03.04.08 LNG Projects DB

Equity Research Europe UK
Oil & Gas

Global
8 April 2003 Emerging Themes
BG Group Plc Hold

Price at 07 April 2003(GBP) 251.00
Reuters: BG.L Bloomberg: BG/ LN Exchange: L Ticker: BG.L Price target 265
52-week range (GBP) 313-222
LNG: projects into A review of BG's LNG-based assets has

Company Focus
added 0-5% to our financial forecasts and
numbers
NAV - and increased our price target from
245p to 265p. Strong asset-backing and
positive newsflow should continue over
Q2, but our rating remains Hold versus
the deeper discounts to be found
elsewhere in the sector.
Caroline Cook Al Stanton Paul Sankey

(44)131 240 7642 +44 131 240 7647 (44)131 240 7646
caroline.cook@db.com al.stanton@db.com paul.sankey@db.com
Deutsche Bank AG
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH
Europe UK
Oil & Gas
8 April 2003 Emerging Themes
BG Group Plc Hold

Price at 07 April 2003(GBP) 251.00
Reuters: BG.L Bloomberg: BG/ LN Exchange: L Ticker: BG.L Price target 265
52-week range (GBP) 313-222
LNG: projects into numbers Price/Price Relative
120 350
100 300
80 250
Caroline Cook Al Stanton Paul Sankey 200
60
(44)131 240 7642 +44 131 240 7647 (44)131 240 7646 150
caroline.cook@db.com al.stanton@db.com paul.sankey@db.com 40 100
20 50
0 0
A review of BG's LNG-based assets has added 0-5% to our 4/01 10/01 4/02 10/02
financial forecasts and NAV - and increased our price target from FTSE (L.H. SCALE)
BG Group Plc (R.H. SCALE)
245p to 265p. Strong asset-backing and positive newsflow should
continue over Q2, but our rating remains Hold versus the deeper 1m 3m 12m
Absolute 2.6% 0.6% -18.3%
discounts to be found elsewhere in the sector. FTSE -0.3% -11.7% -30.1%
Long-term Natural Growth Stock Data
With final approvals for the second phase of the Egyptian LNG Market Cap (GBP) 8,329
project imminent, BG’s pan-Atlantic gas business is taking real Shares Outstanding (m)
Free float
3,529.4
100%
shape. Less captive to the emerging market risks of the group’s CY03 P/E-to-growth 7.2x
Est. 5 year EPS growth 2.3%
downstream gas distribution business, consistent performance FTSE 3,593.30
looks far more within management’s control. With little of the Index Membership FTSE 100
associated development capital on balance sheet, we suspect that

LNG will play a vital role as BG seeks to maintain group returns
against the dilution pressures of strong upstream volume growth.
Downstream gas for “upstreamers”
In this report, we have revamped our modelling of the LNG
business. We detail the current project portfolio, estimate returns
and try to identify the next potential LNG targets: India, Iran,
Equatorial Guinea and El Paso LNG? The review has added 0-5% to
our group earnings estimates 2003-07E. In conjunction with a wider
asset review, we have raised our estimate of BG’s NAV to 258p.
Momentum adds to absolute value
Since late 2002, we have noted an increasingly positive shift in our
numbers for BG. Aided not only by still-strong oil and gas prices,
there has also been accretion from the disposal of Kashagan and
the continued elimination of completion risk on new upstream
projects. We expect this positive newsflow to continue with news
imminent on Egypt and Trinidad, and a good set of Q1 figures (13
May). We have raised our price target to 265p, but find our
recommendation limited to a Hold relative to the upside potential
we see in peers BP, Eni, TOTAL and Statoil (all rated Buy).
Year End Dec 31 2002 2003E 2004E 2005E
EPS New (GBP) 13.50 16.90 17.90 17.00
EPS Old (GBP) 13.50 16.90 17.50 17.00
EPS Growth 0% 26% 6% -5%
DPS (net) 3.10 3.18 3.26 3.34
Div./Yield x 1.1% 1.4% 1.4% 1.5%
P/E x 20.40 14.80 14.00 14.70
DACFM x 11.4 8.0 7.8 8.2
ROACE 11.3 13.6 13.4 11.6
Source: Deutsche Bank AG Estimates and Company data
Deutsche Bank AG
DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED AT THE END OF THE BODY OF THIS RESEARCH
8 April 2003 Oil & Gas BG Group Plc
BG GROUP PLC Integrated Oils GBp 250.3

31-Dec Hold
Per Share Data 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E 2003E 2004E Price and Price Relative
350 8.0
EPS (Before Amort. of Goodwill) 14.4 17.1 13.8 12.0 -13.2 -13.7 18.6 19.8 19.2 14.1 12.8 17.7 18.7
Goodwill per Share 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.8 0.8 0.8 0.8 0.8 300 7.0
CEPS 42.3 51.5 40.0 41.0 41.6 27.9 34.5 35.9 33.9 17.1 19.9 26.7 28.4
250
Net DPS 14.2 14.5 14.5 14.5 9.0 9.0 8.6 9.2 6.4 3.0 3.1 3.2 3.3 6.0
BVPS 463.8 442.5 442.4 432.9 335.5 227.1 257.0 211.7 102.2 97.4 91.3 105.1 119.7200
5.0
Valuation
P / E (x) 8.9 9.2 11.0 11.9 nm nm 12.2 11.8 13.1 19.2 21.4 14.1 13.4 150
P / CE (x) 3.0 3.1 3.8 3.5 2.6 5.2 6.5 6.5 7.4 15.8 13.8 9.4 8.8 4.0
Yield (%) 11.0 9.2 9.5 10.1 8.3 6.2 3.8 3.9 2.6 1.1 1.1 1.3 1.3
P / BV (x) 0.3 0.4 0.3 0.3 0.3 0.7 0.9 1.1 2.5 2.8 3.0 2.4 2.1 100
3.0
EV / Sales (%) 98.1 111.3 106.1 106.8 194.8 239.9 295.2 306.7 247.0 324.4 412.3 324.6 292.4
EV / Adj. EBDIT (x) 4.6 4.7 3.9 3.9 7.3 6.3 5.4 6.1 5.7 7.7 7.7 5.8 5.4
EV / EBITn (x) 16.2 12.9 8.7 8.5 16.3 10.0 7.3 8.6 8.8 11.9 10.6 7.7 7.2
EV / Adj. EBIT (x) 7.7 8.4 8.5 9.1 54.6 14.5 8.6 9.6 11.3 11.4 11.7 8.6 8.1
EV / EBI (x) 12.0 8.6 15.6 18.2 nm nm 12.9 13.9 18.1 17.3 21.3 14.2 13.0 50 2.0
1993 1994 1995 1996 1997 1998 1999 2000 2001 20022003
EV / Free Cash Flow (x) nm 19.8 6.2 nm nm 13.3 27.9 108.3 12.8 nm nm 745.1 329.3 BG GROUP PLC REL. F.T. INDEX 100 (R.H.SCALE)
EV / Capital Employed (x) 0.4 0.4 0.4 0.4 0.4 0.7 0.8 0.9 2.9 2.1 2.1 2.0 1.7
Avg. Adjusted No. of Shares (m) 4,298.0 4,322.0 4,336.0 4,370.0 4,405.0 4,348.0 3,940.0 3,906.0 3,475.0 3,498.0 3,529.4 3,529.4 3,529.4
Avg. Market Cap. (GBP m) 5,525 6,812 6,591 6,248 4,762 6,280 8,904 9,141 8,707 9,470 9,704 8,832 8,832 Rel. Perf.: -1m: 0.0% -3m: 2.4% -12m:15.2%
Enterprise Value (GBP m) 10,062 11,560 10,294 9,186 8,538 10,317 13,207 14,679 11,781 8,667 9,120 8,436 8,242
The share price used for the market cap. and valuations is the average over that financial year, except in the current year and afterwards.
P&L (GBP m) Sales and Free Cash Flow per Share
Turnover 10,254 10,386 9,698 8,601 4,383 4,300 4,474 4,787 4,769 2,672 2,212 2,599 2,819 300 60
Personnel Costs 2,014 3,160 1,804 1,588 1,285 805 591 600 600 177 187 204 223
Adjusted EBDIT 2,168 2,463 2,642 2,364 1,165 1,644 2,454 2,404 2,050 1,122 1,182 1,452 1,524
50
250
Depreciation 861 1,094 1,424 1,353 1,009 932 915 882 1,004 365 405 475 503
EBIT 1,298 1,340 1,182 977 118 677 1,508 1,497 1,043 754 774 974 1,017 40
Adjusted EBIT 1,307 1,369 1,218 1,011 156 712 1,539 1,522 1,046 757 777 977 1,021 200
30
Net Interest Result -311 -354 -184 -122 -280 -350 -416 -445 -459 -63 -80 -72 -61
Amortisation of Goodwill 0 0 0 0 0 0 0 0 29 27 29 29 29 150
Associates (Reported Pre-Tax) 7 30 15 17 49 22 53 113 132 140 143 146 149 20
Other Financial Items 47 21 97 129 0 0 0 0 276 -51 0 0 0
100
Exceptional Items (Reported Pre-Ta -195 -1,650 -192 -394 -48 288 73 56 -9 149 -14 0 0 10
Pre-Tax Profit 846 -613 918 607 -161 637 1,218 1,221 954 902 794 1,018 1,076
50
0
Income Tax 371 -77 504 471 458 942 405 376 304 287 374 411 422
Associates (Reported Post-Tax) 0 0 0 0 0 0 0 0 0 0 0 0 0
Exceptional Items (Reported Post-T 0 0 0 0 0 0 0 0 0 0 0 0 0 0 -10
Stated Net Profit Pre-Min. 475 -536 414 136 -619 -305 813 845 650 615 420 607 654 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E 2003E 2004E
Adj. Net Profit Pre-Min. 622 737 601 530 -571 -593 740 789 685 521 463 636 683
Sales per Share Free Cash Flow per Share (R.H.S.)
Minorities 2 -3 4 6 10 2 8 15 19 29 10 11 24
Cash Flow (GBP m) Margin Trends (%)

EBIT 1,298 1,340 1,182 977 118 677 1,508 1,497 1,043 754 774 974 1,017 60
Depreciation 861 1,094 1,424 1,353 1,009 932 915 882 1,004 365 405 475 503
Increase (+) Decrease (-) in Provisio 79 131 181 70 0 165 -50 -129 -73 -217 -2 0 0 50
Increase (-) Decrease(+) in NWC 119 62 988 -864 0 517 -62 -584 620 -249 -111 0 0
40
Operating Cash Flow 2,357 2,627 3,775 1,536 1,127 2,291 2,311 1,666 2,594 653 1,066 1,449 1,521
30
Proceeds from Share Issues 66 27 19 56 0 -1,228 -39 -1,653 47 10 9 0 0
20
Interest Paid (-) Received (+) -311 -354 -184 -122 -280 -350 -416 -445 -459 -63 -80 -72 -61
10
Tax Paid -371 77 -504 -471 -458 -942 -405 -376 -304 -287 -374 -411 -422
Dividends Paid -728 -629 -634 -646 -638 -537 -327 -348 -348 -121 -106 -111 -112 0
Capex -2,329 -2,002 -1,543 -1,293 -980 -462 -1,303 -1,021 -1,234 -776 -1,000 -1,005 -1,055 -10
Net Other Investments 72 200 546 78 0 97 309 -626 446 253 -379 624 0
-20
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E 2003E 2004E
Other Cash Flow Related Items 872 -149 961 -49 726 672 -293 -20 5,770 153 400 157 137
Adj. EBDIT Mgn Adj. EBIT Mgn Adj. Net Prof Pre-Min. Mgn
Change in Net Debt (-) Cash (+) -372 -203 2,436 -911 -503 -459 -163 -2,823 6,512 -178 -464 631 7
Balance Sheet (GBP m) Returns on Capital (%)

