidad gas Jugurtha Pipavav LNG Gazagas Barca expansion Philippines T&D ALNG 5+ Philippines LNG Egyptian LNG 3+ Pacific LNG Tangguh Comgas India Sucat Margarita/ Itau to Brazil Brazil exploration Thailand/ Cambodia JDA Mahanagar Gas Power New Business LNG T&D E&P Extending the growth

  13. Capital allocation Funnel stages and approval gates Screening stage Pre Development Development Production Comgas ALNG T3 Brindisi Sucat IPP Many checks and balances

  14. Capital allocation Ranked prospect inventory example EMV EMV - Expected Monetary Value Strong inventory

  15. Capital allocation Exploration well budget example Scenario 1 Value Scenario 2 Write Off Scenario 3 Inv Grade Scenario 4 Obligation Scenario 5 Gas Scenario 6 Production Well A B C D E F G H I J K L M N O P Q R S T U V W X Multiple factors in decision making

  16. The Integrated Gas MajorSummary • Clear strategic direction • Strategy and resource allocation linkages • Extending the trajectory on growth and returns Balance of value creation and risk

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