Net Working Capital 413 554 -391 -296 -843 -1,664 -1,227 -406 -210 -133 -735 -1,412 -1,455 16 20.0
of which Inventories 593 588 400 309 103 103 96 119 99 98 98 98 98
Net Financial Debt (-) Cash (+) -4,246 -4,449 -2,013 -2,924 -3,427 -3,886 -4,049 -6,872 -360 -538 -1,002 -371 -364 14
15.0
12
Gross Tangible Fixed Assets 40,034 41,600 39,922 40,864 38,786 33,007 34,053 36,085 6,743 6,134 7,423 8,428 9,483
Net Tangible Fixed Assets 24,132 24,928 23,524 23,659 21,369 16,222 17,029 17,250 3,863 3,707 4,591 5,121 5,673 10
10.0
Goodwill 0 0 0 0 0 0 0 0 567 444 415 386 357
8
Gross Depreciable Intangible Fixed 654 509 257 141 93 101 199 232 309 354 383 412 441
Net Depreciable Intangible Fixed As 638 485 257 141 93 101 199 232 309 354 383 412 441 6 5.0
Participations & Associates 99 108 150 238 0 323 374 549 562 663 663 663 663
4
Other LT Assets 596 1,040 975 1,221 0 327 252 122 95 125 125 125 125
0.0
2
Pension Provisions 154 488 595 561 640 589 519 423 58 52 52 52 52
Other Long-Term Provisions 584 2,077 2,105 1,881 1,058 1,070 1,100 1,118 761 812 812 812 812 0
-5.0
Other LT Liabilities 537 572 616 674 714 855 849 928 257 228 228 228 228
-2
Stated Shareholder’s Equity 19,933 19,124 19,181 18,919 14,778 8,892 9,976 8,218 3,550 3,406 3,224 3,708 4,223 -4 -10.0
Minorities 424 405 5 4 2 17 134 188 200 124 124 124 124 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E 2003E 2004E
Total Net Worth 20,357 19,529 19,186 18,923 14,780 8,909 10,110 8,406 3,750 3,530 3,348 3,832 4,347
S’holder’s Equity After G-will Write 19,933 19,124 19,181 18,919 14,778 8,892 9,976 8,218 2,983 2,962 2,809 3,322 3,866 Return on Capital Employed (Post-Tax) Return on Stated Equity (r.h.s.)
Key Ratios Average Net Debt (-) Cash (+) / Mkt. Cap. (%)
Personnel Costs / Sales 19.6 30.4 18.6 18.5 29.3 18.7 13.2 12.5 12.6 6.6 8.4 7.8 7.9 0 0
Headcount (Average of the Year) 70000 76453 69971 55382 43106 21891 18894 19594 19745 4309 4460 4772 5106
Value Added / Employee in EUR 77477 92022 81028 86142 68672 161766 239921 232732 220250 484610 488124 517573 510082 -10
-1000
-20
Adj. EBDIT Mgn 21.1 23.7 27.2 27.5 26.6 38.2 54.9 50.2 43.0 42.0 53.4 55.9 54.0
-2000
Adj. EBIT Mgn 12.7 13.2 12.6 11.8 3.6 16.6 34.4 31.8 21.9 28.3 35.1 37.6 36.2 -30
Adj. Net Prof. Pre-Min. Mgn 6.1 7.1 6.2 6.2 -13.0 -13.8 16.5 16.5 14.4 19.5 20.9 24.5 24.2
-3000 -40
Depreciation / Sales 7.6 9.4 14.1 14.8 23.0 21.7 20.5 18.4 21.1 13.7 18.3 18.3 17.8
-50
Capex / Sales 22.7 19.3 15.9 15.0 22.4 10.7 29.1 21.3 25.9 29.0 45.2 38.7 37.4 -4000
-60
Inventories / Sales 5.8 5.7 4.1 3.6 2.3 2.4 2.1 2.5 2.1 3.7 4.4 3.8 3.5 -5000
Net Working Capital / Sales 4.0 5.3 -4.0 -3.4 -19.2 -38.7 -27.4 -8.5 -4.4 -5.0 -33.2 -54.3 -51.6 -70
Free Cash-Flow / Sales (Post-Tax) -4.3 5.6 17.2 -3.1 -9.2 18.1 10.6 2.8 19.3 -16.1 -15.0 0.4 0.9 -6000
-80
Interest Cover (x) 4.2 3.9 6.6 8.3 0.6 2.0 3.7 3.4 2.3 12.0 9.7 13.5 16.8
-7000 -90
Net Debt (-) Cash (+) / Equity -20.9 -22.8 -10.5 -15.5 -23.2 -43.6 -40.0 -81.8 -9.6 -15.2 -29.9 -9.7 -8.4 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002E 2003E 2004E
Return on Stated Equity 3.1 3.8 3.1 2.8 -3.4 -5.0 7.8 8.5 10.8 13.4 12.8 17.2 15.9 Est. Avg. Net Debt (-) Cash (+)
Return on Adjusted Equity 3.1 3.8 3.1 2.8 -3.4 -5.0 7.8 8.5 11.9 16.6 15.7 20.4 18.3 Average Y/E Net Debt (-) (Cash (+)
Return on Cap. Employed (Post-Tax 6.5 5.1 2.6 2.1 -1.7 -1.9 6.5 6.3 6.1 12.2 10.1 13.7 13.8 Avg. Y/E Net Debt (-) Cash (+) / Avg. Mkt. Cap.(%) (R.H.S.)
Average Age of Tangible Fixed Asse 20.4 17.2 12.0 13.5 17.3 18.0 18.6 21.4 2.9 6.6 7.0 7.0 7.6
Source: Company Data, Deutsche Bank Estimates.
Caroline Cook Tel: +44 131 240 7642 Updated: 04-Apr-03
Page 2 Deutsche Bank AG

Investment Thesis
LNG-enabled
In this report, we have revamped our modelling of BG’s LNG portfolio. We take an
in-depth look at the structure and potential returns of LNG production (in Trinidad,
Egypt, Bolivia and Indonesia) and BG’s LNG delivery options (shipping and
regasification). We find a business that essentially enables the production of BG’s`
upstream gas reserves (contributing 65% of BG’s forecast output growth 2002-
2008). We estimate integrated project returns of 12-15%. Although these are lower
than the 20-25% IRR’s we see on many of the industry’s new oil developments,
they remain a multiple of BG’s WACC. As importantly, success has allowed BG to
scale one of the industry’s notorious barriers to entry. This “right to replace” should
see BG drive further growth through the addition of new projects and (maybe) the
unlocking of high RoACE trading returns through the optimisation of global LNG
trades. By 2010, we estimate BG could be selling as much LNG as the industry’s
current leader (Shell) does today.
Positive momentum
Since late 2002, we have noted an increasingly positive shift in our numbers for BG.
Our NAV (raised to 258p today) is up 8% since the turn of the year. Still-high oil and
gas prices, the disposal of Kashagan and our review of the LNG business have
improved our earnings and cashflow forecasts. We expect Q1 figures (due 13 May)
to again illustrate BG’s below-average volatility, and a touch more exposure to Q1’s
US gas prices (thanks to Trinidad Train 2, and perhaps Lake Charles). We expect BG
to show earnings growth of 26% 2002-03, and to be one of the very few with
enough organic strength to offset our expectation of falling oil prices in 2004.
Asset backed
BG falls into that group of companies small enough for our estimates of NAV not to
be an abstract concept – and the share price has steadfastly refused to fall much
below this figure, despite wider market weakness. With our NAV estimate on the
rise for the first time since 2000, we expect BG’s share price trading range to
follow. Newsflow over the next few months (expansions at Egyptian and Trinidad
LNG, further progress in India, Q1 figures) should be similarly supportive.
Nonetheless, the BG valuation fails to offer the deep value we see in companies
such as Eni and Statoil (both trading at 17% discounts to our core asset values, both
rated Buy). In addition, a 2003E debt-adjusted cashflow multiple only 0.5x below BP
(Buy) and 1.5x above TOTAL (Buy) looks full value for a smaller company that lacks
an equivalent exposure to a high returns upstream, or the expected 2003 rally in
refining and marketing. Our recommendation remains Hold.
Deutsche Bank AG Page 3

Table of Contents
BG LNG – developing a new business ............................................. 5

Who, what and why?...............................................................................................5
The LNG plants........................................................................................................6
Shipping and trading ................................................................................................8
New business expense..........................................................................................10
The LNG plants ................................................................................ 11

Trinidad: strong foundation ....................................................................................11
Egypt: first to market .............................................................................................18
Tangguh: more knowledge than power..................................................................25
Pacific LNG: rainforest dream (or is that nightmare...) ............................................28
Lake Charles and Brindisi – how might they work? ..................... 31

Regas: the last link.................................................................................................31
BG and regas.........................................................................................................31
Lake Charles: US gateway .....................................................................................32
Brindisi – the fourth leg..........................................................................................33
Widening the regasification range ..........................................................................35
Cash: how does the money flow? .................................................. 37

The LNG division – a financial rationale ..................................................................37
Unlocking production .............................................................................................38
LNG presence........................................................................................................38
LNG in the P&L......................................................................................................39
LNG returns and the off balance sheet effect.........................................................40

BG LNG – developing a new

business
In this publication, we examine the portfolio and structure of BG’s LNG business. In
this first section we summarise the asset base and place the earnings contribution
in a group context. This is followed by an in-depth review of BG’s LNG plants, in
which we look at the ownership, physical flows and our estimates of project
economics. We then discuss BG’s regasification terminals and the outlook for global
LNG trading. Finally – and most importantly – we wrap our various project
economics into financial forecasts for the division, and take a look at BG’s “LNG-
enabled” production profile, and the implications of this asset-heavy activity for
group returns.
Who, what and why?

BG has been in LNG since the 1960s when it imported the UK’s first cargo to the
Isle of Grain terminal (now mothballed and owned by National Grid/Lattice). The
business in its current form really began to emerge in the mid-1990s when BG
developed its first gas discovery in Trinidad and became involved in the local LNG
project. Although the division is clearly there to make money, its principal aim is to
enable the development of BG’s upstream gas reserves.
Internally, the LNG business is the baby of Martin Houston – currently executive
vice president for Atlantic, Europe and Mediterranean Basin. Also involved (by
regional leadership) are Dave Roberts (for the Eastern Hemisphere –Iran, India and
Indonesia) and Rick Waddell (South America). Interestingly, both of these gentlemen
are new entrants to BG, joining in 2002-03 from ChevronTexaco and Enron,
respectively. Over the same period, BG has also added a number of new staff in the
US to handle the LNG trading opportunities presented by the ownership of
regasification capacity.
Figure 1: BG’s earnings mix
1,600 40
1,400 35
1,200
30
1,000
pence per share
25
£m, EBIT
800
20
600
15
400
10
200
0 5
1999 2000 2001 2002 2003E 2004E 2005E 2006E 2007E
-200 0
E&P LNG T&D Power EPS CEPS
Source: Deutsche Bank estimates and company information

BG’s LNG business consists of a variety of different profit (and loss) centres. The
only meaningful current contribution is from the LNG processing plant in Trinidad –
and it is from the expansions to this, coupled with the plant in Egypt, that most of
the (visible) future growth will come. In addition, the division has the potential to
generate positive cashflow through the lease of its LNG tankers, and the trading
capacity of the Lake Charles regasification terminal in the US. Longer term, BG has
a variety of projects that may be developed (Italian regasification, Bolivian,
Indonesian and Iranian LNG). The negative implication of this continued
development comes in the form of a fairly substantial (and consistent) stream of
new business expenses.
The LNG plants

BG has two active LNG processing plants. Trinidad has been up and running since
1999, and is about to see the commissioning of its third train. Capacity will then
stand at 10mt/year (or 1.3bcf/d), of which BG has a net 30% share. The plant is fed
by gas from both BP and BG-led upstream developments. BG’s upstream partners
(who do not share corresponding stakes in the LNG plant itself) are ChevronTexaco,
Eni, Petrotrin and PetroCanada. The next phase of the project is expected to see the
construction of a fourth train (perhaps up to 5.2mt/year in size, 33% net to BG). Our
divisional forecasts assume that this is onstream by 2007, but further delays (and/or
a change to the shareholding structure) are possible.
The other “active” plant is in Egypt. While the plant is not due to start operations
until late Q3 2005, construction work is now well underway. The first train is to have
capacity of 3.6mt/year with BG and Edison both holding 35.5%, and the remainder
split between the Egyptian government (24%) and the initial LNG purchaser, GdF
(5%). Gas feed will come from the 50/50 BG/Edison offshore gas developments in
the West Delta Deep concession. Priced at $1.35bn, the first phase appears high
cost and is absolutely dependent on a much cheaper subsequent doubling of
capacity (currently planned for late 2006).
Beyond the active plants, BG is generating a list of potential projects, of which

Indonesia (Tangguh with BP) and Bolivia (Pacific with Repsol and BP) look the most
likely. The company has also discussed some involvement with the Iranian LNG
schemes (South Pars 11-14). We understand that BG would be unwilling to act in
the upstream under the buyback contracts, but is offering to develop the
liquefaction chain and act as the offtaker (probably for India). Independently, we
have also heard reference to the company’s becoming actively involved in
Marathon’s possible LNG project in Equatorial Guinea (where this inexperienced
LNG player has already found more than 5tcf).
We provide a full analysis of BG’s LNG plants in the next section.

Deutsche Bank AG
8 April 2003
Figure 2: BG’s global LNG portfolio
Snøhvit
Oil & Gas BG Group Plc

USA Alaska
Egypt Sakhalin
Algeria Iran
Libya Abu Dhabi

Trinidad Brunei
Venezuela Nigeria Malaysia
Oman
Yemen Bontang
Qatar
Arun
Eq. Guinea Tangguh
Angola Gorgon
Australia
Darwin
NW Shelf
Existing BG LNG projects
Possible new BG LNG projects

Page 07
Shipping and trading

This sub-division of the LNG business has been primarily concerned with the
ownership and leasing of a series of LNG carriers. In late 2001, however, the
company acquired access rights to much of the capacity of the Lake Charles LNG
regasification terminal in Louisiana. Also set to join the division in 2007 is the yet-to-
be-built regasification terminal at Brindisi in southern Italy. Further out still could be
the successful completion of the long-mooted Pipivav regasification facility in India.
As BG’s LNG business develops, this part of the P&L will carry not only the costs of
these facilities, but also any “trading” profits that BG manages to extract by
supplying LNG cargoes into the markets.
Figure 3: BG’s LNG shipping fleet
Due for delivery in 2003/04

138 mcm lng x2
3.02 bcf gas x2
LT charter to Gas Natural

72 mcm lng x2
1.55 bcf gas x2
126 mcm lng x4

2.76 bcf gas x4
138 mcm lng x5

3.02 bcf gas x5
Current fleet on Due for delivery in 2005/06

shorter term
charter
Shipping capacity due to rise from 645mcm to 1,600mcm by end-06
The shipping fleet

BG’s LNG fleet currently consists of two wholly owned vessels (both on long-term
charter to Gas Natural), and four vessels on charter to BG (which then sub-lets them
to others). By the end of 2003, BG should have another vessel on long-term charter
(either to trade its own gas, or to again sub-let). Another (on sale-and-lease-back) is

due in 2004. To coincide with the expected start-up of Egyptian LNG in 2005, BG
has options for the delivery of five new tankers over the 2005-06 period.
Interestingly, BG released an option over a sixth vessel in early 2003 – perhaps
adding credence to an increasingly wide-spread industry view that LNG
transportation capacity is no longer the bottle-neck (or money-making opportunity) it
once was.
BG’s target is to be balanced in terms of shipping capacity versus LNG production.

Assuming that both the tankers due for delivery in 2003-04 are 138,000 cubic
metres in size, the company will have the rights to 921,000 cubic metres of capacity
by the end of next year. This compares to our expectation that in 2004, facilities in
which BG has a stake will be selling 4.2bcm of LNG/year (net to BG). To carry this
LNG output (which is compressed in a ratio of 620:1 when liquid), BG’s ships would
need to fill up seven to eight times over the year (not unrealistic given the 16-day
trip from Trinidad to the US, and 30-day trip to Spain).
By the end of 2006, BG should have a further 690,000 cubic metres of shipping
capacity compared to the 5bcm/year annual output of ELNG Train 1 (implying 12
trips for each boat – with only a six to nine-day trip to Italy or Spain/southern France,
albeit a long 50 days if some volume is actually taken to the US rather than swapped
from Trinidad).
Figure 4: The LNG trade: distance versus cost for BG’s ships
1.80
Egypt-Italy
1.60 Trinidad-Spain
Unit Transport Cost, $ per mmbtu
1.40 Egypt -Spain/

Trinidad
France Egypt-Lake
1.20 Lake
Charles Charles
1.00
0.80
0.60
0.40
0.20
0.00
500 1500 2500 3500 4500 5500 6500 7500 8500 9500 10500 11500 12500
Distance - Nautical Miles
In 2000-01, BG’s LNG fleet earned an average £17m/year, with 2001 finding extra
strength in the tight shipping market of the early winter. Moving forward, we have
assumed that BG continues to make a constant margin on its rising capacity (hitting
£30-35m/year in 2006E). There may be years where this out (or under) performs our
expectations according to boat availability at each point. As all of BG’s new ships
will almost certainly be leased with a fixed charge, BG’s gearing to daily charter
rates will be high.
Regasification terminals
The regasification business will carry much of the trading – or wholesaling –profits
from BG’s global LNG contacts. Currently, this element consists of trading third
party LNG into Lake Charles (or one of the open-access terminals in northern

Europe). We describe our understanding of the Lake Charles opportunity in greater

detail in the specific section below. In summary, however, BG pays a fixed charge
every day for its access to the terminal. It then buys LNG from others on
(predominantly) a pass-through pricing basis, with BG making only just enough to
cover the fixed charge, the actual regasification cost, and a small margin. The more
LNG BG manages to get into Lake Charles on this basis, the more likely it is to cover
the fixed costs.
In the future, this business will become more BG-specific if the company chooses
to buy some of its own LNG (perhaps from Trinidad or Egypt) for subsequent
supply. At that point, BG could arbitrage on its own account the best pricing
opportunities between, say, the US and Europe.
As these own-trading opportunities materialise, so should BG’s regasification access

be improving. The Brindisi terminal in Italy is due onstream in 2007, and will allow
BG some access to the market on its own account (although 20% of the capacity
has to be made available to others under the Italian regulatory regime). In addition,
many of the new terminals planned for Spain and the UK (if not France) are likely to
carry similar open-access provisions.
Our financial forecasts include our estimates for shipping, the use of Lake Charles
and the completion of Brindisi. In aggregate this sub-division’s earnings are
estimated to range around £40-45m in 2006/07E, but could be higher (or lower)
depending on year-to-year freight rates and trading opportunities.
New business expense

BG’s development of new business opportunities in LNG is substantial enough
relative to the division’s current earnings to create notable volatility in quarter-to-
quarter returns. Averaging around £20-25m/year since demerger, the current
expense covers internal project identification work, external consultants and pre-
bidding by contractors. Upon project commercialisation, BG can look to capitalise
the past expenses (as it did for Egypt in Q4-2001).
We see little chance of a notable reduction in BG’s new business expenses over the
medium term. BG currently has project teams active on Egypt phase II and Brindisi
regasification. We suspect that Pacific LNG (Bolivia) is incurring charges from
project-leader, Repsol, as it attempts to manage a tricky combination of Californian-
Mexican-Chilean-Bolivian politics. Reports from Indonesia suggest that the BP-led
Tangguh development team is on a watching brief ahead of a more concrete
commitment for phase I volumes from the Chinese. Finally, BG continues to plug
away at the potential of Iranian export/Indian import schemes.
Our financial forecasts assume a constant expense of £20m/year.

The LNG plants

In this section, we take a detailed look at the structure and profitability of BG’s two
most advanced LNG projects – Trinidad and Egypt. We then review progress and
some estimated economics on the two potential projects currently in the portfolio –
Tangguh in Indonesia and Pacific in Bolivia.
Trinidad: strong foundation

The Atlantic LNG plant is BG’s only currently producing LNG asset. Train 1 started
production in 1999, was joined by Train 2 in August of 2002 and should see Train 3
come onstream this summer. BG has a 26% stake in the first train but 32.5% in the
new capacity. By the end of this year, the plant should be exporting more than
1.3bcf/d as LNG (or over 400mmcfd net to BG) with sales going primarily into the
US and Spain. With a plentiful gas reserves base, and excellent proximity to the US
gas market, Trinidad has probably become one of the world’s most prized LNG
assets.
Figure 5: Trinidad gas: big volumes for a small island
18000
15000
12000
Volume (bcf)
9000
6000
3000
0
TOTAL
ENI
Chevron
BP
Talisman
Repsol
Petrotrin
BHP
BG
EOG
More than Brian Lara

In May 1971, the day after the second birthday of local cricket maestro, Brian Lara,
the original holder of BG’s acreage in Trinidad discovered its first gas field. This was
followed by a wealth of other finds through the 1970s and 1980s, but with little
accompanying development activity into an unsurprisingly small local market.
BG moved into the Trinidad acreage in 1988, when the asset formed part of the
acquisition of Tenneco’s non-US business. Both of the ex-Tenneco permits – East
and North Coast Marine Areas (ECMA, NCMA) – had discovered gas, the key
challenge was one of commercialisation. Not only did BG face a problem in terms of
finding a market, but it also had to compete against the local supply dominance of
Amoco (BP from 1999).
Following much negotiation, BG brought the Dolphin field in ECMA onstream in

1996 with a 175mmcfd supply contract into the local market. This coincided with

the start of construction of the first train of the Atlantic LNG project. While BG did
not have the leverage to gain supply rights into the plant (all the gas in Train 1 is
supplied by the BP fields), it bought itself some future potential by stumping up for a
26% share in the processing plant.
Train 1 started production in April 1999, only a month after Brian Lara made his
5,000th test run for the West Indies. Meanwhile, BG’s early capex commitment had
made it part of the Trinidad establishment, and was, no doubt, crucial in securing
the company’s greater share – and actual supply rights – in the subsequent LNG
expansions.
Figure 6: Trinidad: what’s where

Block 23b
TotalFinaElf
Maracas-1 Iris (under negotiation)
Uquire-1
LL9-1 TOBAGO
KK6-1
KK6-4
North Coast
Poinsettia Marine A-1
KK6-3
Block 9 BG KK6-2
K4-4 Orchid
Petrotrin KK4-5
KK4-3 KK4-1
CHACONIA
Norte de Paria 1 2a Poinsettia-SW
2 Block 24
Mariscal Sucre Open
Mejillones/ Dragón
Patao 1 3
1 Alice-1
HIBISCUS
Mejillones-1 Patao-1
Patao Sur-1
Open
HH6-1 Alma-1
Mejillones Sur Betty-1

24" Atlantic LNG
gas pipeline
Open Open Block 3a Block 3b Block 25a

North
Basin-1,2 BHP Billiton Open Shell
Canteen-2
Canteen-1
TRINIDAD Aripo-1
Kairi-1
Kairi-2
Topaz-1
Amber-1
Haydn-1
6" gas 1 Angostura-2
1
Cocorite PORT OF SPAIN Emerald
Angostura
2 Diamond-1,2
Northern Basin Consortium
Arima KPA Block 2c Block 25b
possible site for BHP Billiton
Laventille-1 Open
Mariscal Sucre LNG plant Block 1b Mokatika-1
Puerto 6" gas
Open Grande-1
Block 1a Block 2ab Adelpha-1
Open 4"
2 Guaico-1 Block 4a Block 4b
3 Open Spitfire-1
16" gas
Frederick North East Open Open

1
MAHAICA Manzanilla
Avocado-1
(shut-in)
4" 1
2,3
Kitchener-1
Longdenville
B-1
3
Freeport AA-1 2
2
1st Crapaud-1
Couva Couva-3
2 East Manzanilla
lock
1 3,4
Couva South West
Block X ge B Block 26
Cocal-1
South Darien 1
Marine Chickland-1 Ran trin
Petrotrin tral
Red
Block Y Domoil-1
Couva-2
Domoil 5 Open
20" gas
Cen ro Snapper-1
1
Goodrich-1 Pet 1 2 Las Cuevas-1
4 Petrotrin Open
2 Flanagin-1
East Congo River-1 ck
2 3 Point Lisas Montserrat-1 Blo BP West Block
2 1
1 Domoil-1 Methanol,Urea,Ammonia ern
Posa-40-1 Johnson
East an
24" Atlantic LNG
Manicou Road BP El Diablo South Darien

Block Z Iron smelting Talism
Tamba-1 SD-1B
gas pipeline
30"" gas 3 TABAQUITE

Trin
Tatou-1 1
4
Petrotrin Block W Phoenix Springvale-1 Mayo-1
1,2
219 3a Salman Deep-1A
ma
Posa-48-1 Harmony Esmerelda-1 4 Colenso OPR-14 1

Petrotrin Park 223
20"
South Coromandel-1 BRIGHTON Hall-3 Charuma-1 2

Radix-1
OPR-17 A Turtle-1
gas
229 Balata E-11 Motmot-1

Boundary MARINE 236
Balata SAMAAN SD-2 La Novia Modified Ua
Tarouba-1 Cardiff-1 Brickfield-1 Palmiste
2 Iguana
1 West BALATA C BOPR-15 EOG Starfish Block 5a Block 5b
2 1 Pointe-a-Pierre Point a Pierre-1
New Grant-1
2
4 1 W.Samaan-1
OPR-1 Tanager-1
2
North North Brighton-1 San Fernando Offshore Open Open
8",10" elines
North Marine BM-73 Balata West Mayaro 2

oil pip
Central Block BC 1 Cascadoux-1

NM-16 15 Marine NORTH San Fernando Bay-1 3 3
NM-2 Trinmar 17 Venture pen Bay EAST 1
,12"
1 5
Posa-36A-1 7 MARINE EAST BRIGHTON MARINE O 6
5 OPR-11 Block 5a
3 1 SFB-1 Primera
5 Roseau-1 GALEOTA OA-1,2 OSPREY El Niño-1
Posa-86-1 8 6
Barrackpore-355 Glod-1 Agostini-1 Petrotrin OPR-9 BG
4 East Brighton Marine St.Croix-1 La Fortitude-1 Corosan
7 Guayaguayare-621 2
La Savanne-1 Offshore Omega-1 Block E 2
Golfo de 5 13 14 N.SOLDADO Guapo OROPOUCHE CATSHILL- East Galeota 1 Point Radix-2 Dorado-1
4 1 OPR-20
Posa-65A-1 SN-659 S-818 MANDINGO Carapal ORTOIRE
S-368 Territorial Dolphin
3 Cocos-1
Paria Este S-648 G-10 Tablelands-1
Guayaguayare-601
ta 4 1
366 C.O.-47 gas Modified Ub
Ridge leo
OPR-10
Inelectra
oil oil S-646 C-6 GUAPO Oropouche 5 Lizard
Ga Petrotrin
MOVL 16" Marlin-1 BG 5 Deep
SOLDADO POINT 7 n EOG
Posa-100A-1
S-369 FOREST RES. oil ilio 1 16 1 Springs
GALEOTA
Tourmaline OPR-16 B D TEAK 2
MAIN 743 S-759 oil FORTIN ERIN gas Barrackpore Ve
rm 36 5 Antilles 1 NAVETTE 5
GR-4,6 2 1 OPR-12
1
Block 27
North Posa AL-13,17 SAN FRANCIQUE Catshill Trinity 1
1 Block 6b
Posa-103A-1
111-1
1 oil S-177 -9,15 134 G-646 2A Teak NW-1 C AP OPR-3 BG
4
BP
S-435 PLM-1
Point Fortin-
gas to LNG 36"gas
33 Ortoire 32 2
63 Iguana River-1 Guayaguayare-606
2 3,4 GR-2 MORA Arima-1
Barracuda-1 3
GPA-1X 143 533 Atlantic LNG Plant
1 INNISS / 1 16" oil E A Sandpiper-1
BEACH oil Galeota Ridge-5 pipeline Point DOLPHIN
sate
Soldado gas EAST SOLDADO AL-3 BARRACKPORE/ 2

ANTILLES-
Guayaguayare-603 8" s 24" gas /Galeota
538 Nariva-1 Poui
8" co
ga
PARRYLANDS Mck-6,7 24"
to East Mayaro-1
nden
Dolphin
115-1 West Point PENAL/WILSON TRINITY E29 GOUDRON G-389 Rincon-1
2 POUI 18"
oil
Manamo-2 Morro-1
nden
1
708 Soldado Area FYZABAD Rock Dome 24" gas
6" co
Ligoure CRUSE SIPARIA -1,3 GS-1 NP B OPR-18 MAHOGANY East Mayaro-2

E3 Petrotrin GS-2 SW Nariva-1
sate
177A-1 670 Trinmar MD-1 Rochard-1 G-619 1

Posa 115-2
700d 207 Apex Venture MACKENZIE/ Penal E15 36" gas to 2 W.Tourmaline-1,2 NE Poui-1,2
643
oil Morpho-2 MORUGA Atlantic LNG 1X EP-2
EM-5
Punta 255 Cedros-4 Southwest Peninsula GRAND Ext. MORUGA WEST E227,229 WP-2 A Coralita
Sur 576 2 Q-205 Neal & Massy EAST GBM
SW Poui-1 2,3
Cashima
EM-3,4
Serpiente-1 1 1 MORNE MD-39
Tri
541 RAVINE 1,4

1 2,3
nto
TED Maravel-1
DIABLO Petrotrin Operated Area
30 1
125 Open Guayaguayare-613
Guayaguayare
10" " ga East Mayaro
ma
PCH-1 13 South PALO SECO 3 40"

cond
ensa s 1 1
SW SOLDADO SE-1,2
r
ICACOS BONASSE Bay Mah gas te PELICAN Oilbird FLAMBOYANT 1 North East Lantana
PCA-58 Posa-123-1 Marine-1 2 COORA/ South Marine-4 ogan
Primera South Marine QUARRY/ Canari Marine-1 y-A
tlanti 12" 1
1 Queen's Beach
c LN liquid SE Galeota-4 1,2
South Marine APEX QUARRY
G s fro 2 Parula East Queen's Beach
PCPX-1 Open GOPA-1a mM s 2
Petrotrin ahog 1 2 3 IMMORTELLE " ga
BP East Block
Gal ds
5 any 2 10
ta
oil 8
to liqui
1
eo
oil
Capure-2 Block S11 48" 14" SE Galeota
BP Block 6d
CassBomba SEG-10
"
Mango
12
BP Manakin
Carambola-1 1 7
Open South Galeota
gas ia-Be x
pip ac 3 IBIS 16" gas 2
1
Pomello-1 BG
eline h 1 Manakin-1
PEDERNALES Columbus-1 Offshore
4
Immortelle-1,9
SouthEast
SEP-1
Manamo-1
l
" oi
Point Citron-1 2
S.E.C.C. Iron 6
G
Queen's Beach-1
ntic to
10
1
LN
Capure-1 Pedernales
Atla " gas
3
EOG 8" gas KISKADEE Horse 3 13
17 1 Cocuina
40
PSX-1 14
Perenco Banyan-1
1 Parang-1 16
Bombax gas
AMHERSTIA
Lower Reverse RLW-1 SEG-5
Morpho-1 SEG-9
L Block SEG-2
Renegade-1
SEG-15 RENEGADE Loran
SW Galeota-1 EOG Pamberi-1
RLE-1
CASSIA Kapok-1 1
Claro-1
Sparrow-1
Block 2
Sparrow-2 DORADO ChevronTexaco
1
Labyrinthine structure
The Trinidad project is odd both in terms of the asymmetry between ownership, gas
supply and gas offtake, and in the varying commercial structures that have been
employed across the different trains.
Train 1 is owned by five companies (BP, BG, Repsol, Tractabel and NGC), supplied
by one (BP, with upstream partner Repsol) and sells its gas to two (Gas Natural,
24% owned by Repsol, and Cabot, now owned by Tractabel). All of the Gas Natural
offtake (40% of the plant total) is supposed to go to Spain, and the Tractabel portion
has access rights to the Everett LNG terminal in the US and to Puerto Rico. In
reality, some of the gas can be redirected to other markets.

BG’s only economic interest in the Train 1 chain is in the plant itself. This is made
attractive by the peculiar set-up of the project. Rather than acting as a traditional
tolling facility (i.e only charging a tariff high enough to provide a basic return on
investment), Train 1 is a profit centre in its own right. In effect the plant shares the
end-user price with the gas supplier, such that revenues actually vary with the end-
user price realised for each cargo. The attractiveness of this arrangement is further
enhanced by the ten year tax holiday granted from start-up in 1999. For BG, this
makes LNG division earnings sensitive to both US and European gas prices.
Trains 2 and 3 are much more conventional in structure. They are tolling facilities
which charge a fixed fee for processing. The three plant shareholders are BP, BG
and Repsol. All three are involved in the supply of gas (although the BG upstream
also features ChevronTexaco, Eni, PetroCanada and Petrotrin as minority partners).
Gas Natural again appears as an offtaker (50% of Train 2 and 75% of Train 3), with
the remainder sold to El Paso for import into the Elba Island terminal in the US. The
major profit centre in the expansions is the upstream (which carries the variability in
end-user gas prices).

Figure 7: Trinidad LNG: a complex structure
BG operated
BP 70% ECMA and NCMA*
Repsol 30%
100% Train 1 50% Train 2

Gas
50% Train 2 25% Train 3
75% Train 3 ?? 33% Train 4
?? 67% Train 4
3.3mt 3.3mt 3.3mt 5.2mt
Train 1 Train 2 Train 3 Train 4

BP 34% BP 42.5% BP 42.5% BP 42.5% ??
BG 26% BG 32.5% BG 32.5% BG 32.5%??
Repsol 10% Repsol 25% Repsol 25% Repsol 25% ??
Tractabel 10% ...??
NGC 10%
LNG LNG
60% Cabot/Tractabel - US 75% Enagas - Spain
40% Enagas - Spain LNG 25% El Paso - US LNG
50% Enagas - Spain unknown?
50% El Paso - US Are BG and BP buyers?
*Supply from NCMA (BG 46%, Petrotrin 19.5%, Eni 17.3%, PetroCanada 17.3%)
and ECMA (BG 50%, ChevronTexaco 50%)
For BG, the economic effect of Trains 2 and 3 is seen in the E&P and LNG divisions.
In E&P, we should see the supply of around 100mmcfd net by the end of 2003, all
of which becomes gas destined for the US market (and thus carries with it
sensitivity to the US gas price). In the LNG division, we see basic tariff income that
steadily remunerates the capital investment. Normally, we would expect such
returns to be sub-10%. However, the convergence in ownership between upstream
suppliers and plant owners in Trains 2 and 3, coupled with a still-lower tax rate than
that seen in the upstream, does seem to be reflected in the focus of slightly more
profit downstream. Our numbers suggests a plant rate of return of 10-12% (which
we have also used for Train 4).
The existing longevity of the Trinidad projects does not lend itself to straightforward
estimates of integrated project returns. Moreover, it is almost impossible to
disentangle the cost of developing gas for domestic Trinidad use (which is priced
quite cheaply) versus the more lucrative LNG export volumes. If we ignore this
distinction, our models suggest a cross-chain return (net to BG’s various
shareholdings) of 15-16% at a long-term US gas price of $3.25/mcf. Any years of

higher US gas prices will clearly enhance this figure (we are currently forecasting
$4.40/mcf for 2003).
Interestingly, BP’s more prolific gas trend (and lower field development costs) does
appear to give it a more appetising rate of return. Again, it is hard to separate out
the old domestic oil and gas from the new streams, but we estimate that net to
BP’s various interests, the Trinidad chain delivers an integrated return of 20-22%.
For Repsol (which acquired its 30% upstream stake in BP’s acreage for just under
$1bn, but has always paid its way in the plant), we estimate a return of 12%.
Figure 8: Trinidad returns: how cheap is the upstream gas?
35% E&P
Plant
30% Integrated
25%
Project rate of return
20%
15%
10%
5%
0%
BG BP Repsol

Time for Train 4?

Atlantic LNG is currently preoccupied with the approval (or not) for Train 4. The early
engineering for this 5.2mt/year expansion (to send out almost 700mmcfd of gas)
was completed in February 2002. However, a combination of persistent government
concerns about the size of the overall reserves base (does Trinidad have enough left
for its domestic needs?) and lobbying from other potential suppliers keen to get in
on the act has delayed the process.
Across the course of the past two years, we have heard repeated suggestions that
the fourth phase of the plant expansion may be done on the basis of “biddable
capacity”. This would imply that in whole (or part) the current owners would have to
bid for the right to expansion capacity against alternative gas suppliers. A review of
recent discoveries and acreage in Trinidad would suggest that only EOG Resources
is currently in a position to offer gas in the very near term. Others (from TOTAL and
BHP through to Shell) would (it appears) need to undertake new exploration activity.
Assuming that the fourth train does proceed, it may be the first in which BG
“trading” actually bids to buy volumes from BG “E&P-LNG”. Whereas BG had no
international LNG trading capability at the time of the sales of Train 1-3 volumes, the
map should look very different in 2006-07. By then, BG should have access to more
capacity at the Lake Charles terminal in the US, should have brought the Italian
Brindisi import terminal online, and may have dedicated capacity at other “open-
access” regasification points in the UK, northern Europe and Spain. Any LNG that
BG “buys on its own account” could be traded across these various markets.
Although the international traded LNG market is constantly growing in volume, the
risk profile of BG Group is likely to increase if it does become a trader on its own
account. The pricing of its current LNG sales may vary already, but there is no
offtake risk – this is dealt with via the long term take-or-pay contracts. By selling its
own LNG into the end-user market, BG effectively becomes its own take-or-pay
counterpart. Beyond the international downstream gas companies, this is a game
that has so far only enticed Shell among the conventional oils. To cover this
emerging volume bet, we suspect that BG will continue to hold a strong balance
sheet, while adding both regasification entry points and trading expertise (people).
El Paso twist?
El Paso’s global LNG assets are up for sale. Dominated by actual and potential
regasification capacity, the package also includes the offtake rights for 2.5mt/year
(300mmcf/d) of LNG from Trinidad Trains 2 and 3. Given BG’s immediately available
Lake Charles import capacity (500mmcfd now, at least 630mmcfd by 2005), is it a
buyer for this contract? Would BG be willing now to take on that internal take-or-pay
obligation? Assuming a 10c/mf trading margin for El Paso, we estimate that the
wholesaling rights on the contract could cost a new buyer $200m. El Paso’s other
LNG purchase contract is the right to take 1.8mt/year (220mmcfd) from Norway’s
planned Snøhvit project (probably of no interest to BG).
In terms of currently operating assets, the company has 760mmcfd of US

regasification capacity at Elba Island and Cove Point (we doubt that BG could add this
entirely on an anti-trust basis, but it could be worth over $700m on the basis of recent
deals). Proposed regasification projects include two in Mexico: one on the east coast
with Shell for domestic use (Altimiria); and the other on the west for onward pipeline
export to the US. While we understand that Shell’s Altimira could be approved soon,
the other looks some way down the queue (behind Marathon and Sempra). Since
BG’s interest is associated with the Sempra project (it would connect to Bolivian
LNG), we doubt BG would be interested in this piece of the portfolio.

More speculatively, El Paso has also proposed a regasification point in the Bahamas
for linkage into a Florida-bound pipeline system. It also has the rights to one of the
proposed technologies for floating regasification – the “Energy Bridge” project.
Again, we doubt whether BG would be interested in this project.

Egypt: first to market
From explorer to producer

BG has been active in Egypt since the late 1970s when, as the old British Gas
Corporation, the company was a preliminary adviser to the government on the
potential gasification of the economy. Modern involvement really began in 1995
when, under the previous E&P management, BG took 40% and 50% stakes
respectively in the Nile Delta exploration blocks Rosetta (with Shell and Edison) and
West Delta Deep (“WDDM”, with Edison).
BG began exploring the acreage in 1997 and has so far delivered an exploration
success rate of almost 100% for the discovery of 10 major gas fields. Initial
development efforts were focused on the more-inshore Rosetta field, which came
onstream in January 2001. The project sells all of its gas into the highly-lucrative
domestic gas market (where Egypt has offered both generous prices and tax terms
to accelerate the gasification of the economy). This market will also take the first
phase of production from the Scarab/Saffron fields in the WDDM block (due
onstream end March/early April 2003). We estimate that these two projects have
full-cycle rates of return in excess of 35%.
Figure 9: Egypt: west versus east

Open
Taalab
Sienna
West Delta Deep Simian
BG
SAFFRON
Open
Serpent
Saurus Tersa
SCARAB
Sequoia Sapphire Baltim NE
West MedGas Ras El Barr Seth

Rosetta Tuna North Bardawil
Mediterranean Deep BALTIM Ringa
BP MedGas PetroTemsah
Libra BG NORTH IEOC
BP HA`PY
Taurus Akhen
Rashid
MedGas TUNA
12
Area 1 Denise
"g
as
Northwest Damietta
Ha'py PetroTemsah
pip
elin
Shell MedGas
e
24"
Idku
North Alexandria SETH Denise

Block A P1
to
BALTIM Seti Plio

line
EAST
BP ROSETTA BP
pipe
Rashid
Area 2
ned
North Idku P2 KARAWAN TEMSAH BARBONI

SEGAN
plan
PetroTemsah
GEOGE BG Karous
WAKAR
24" ga
Port Fouad
North Alexandria Baltim E Open PetroTemsah ABU SEIF
Block B
MedGas Petro-
s
pipeli
14"
BP Said
MedGas 8" ASFOUR
ne
Ha`
MYAS BARRACUDA
30"
planned
py-W
BALTIM
gas
gas t Harbo
SOUTH
es
10"+ gas
pipe
NOURAS
planned
Abu
line
4"+
12" gas
Madi
3"
ur
West DARFEEL
e s
elin t ga
North Idku
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BG’s domestic gas projects contain at least 5.3tcf of gas, which will be supplied into
the domestic market over a 20-year period. BG’s luxury (or problem?) is that
exploration activity in the WDDM permit in particular has yielded a further 12tcf of
gas reserves. As these discoveries were being made, it became increasingly
apparent that Egypt’s local demand was well-supplied by existing contracts out to
2008. If BG’s growing excess of gas was not to form part of a long queue behind
other (Eni, Shell, Apache and BP) projects, the company had to find an alternative
route to gas commercialisation.
From late 1999/early 2000, it became increasingly apparent that BG was going to
focus on the development of LNG as its alternative sales route. Rival projects had
already been mooted by Shell, Eni and BP, and Shell had also proposed a gas-to-
liquids plant for the local distillate market. Although the other players had a longer
history of activity in Egypt, and more demonstrable project management and market
skills, BG won the race to the first (conventional) LNG project in January 2002.
We find it hard to not to conclude that BG’s greater focus on the opportunity
delivered its success. Also notable, however, was BG’s local commitment to the
downstream Nile Valley Gas Company for the gasification of parts of Upper Egypt.
Moreover, our economics also suggest an integrated project rate of return on
Egyptian LNG phases I and II of around 12%. Although not uncommon for a long-
lead time gas project, this rate of return is clearly below that commonly expected for
deepwater oil or even some of the development-led projects on offer in OPEC and
the FSU. In the interests of generating a longer-term global LNG position, it is
possible that BG’s thresholds for investment were set below those of companies
with a wider range of international opportunity.
Figure 10: Egypt returns: bit less money to go around
25% E&P
Plant
Integrated
20%
Project rate of return
15%
10%
5%
0%
Trinidad Egypt
The LNG project structure

Egyptian LNG has essentially been constructed as a “tolling facility”. This means
that it forms part of a cost chain from the end-user price back to the wellhead
upstream price. This is different to Train 1 in Trinidad (where the LNG plant itself
gets a piece of the variable end-user price), but matches its subsequent expansions.
We understand that the downstream facilities in Egypt have been set up to

generate a rate of return of some 8% nominal (i.e. the price charged for liquefaction
is enough to cover costs plus an 8% return on investment).
Currently, the downstream consists of four separate companies. The “Egyptian LNG
Company” and the “Operating Company” will be involved in all aspects of LNG
processing and export (owning things like the port facilities and providing the
personnel). The “Train 1” company will own the actual 3.6mt/year of first phase
liquifaction capacity. All three of these companies are owned by BG, Edison (both
35.5%), EGAS, EGPC (both 12%) and GdF (5%). The fourth company is the
emergent “Train 2” company, which will presumably have BG, Edison, EGPC and
EGAS as partners as well as (possibly) the as-yet-to-be-named LNG buyer.
This structure allows subsequent “trains” of capacity to be added to the project

without requiring an identical ownership structure each time. For example, if BP
wanted to build a train on the BG site it could do that with 100% capacity
ownership, but lease (from BG and the original ELNG partners) access to the
associated facilities and operating personnel.
Figure 11: Egyptian LNG: project structure
Operating ELNG
company (port facilities, site)
Upstream
BG 35.5% BG 35.5%
West Delta Deep Edison 35.5% Edison 35.5%
BG 50% EGAS 12% EGAS 12%
Edison 50% EGPC 12% EGPC 12%
GdF 5% GdF 5%
Services
Gas
Upstream Train 1 Train 2 Train 3...and so on

New supplies BG 35.5% BG 35.5%
from others?? Edison 35.5% Edison 35.5% ???
EGAS 12% EGAS 12%
EGPC 12% EGPC 12%
GdF 5% XXXXX?
LNG sales and supply

The first train of LNG has been sold to GdF on a 20-year contract for first deliveries
in Q3 2005. While no delivered price has been released, we estimate that the figure
will be around $2.75/mcf at an $18/bbl Brent benchmark price.
The gas supply will come from the Simian Sienna discoveries that lie to the north
east of the about-to-start-up Scarab Saffron development. We estimate that Simian
and Sienna contain around 5.5tcf of gas, of which 3.6tcf will be needed to supply
the GdF contract. The upstream gas price will reflect the end-user price less the

cost of regasification (thought to be around 25-30c/mcf), shipping (around 25c/mcf)

and liquifaction (we estimate up to $1.45/mcf to generate an 10% return on the
$1.35bn of capex). The resulting wellhead price of $0.75/mcf is much lower than the
domestic gas sales price ($2.50/mcf at $18 Brent). Nonetheless, thanks to the low
development cost, project returns still (just) clear BG’s 15% hurdle rate for new
upstream projects.
The second train of LNG has yet to be officially sold. However, with BG announcing
various co-operative agreements with Enel this year, and getting close to launch on
the Brindisi regasification project, it looks highly likely that Italy will buy some of the
gas. BG’s past comments about wanting some of its own equity gas to trade into
the Lake Charles regasification facility in the US also suggests that BG will take
some of the volume onto its own balance sheet.
It is possible that incremental production from a mix of Scarab, Saffron, Simian and
Sienna could initially supply the additional 480-500mmcfd needed for the second
LNG train. More likely, however, BG will begin to develop other discoveries on the
WDDM block – of which the 4.3tcf Sapphire field directly adjacent to the Scarab
Saffron facilities looks the most likely.
The second LNG train will benefit from much lower ($550m) costs than the first.
Given the netback system that applies to the wellhead price, this should generate
more attractive upstream returns for the expansion. If the gas is sold into Europe,
the downstream costs could again range around 50-60c/mcf for shipping and
regasification, while the plant may require only 70c/mcf to remunerate the capex.
This could generate a wellhead price of up to $1.50/mcf (using the $18 Brent
benchmark). Alternatively, it opens the way for BG to trade gas into the US. While
shipping and regasification costs could amount to a far higher $1.40-1.60/mcf,
access to a higher priced market (perhaps $3.20-3.50/mcf versus Europe’s $2.60-
3.00/mcf) could still leave $1.00-1.10/mcf for the upstream.

Figure 12: LNG: the global cost stacks

$ per mmbtu
0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00
Trinidad II & III (BP)
Indonesia Bontang I (IX)
Trindad II& III (BG)
10 Year Henry Hub Average

Nigeria IV-V
Venezuela
Nigeria III
Algeria
Egypt LNG II
Abu Dhabi
Pacific LNG
Trinidad I
Qatar Rasgas III
DB 5 Year Henry Hub Forecast

Indonesia Tangguh
Qatar Rasgas
Oman II
Nigeria I-II
Malaysia Tiga
Egypt LNG I
Iran
Oman
Norway Snoevhit
Upstream at 15% Pipe Plant Shipping to Lake Charles/California Regas.
Our base-case economics for the first two trains of ELNG supplied from WDDM
assume a weighted average gas price of around $1/mcf. This generates a project
IRR of 18%. Combined with a 10% return on the $1.9bn due to go into the
downstream, our numbers suggest that the integrated cash return on ELNG for
BG’s net shares is 12-13%. This relatively low figure emphasises the importance to
BG of keeping the LNG capex off balance sheet (see later), and potentially
enhancing returns either through incremental spot sales into peaks in the US gas
market – or further project expansion.
Expanding ELNG – does BG have enough gas?

If we assume that all of Rosetta and Scarab Saffron’s 5.5tcf of gas reserves flow
into the highly priced domestic market, that leaves BG with 12tcf of discovered
(proven plus probable) reserves for export. Each of the planned trains requires 3.6tcf
for a 20-year supply deal. In theory, that would leave 5tcf – sufficient for a third train.
There are, however, various constraints on this straightforward calculation. Most

simply, if BG’s acreage really contains no additional gas, we suspect that the
economics might favour the extension of the contracts on the first two trains out to
30 years – a more realistic view of the operating life of the physical machinery. Such
an approach would leave only 1.2tcf of spare gas – insufficient for a third train.

The position of the Egyptian government is more difficult to read. Originally, the
promotion of the gas industry in Egypt was all about the gasification of the economy
and the substitution of expensive dollar-denominated crude imports. Recently, with
the prospect of LNG pushed hard by the industry, the focus has switched to
attracting in investment capital and generating a new flow of dollar-denominated
exports. Looking forward, unless BG and the other upstream companies start to find
yet more gas there is a risk that government concerns could reverse.
Figure 13: Egypt gas: sustaining the surplus needs more exploration
80
70
60
50
bcm pa
40
30
20
10
0
2000 2005E 2010E 2015E 2020E
Gas demand Contracted prodn
Accelerated develpmnt (domestic use) Export-led develpmnt
Our simple estimates concur with published views that Egypt is long of contracted
gas to around 2008, and has more than enough in reserve to see it through to 2010-
2012. However, much beyond that and the export of LNG through BG’s scheme and
the rival Fenosa/Eni plant (see later) could start to leave the domestic market short.
We estimate that Egypt’s current discovered gas reserves are around 55-60tcf. Of
this, around 10tcf have been used already, 10tcf will go into the domestic market
until 2010, and another 10-11tcf has been committed to LNG exports. The
remaining 27tcf gives a ratio of 16-17 years of domestic use at the forecast 2010
consumption rate. With energy and dollars of such great concern to the Egyptian
government, we may need to see another burst of exploration activity before BG is
given the right to allocate any more reserves for export.
The alternative to BG-only LNG exports is to aggregate the discovered volumes of

others into a new expansion. Both BP and Apache have undeveloped gas nearby.
BP has found around 5tcf in its North Alexandria acreage (although we understand
the block’s tax terms are punitive) and may have a new trend in the West
Mediterranean Deep block. Apache has also found 1-2tcf so far in a new trend in its
West Mediterranean Block 1. These finds are around 70km offshore BG’s LNG site
at Idku. In addition, Shell has a very large block located in the deeper waters to the
north of WDDM. Early drilling was unsuccessful, but we understand three more
wells are planned close to the BG acreage this year.
The attraction of this (and any other uncontracted gas) to BG’s expansions is
undoubtedly complicated by the ongoing construction of another LNG plant on the
eastern part of the Nile Delta. This Union Fenosa-promoted scheme (known by its

location at Damietta) was a surprise entrant to the Egypt LNG race in 2000.
Nonetheless a combination of Fenosa bringing a guaranteed market in the form of
its own gas-fired power generation needs in Spain, coupled with the (somewhat
unclear) involvement of the Egyptian authorities, got the plant off the ground. The
construction contract was awarded in January 2002, and activity is apparently
underway to meet a first deliveries target of Q1 2005.
Gas is to be supplied to Damietta straight off the national gas grid by state-owned
EGPC. Given that this gas is sold to the grid (by BG, BP, Eni, Shell and all of the
other local producers), at the high domestic gas price, we remain unclear as to how
this is compatible with a profitable LNG project (which needs very cheap gas as
feedstock). It has been suggested that “blending” the company volumes with the
essentially free profit gas taken by the Egyptian government in the form of tax from
the company concessions would effectively lower the cost of this gas. Quite why
the government would do this, and for what alternative gain, remains uncertain.
Eni entered the Damietta project as operator last December following its acquisition
of 50% of Fenosa’s gas subsidiary. While Eni (Egypt’s largest and oldest foreign
producer) has yet to be more forthcoming on the project structure, we are
somewhat happier now that the ultimate development will be a sensible one.
Indeed, we wonder whether the eventual outcome will be a direct gas feed from
the offshore gas production of Eni, BP and Shell that bypasses the grid and allows a
more transparent pricing structure. Further confirmation of this potential shift could
lie in Eni’s recently announced expanded exploration programme for Egypt in 2003.
For BG, the increasingly concrete Fenosa project is undoubtedly an annoyance.

While both parties argue that Egypt can sustain two projects – one for the western
Delta, and the other from the east – the plants are a mere 160km apart. If BG’s site
can really take six trains, the building of a $200m (or so) pipeline link to ELNG must
surely make more economic sense than a second $1bn facility. The more gas each
plant can attract, the higher its expansion returns.
Figure 14: Egypt: remaining gas reserves by company
9000
8000
7000
6000
Volume (bcf)
5000
4000
3000
2000
1000
0
Eni BG Edison BP EGPC Shell Apache RWE-
DEA

With government concerns about over-exporting its resources potentially on the

rise, the battle for the next LNG expansion is shaping up to be as hard fought as the
last. With almost 60tcf discovered in Egypt to date, it is very possible that as much
again waits to be found – but it needs to stay cheap and easy to develop if it is to
compete with the almost endless reserves of Algeria, Nigeria, Qatar.....
Tangguh: more knowledge than power

BG entered the Muturi PSC in Indonesia as operator in 1992. Although this followed
the discovery of gas in the adjacent acreage by Occidental in 1990-91, activity in the
region only took off following the entry of ARCO (now BP) in late 1993. By August
1994, ARCO had discovered the giant Wiriagar Deep gas field (over 4 tcf) on the
Berau and Wiriagar PSCs. Then in 1997, ARCO found the very large Vorwata field
that overlaps from Berau into BG’s Muturi licence. Today, the three adjacent PSCs
are thought to contain in excess of 24tcf on a proven plus probable plus possible
(3P) basis, of which BG’s net share currently stands at 11%.
Plans for an LNG plant began emerging around 1995, and gained added vigour when
BP took out ARCO in late 1999 (the SuperMajor now holds 39% of the project).
While there is absolutely no likelihood of Tangguh’s huge gas volumes being

consumed locally, at least it has been found in a country with a strong track record
in LNG development. Bontang (TOTAL/BP/Eni) is now the world’s largest LNG plant,
and ExxonMobil’s Arun was a leader in its time. Nonetheless, Tangguh has (and still
is) stuck in a long queue of “stranded gas” waiting to get into the markets of
northern Asia – or even the US. Tangguh is competing against cheap expansions of
plants such as the local Bontang, nearby Malaysia and the more distant Australian
North West Shelf. In addition, it has new-build competitors in Shell’s Russian
Sakhalin, Austrialia/Timor’s Bayu-Undan and even Bolivia’s Pacific LNG.

Figure 15: Tangguh: in the LNG hotbed

Sulu Sea
The Tangguh fields

Mindanao
Pertamina
Wiriagar Muturi
BP BG
MALAYSIA-
Sabah
Vorwata
Wiriagar Deep
Roabiba
Ofaweri
Natuna Sea Celebes Berau
Sea
Wos BP
Bintulu MALAYSIA-
Sarawak
Ubadari
West Arguni
BP
Molucca
Kalimantan
Sea
Babo
Makassar
Strait
Bontang Sulawesi
Seram
Irian Jaya
Java Sea
Banda Sea
Aru
Java
Wetar Tanimbar
Bali
Flores
Sumbawa EAST
TIMOR
Sumba
Timor
Sunrise Arafura Sea
Bayu-Undan
Arnhem Land
Priced to go
Tangguh’s strengths lie in its location and costs. The project is in shallow waters,
the reservoirs are high quality and the gas is low in CO2 and sulphur. As a result, we
estimate that the upstream can (just) clear the traditional 15% returns threshold
with a $0.5/mcf wellhead gas price. In terms of location, Indonesia is relatively near
to the gas markets of North East Asia. Tangguh will also benefit from the (now)
terminal decline of the Arun LNG project, and the increasingly notable lack of space
for more trains at Bontang. If Indonesia is to maintain its strong track record in
terms of reliability of supply, the state company, Pertamina, should want to favour
Tangguh purely in the name of diversified risk.
We estimate that the cost stack for Tangguh on top of the 50c/mcf welhead price,
assuming shipping to north Asia, should be around $1.25/mcf for the plant, 65c/mcf
of shipping and 35c/mcf of regasification. This would generate a delivered cost of
around $2.75/mcf. Prices in North East Asia, in an $18 Brent environment, have
historically been around $3.00/mcf, indicating a good margin for those LNG
producers who actually succeed in signing contracts (or some leeway for Tangguh
should more competition actually start to bring prices down).
Owners and marketers

Since BP took over the project, there have been several changes of ownership
structure – all apparently geared at LNG sales. First, BP increased its stake to 50%,
and then the Japanese trading houses of Mitsubishi, Kanematsu and Nissho Iwai
established a combined holding of almost 40%. Most recently, CNOOC took 12% of
BP’s holding. This last move was directly linked to the Chinese decision to award

Tangguh at least part of the supply contract for the country’s second planned
regasification terminal at Fujian.
BP has been actively lobbying for this access for some time (and indeed was
disappointed to lose the first import contract to Shell’s North West Shelf). The
SuperMajor has a variety of downstream interests in China and clearly sees this as a
game of long-term return. For now, however, Tangguh is still not assured. The
Chinese have committed to buy only 2.6mtpa (or only 70% of the size of BG’s first
train in Egypt). Tangguh needs more to get off the ground. Until it unlocks such
purchasers in (Japan, South Korea, Taiwan?), the tentative start-up date of 2007 still
looks optimistic, in our view. In addition, the reported Chinese price of $2.50/mcf
(including shipping) would reduce Tangguh’s wellhead price right down to the
50c/mcf we see as the minimum upstream threshold.
Figure 16: Reserves ownership in Tangguh
8000
7000
6000
Volume (bcf)
5000
4000
3000
2000
1000
0
Kanematsu
Nissho Iwai
Inpex
BP
Nippon
Mitsubishi
BG
CNOOC
Should I stay, or should I go?

In our view, BG in Tangguh has echoes of Kashagan. While this is clearly a gas
project in a business of core interest to BG, it fails in many other ways, in our
opinion. The company only has a 10% stake and virtually no other interests in Asia.
It hardly seems to fit the company’s preference for control, with timing and
marketing (and probably erosion of upstream profitability to favour a long-term
downstream strategy in China) being run by BP.
BG’s disposal of 16.67% of Kashagan (for $1.23bn) was slightly accretive to the
“risked” value we carried in our estimate of group NAV, but a slight discount to the
plain “unrisked” discounted sum of our field cashflow. Over the years, we have
found that applying a “risk factor” to some of the more uncertain projects within our
core value estimates provides a more accurate reflection of the industry’s appraisal
of value – and allows the discount to unwind as the operator proves up the
commerciality and timing.
Our value of Tangguh is similarly “risked”. Our base case starts up in 2007, but
expands over the succeeding years to a four-train project. We risk this value with a
60% weighting – to give a value of $2.65bn for the entire project and £195m
(5.5p/share) net to BG. The most recent deal in Tangguh (CNOOC’s 12%) valued the

project at only $2.2bn (implying 4.6p/share net to BG). However, we believe that
CNOOC achieved this price in exchange for allowing BP greater access to the
Chinese market. A more representative comparison might be the $2.9bn implied by
the 7% bought by Mitsubishi in late 2001.
Either way, while the deal is not of a similar scale to Kashagan, realising £160-200m
for a still-dormant asset would again improve BG’s near-term returns, management
focus and valuation.
Pacific LNG: rainforest dream (or is that nightmare...)

In a mirror image of Egypt, BG first entered Bolivia as an explorer in 1995. It farmed
into the then-Chevron operated Caipipendi licence in southern Bolivia for a 35%
stake. Lying just over the border from the hugely gas-prolific Noroeste Basin in
Argentina, the key issues have always revolved more around commercialisation than
actual discovery. Argentina has plenty of its own gas, so where would any new gas
(rather than oil) discoveries find a market in the centre of the Southern Cone?
Brazil first
The Caipipendi partners discovered the Margarita gas field in 1997, and subsequent
appraisal now puts reserves close to 15tcf. Shortly after the Margarita discovery,
however, Petrobras discovered the equally vast San Alberto (1998, 11tcf) and San
Antonio (1998, 6tcf), with TOTAL completing the quadruplet in 1999 with the 10tcf
Itau.
In terms of commercialisation, the Petrobras fields (in which BG has no equity) have
a clear lead. The Brazilian market was the obvious choice, and the required Bolivia-
Brazil pipeline (BBPL) was completed in 1999 amidst great hopes of the rapid
gasification of the oil and hydro-reliant Brazilian economy. To date, only San Alberto
and San Antonio can really be classified as “onstream” and feeding this market.
BG responded to the commercialisation challenge with a series of additional

investments. In 1999, it took operatorship of the privatised Comgas – probably the
key gas utility in Brazil located in the heart of the industrial city of Sao Paulo. In the
same year, the company acquired Tesoro’s interests in Bolivia: a stake in the Itau
field, but more importantly 100% of two small -–but actually producing – gas fields
located just to the west of the new discovery trend. These projects brought access
to the Bolivia-Brazil pipeline, and thus a link to Comgas’ downstream demand. The
company has since added to its transportation rights through the auctioning of spare
BBPL capacity.

Figure 17: Bolivian gas: big volumes searching for a market

VUELTA
CAMATINDI
Base for GRANDE
Pacific LNG
MARGARITA Supuati
SAN ROQUE
Petrobras
CHACO SUR
exports
CAIGUA
TAIGUATI
(shut in) ÑUPUCO
VILLAMONTES
Huayco SABALO LA VERTIENTE
BG’s current
LOS MONOS sales to Brazil
(shut in) Ibibobo
ESCONDIDO
LOS SURIS
Itau PALO MARCADO

SANANDITA
(shut in)
SAN ALBERTO
MADREJONES
Petrobras
exports MADREJONES
IPAGUAZU
Icua
MACUETA CAMPO DURAN
Churumas SUR
Ships not pipes

Despite these integrating moves, Brazilian gas demand has not developed at
anything like the pace expected. As a result, the Margarita partners (Repsol, BG and
BP), have developed a potential LNG export project. The plan would see gas from
Margarita (and probably also the TOTAL/Exxon/BG Itau) flow west through Chile to
the coast, be liquefied and shipped to Mexico, and then regasified and piped to
California. In terms of the number of borders crossed, this is already a difficult
project – but given that one is the historically disputed Bolivia/Chile line, it carries
extra political complexity.
Politics aside, we believe the project does appear to make economic sense. The
fields clearly contain the vast gas reserves needed to commercialise an LNG plant.
As importantly, the gas is very rich in liquids (condensate and LPG) that can be
stripped from the gas at the coastal processing plant. This highly valued liquids
stream creates an effective cross-subsidy for the gas chain. Indeed, we estimate
that the fields can generate a cash return of some 20% with a wellhead LNG price
as low as $0.5/mcf.
If we take this 50c/mcf as the base price for the upstream, and add to it the costs of
liquifaction and a cross-Andes pipeline ($1.50/mcf for a two train (1bcf/d) plant),
shipping (up to 60c/mcf given the distances involved) and the regasification/piping

from Mexico to California (perhaps 50-60c/mcf), we estimate that Pacific LNG can
make it to California for $3.20/mcf. Given that this would equate to a Henry Hub
price of around $3/mcf, the economic premise does not look unreasonable, in our
view.
More homework
In terms of risk, however, the project is clearly more vulnerable than a simple piece
of coastal export from Trinidad or Egypt. Even if BG were able to keep the vast bulk
of the capex off balance sheet, an integrated project return similar to Egypt’s
12-13% would be too low in our view. An upstream return of 25% (as opposed to
our base case 20%), would require a wellhead price closer to $0.75/mcf, but
generate an integrated project return closer to 15%. Can the consortium squeeze
project costs lower – or convince the market of higher US gas prices – to generate
this returns shift?
Recent comments from Mexico that it is indeed treating the regasification request
from Sempra (the proposed US buyer of Pacific LNG volumes) seriously does
suggest this project could begin to move soon. Nonetheless, the potential political
implications for any Bolivian leader that forgives Chile for stealing its coastline in the
late 1890s cannot be underestimated.

Lake Charles and Brindisi –

how might they work?
In this section, we discuss BG’s position in regasification – the point of market
access for global LNG. The assets will most probably earn a utility-like processing
fee – but carry the potential for higher returns if BG can access more volume and
begin to optimise the carriage of global LNG between continents.
Regas: the last link

A regasification terminal is one of the simplest parts of the LNG chain. It merely
allows tankers to offload their LNG into vaporisers that return the liquefied gas to a
gaseous state ready for use. There are various new regasification terminals being
built around the world today, and most cost in the range $300-400m (compared to
the first phase of a similarly sized liquefaction plant that could cost around $1bn). In
most markets, regasification is not a delivery bottleneck. Where it is, this occurs due
to intense environmental (or more recently, security) lobbying.
The “next big thing” in regasification is expected to be offshore facilities. By

plugging floating capacity (in the form of the tankers themselves or receiving
platforms) into (often-existing) off-to-onshore pipeline networks, the security
concerns would be relieved, and many of the environmental objections met. This is
becoming known in the industry as “over the horizon” – the ultimate in “not in my
backyard” solutions!
Although Edison had planned a floating LNG facility for northern Italy, this is now on
hold (not least because of its estimated $500m cost). The most likely real test case
for floating regasification will be the US. This market is short of regasification
capacity, yet is perfect for such imports. The market is substantial (and thus able to
absorb large quantities of gas without massive price distortions) and highly seasonal
(thus willing to pay premiums for peaking supply).
As the US domestic supply curve begins to diminish against the prospect of

potentially rising demand, LNG imports should provide the best answer. Volumes
can come into the market to “peak-shave” the winter season (or any other price
spikes). Our analysis of global gas projects shows that over 1,000tcf of reserves
could now reach the US as LNG at under $3.50/mcf – the benchmark long-term US
gas price of many commentators. The sooner the US adds to its current 2.3bcf/d of
import capacity (equivalent to less than 4% of total market demand), the quicker US
gas prices are likely to stabilise.
BG and regas.
For BG, access to regasification capacity creates an entry point into new markets.
Without such capacity, BG’s LNG sales would almost certainly end at the
liquefaction plant gate: it would pass the marketing and offtake risk to a
downstream gas provider. With regasification capacity, BG can actually take its LNG
production into end-user markets.
Most simply, this access probably makes BG’s LNG available to a wider range of
potential buyers. Not all gas sellers would want to commit to buy a whole train’s

worth of LNG, but if BG can aggregate a set of smaller buyers, it can create a
market for its product. At a more complex level, the access allows BG to trade LNG
on its own account. BG can then choose each month, or each year, where to sell its
LNG. Is Europe paying more than the US? Is California offering more than Korea
...and so on.
Figure 18: BG and the world of regas.
Brindisi
Lake Charles
Pipivav
BG actual and possible regasification terminals
BG actual and possible LNG production sites
Existing regasification terminal
Possible new regasification terminals
Furthermore, a combination of different production facilities and regas capacity on

different continents (in BG’s case, Europe vs. North America) can allow BG to
optimise the physical transfer of product. For example, some Trinidad gas currently
goes to Spain. BG may buy some of the Egyptian LNG expansion for sale in the US.
Best solution: swap the cargoes so no gas molecule actually makes the cross-
Ocean voyage. This could allow shipping costs of a combined $1.20/mcf, to be
replaced with $0.75/mcf. The implied saving of $1.2m on a standard LNG cargo is
small, but it could be a useful profit centre if applied, say, to all 65 cargoes/year that
Gas Natural is contracted to ship from Trinidad to Spain beyond 2003.
Lake Charles: US gateway

In late 2001, BG bid for and won the right to use the capacity of the Lake Charles
regasification facility in Louisiana. BG has the right to 81% of the current 630mmcfd
of capacity until 2005, and then 100%. It also has the right to use all of Lake Charles
planned expansion to 1.2bcf/d (probably around 2006-07).
In exchange for this right, BG says that it pays a fixed fee of $51m/year (equivalent
to 27c/mcf assuming full use of the current capacity share) and a small (3-5c/mcf)
gasification charge. BG is heavily incentivised to maximise capacity utilisation. Not
only does this obviously spread the fixed charge over the largest number of units,

but it also prevents others from accessing the plant. The terminal owner CMS has
the right to re-offer any capacity that BG does not use. Thus if BG leaves capacity
open because it cannot acquire enough LNG to trade, others can enter the market
and thereby reduce the effective market price for gas.
Other than some of the commissioning volumes of Trinidad Train 2, BG currently

has no gas of its own to trade into Lake Charles. To fill the terminal, BG must
approach sellers such as Nigeria, Algeria or Qatar and offer them the opportunity to
ship surplus cargoes. We understand that BG has been undertaking most of these
trades on a “pass-through” basis. The original seller thus takes the end-user gas
price, but passes BG a “facilitation” fee in exchange.
The numbers do not suggest that BG covered its costs at Lake Charles in 2002. This
is not surprising for a start-up business. Not only has BG not been able to access
enough cargoes to fill the plant, but it has (apparently) suffered from discounted hub
gas prices. With only one pipeline link from Lake Charles to the adjacent Henry Hub
gas exchange, traders have “seen” BG’s cargoes coming and have priced the
market down at the appropriate moment. Over 2003-04, prospects should improve.
The US gas market is again looking strong, BG’s trading team has been enhanced
and more pipeline links to other trading hubs should be completed.
Into 2005-06, the Lake Charles proposition could begin to change once more. If BG
does buy some of its own LNG from Egypt (or bids for El Paso’s ownership of
2.5mt/year of Trinidad LNG, see page 15, the company will be able to trade into
Lake Charles on its own account. This should enable greater capacity utilisation (and
a lower unit fixed charge), while allowing BG to optimise its capture of (a probably)
still strong US gas price.
Figure 19: BG’s position in US regasification

1.40
1.20
1.00
0.80
bcf/d
0.60
0.40
0.20
0.00
Everett Lake Charles Cove Point Elba Island
Existing Expansion by 2005 Throughput 2002
Brindisi – the fourth leg

The opportunity to trade gas into Lake Charles gains extra flexibility if its comes with
an ability to trade gas into Europe. In the wake of a series of agreements in late
2002, BG now appears close to a final investment decision on a regasification
terminal in southern Italy. Partnered with Enel, the Brindisi plant is due onstream in

2007, and should ultimately have 8bcm (770mmcfd) of regasification capacity (for a
cost of $300-350m).
Italy offers a large market with high seasonality (and thus demand for the flexible
supply that favours LNG over long distance pipelines). Its peninsula status and
declining domestic output limits the likelihood of significant over-supply. This,
combined with the continued dominance of just a few large players (Eni, Enel,
Edison), should provide relatively stable prices. The market is also extremely close
to Egypt, allowing BG to maximise the wellhead value of its LNG feedstock by
minimising the shipping costs (estimated at only 20c/mcf).
The Italian regulatory regime demands that 20% of the terminal capacity is open to
others. The remainder can be retained by the developer, subject to a rate of return
cap of 10%. Relative to Egypt Train 2 (planned size 5bcm), the first 4bcm phase of
Brindisi would allow 3.2bcm of imports net to BG and its partner.
In terms of the optimisation trade noted above, if Enel does become the partner, BG
could look at swaps between Nigeria, Egypt and the US. For example, Enel’s
contracted LNG from Nigeria costs almost 80c/mcf to transport to Italy. In a good
year, that could go to the US (into Lake Charles) for just over $1/mcf shipping, while
Enel took more volumes from Egypt only 20c/mcf away.
Over time, we would expect BG to add access to other terminals in Europe. Given
that the company has shown little interest in Spain or in the proposals for UK regas,
we suspect that it foresees no shortage of capacity - or complexity of access. Both
countries (like the current import hub on the Belgian coast), are likely to offer
transparent open access regimes, which BG can exploit as required.

Figure 20: European regasification terminals
Existing terminal
Terminal under construction

Milford
Milford Isle
Isle of
of
Haven
Haven Grain
Grain Proposed terminal
Montoir
Montoir Zeebrugge
Zeebrugge
Bordeaux
Bordeaux
Bilbao
Bilbao
Fos
Fos Rovigo
Rovigo
El
El Ferrol
Ferrol
Sines
Sines
Barcelona
Barcelona
Brindisi
Brindisi
Sagunto La
La Spezia
Spezia
Huelva
Huelva Sagunto
Cartagena
Cartagena
Widening the regasification range

BG’s only other regas project on the table is at Pipivav on the west coast of India.
BG has had this plan on the backburner since the late 1990s, and has
simultaneously been attempting to develop a downstream market through its
Mahanagar and Gujurat Gas subsidiaries.
This project currently appears lost in a murky world of Indian bureaucracy.

Nonetheless, BG has been making a huge (and very public) effort of late to
emphasise its commitment to India. We wonder whether this is also linked with
BG’s apparent progress in the Iranian LNG scheme. BG is emerging at the front of
the queue to develop the liquefaction element of Iran’s super-giant South Pars gas
field. Clearly, this development will be enhanced for BG if it also the offtaker. Iranian
LNG could well be competitive into Europe (as Qatari LNG is), but the obvious
market is India.
Whether BG emerges with its Pipivav regas terminal (estimated size 7bcm) or joins
the partners of the existing terminals is uncertain. The rival import terminals are at
Dabhol (the old Enron plant, complete), Dahej (state-owned Petronet, complete) and
Hazira (Shell, under construction).

On the other side of the world, BG could end up a partner in other US regas
terminals should it choose to join the bidding for El Paso’s LNG assets (the
completed Cove Point and Elba Island US terminals and a share in Shell’s planned
Altimira regas project on the Mexican east coast). In addition, Sempra (the
downstream offtaker signed up for the prospective Bolivia LNG project) could look
for partners in its proposed west coast of Mexico terminal.

Cash: how does the money

flow?
In this section, we combine our project economics into volume and financial
forecasts for the upstream and LNG divisions of BG. While our estimated integrated
project returns for BG E&P-LNG are not as high as those available, say, to
successful deepwater oil players, they are a multiple of the company’s WACC. In a
sector with very high barriers to entry, BG appears to have earned the “right to
replicate” and should continue to see the LNG division expand rapidly as new
projects – and elements of the LNG chain – are added. Overall, we see a business
responsible for enabling 65% of BG’s upstream production growth 2002-08E, and,
from the midstream assets alone, adding £130m to EBIT over the next five years.
The LNG division – a financial rationale

The LNG activities of BG are essentially an enabling business that allows the
commercialisation of otherwise stranded gas. The base earnings of the assets exist
only because they are sharing a piece of the price chain that feeds through from the
ultimate buyer of gas back to the upstream output. In our view, the trick for BG
management is to ensure that those upstream reserves chosen for LNG exports
have a high enough economic rent to support the midstream activity, without
decimating project returns.
In most respects, therefore, our earnings for BG’s LNG divisions are no more than
utility returns; a constant margin on the leased shipping fleet; a traders margin on
regasification; and remunerated capital investment in the LNG plants. The division
appears high growth only because BG is continuously adding new projects – less
because the existing assets are themselves becoming more profitable.
This “right to replace” is a key component of BG’s LNG strategy, in our view. The
oil and gas industry is full of very high barriers to entry: history, politics, balance
sheets and project management expertise. Overcoming these is hard for any
smaller company. BG appears to have managed to scale the barrier in the LNG
segment.
The integrated project returns we estimate for BG’s LNG chains are in the 12-15%
range, and are not comparable to the 20-25% rates of return we see on many of the
industry’s new oil developments – particularly in the deep water. Nonetheless, there
is a strong argument to be made that these higher returns are not available to BG –
it has no useful track record with which to gain entry. Instead, the company is
focusing on a business that still returns more than the cost of capital, does allow it
to achieve high growth, and ultimately may be attractive to a larger industry predator
wishing to round out its gas portfolio.
BG can keep its LNG business growing by continuing to access new projects. Egypt
could expand further. It may succeed with Bolivia and Indonesia. It may enter Iran or
Equatorial Guinea. Our earnings estimates may also be too low in those years
where BG manages to unlock the trading potential of its portfolio. This could occur
at Lake Charles if BG is able to access reasonably-priced spot cargoes in a boom
period for US gas prices. It could also happen if BG can begin to optimise the
carriage of global LNG. Gas sources and market access points on both sides of the

Atlantic could eliminate unnecessary shipping, and thus unlock “free” profits (albeit
small per cargo) for all concerned.
Unlocking production
The most obvious effect of BG’s LNG business is to unlock production that might
otherwise be stranded by a lack of market. We expect BG’s LNG-enabled
production to rise from 5,500boed to hit 175,000boed by 2008E. As a proportion of
the company’s overall output, we estimate the “LNG-enabled” percentage should
rise from 1% of group production in 2002 to 27% by 2008.
Figure 21: BG’s LNG-enabled production
200 40%
180 35%
160
30%
as % total production
140
120 25%
000boed
100 20%
80 15%
60
10%
40
20 5%
0 0%
2002 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E
Trinidad Bolivia Egypt Indonesia as % total
Overall, we expect the LNG-enabled output to contribute two-thirds of BG’s total

group output growth over that six-year period (taking the group from 378,000boed in
2002 to 630,000boed in 2008E). Interestingly, much of this expansion is back-end
loaded. Further growth in Trinidad, or success in Bolivia and Indonesia, is unlikely to
contribute before 2007. Within BG’s target period (to 2006), the LNG-enabled output
rises to a smaller 50,000boed to account for a still-measured 10% of group
production.
LNG presence
From its rising gas output, BG is developing a presence in the traded LNG market
over and above its shipping capacity. We expect BG’s LNG output to rise from
1.1mtpa in 2002 to reach 9.2mtpa in 2008E. Nearer term, we expect BG to exceed
its 2.3mtpa LNG volume target for 2003 (we carry 2.6mtpa), but to find the 6mtpa
target for 2006 dependent on a fair wind behind current expansions (we carry a
lower 4.8mtpa average for 2006E but jumping to 8.1mtpa in 2007E).
To put these volumes in perspective, we see the global LNG market using some
110mtpa in 2003E. Of this, the major trader is Shell with 10mtpa net – in our view,
not an unreasonable target achievement for BG by the end of this decade.

Figure 22: BG’s LNG output
10
9
LNG output (net to BG mtpa)

8
7
6
5
BG targets
4
3
2
1
0
2002 2003E 2004E 2005E 2006E 2007E 2008E 2009E 2010E
Trinidad train 1 Trindad train 2 Trinidad train 3 Trinidad train 4

ELNG 1 ELNG 2 Pacific Tangguh
LNG in the P&L

As noted above, our divisional LNG forecast represents the utility-like returns of the
assets concerned, less a continuous new business expense. There may be years
when the environment delivers a more favourable trading environment, but we have
not included that upside in our medium-term forecasts.
Figure 23: BG’s LNG EBIT profile
200 New business

Shipping/marketing
Brindisi
150
Egypt
EBIT (and PBT total) £ mn
Trinidad
100 PBT
EBIT
50
-50
2000 2002 2004E 2006E 2008E 2010E
Within the division, we expect LNG EBIT to rise from £8m in 2002, to reach £140m
by 2007E. For 2010E, we carry £175m, but that could be improved further by
success at Tangguh or Bolivia. Overall, this takes the LNG contribution to group
EBIT from 1% in 2002 to 10% in 2007E. In the very near term, we expect 2003
earnings to jump notably (to £47m) thanks to the strong US gas price and the start
up of Trains 2 and 3 in Trinidad.

Slightly less appealing than our implied 100%/year average growth in LNG EBIT, is
the impact on pre-tax profit. A key element of BG’s LNG strategy is the project
financing of individual assets. It is expected that Egypt and Brindisi will follow
Trinidad Train 1 in being formed as joint-venture companies with responsibility for
their own financing. While this keeps the project capex off balance sheet, BG’s P&L
must still bear the associated interest. Our estimates show this interest liability
rising from £10m in 2002 to reach £35-40m by 2007E. This restricts the pre-tax
profit contribution to £100m in 2007E, from essentially break-even in 2002.
LNG returns and the off balance sheet effect

Our previous publication, BG: Is there money in international gas?, June 2002,
examined our view that many export-led gas projects are likely to be less profitable
(with lower margins and returns) than the sale of conventional crude or gas into local
markets. By its nature, the upstream has to bear the midstream costs of transport
to market. In our view, only a few gas projects globally have low enough wellhead
development costs to carry this extra burden, and remain as competitive as
conventional developments. We would place Qatar, Nigeria, Algeria, Bontang and
perhaps BP’s larger gas reserves in Trinidad in this category.
Our forecasts do show BG’s upstream business experiencing slight returns dilution
over time. This, in our view, reflects a mix of the upfront capital intensity of growth,
and the shift away from old legacy projects into this new international gas stream.
Figure 24: BG’s shifting upstream production mix
800 60%
700
50%
Production (000boed)
600
40%
500
% UK
400 30%
300
20%
200
10%
100
0 0%
2000 2002E 2004E 2006E 2008E 2010E
UK Bolivia Egypt India
Indonesia Kazakhstan Thailand Tunisia
Trinidad UK proportion
It is important, therefore, that BG does not compound this upstream dilution with
the burden of the midstream assets. By keeping much of the LNG development
capital off balance sheet, it is the earnings stream, rather than the cost, which is
emphasised. When combined with a steady improvement in the performance of
BG’s gas distribution assets, we do expect an increase in BG’s downstream returns
(LNG, distribution, power) that offsets the upstream weakness. In addition, we
suspect that the more this downstream improvement can be sourced from the LNG
business, rather than customer utilities in Latin America and India, the higher the
quality of the profile and the more responsive it will be to management control.

BG is clearly not alone in either its focus on group (over segment) returns, or its
financing routes for LNG projects. It has also attempted to be fair in its returns
targets by deducting the associates interest from the “return” element of group
ROACE (not as dilutive as adding the capital, but intellectually honest). Nonetheless,
when one takes into account all the capital being employed to drive BG’s above-
average growth rates, the unavoidable “cost of growth” is clear.
Figure 25: BG’s divisional returns – will Figure 26: BG’s group ROACE – choose your
downstream gas offset the upstream accounting
15% 15%
off balance sheet capital "gap"
13% 14%
RoACE/RoFA
RoACE/RoFA
11% 13%
9% 12%
7% 11%
5% 10%
2001 2002 2003E 2004E 2005E 2006E 2007E 2001 2002 2003E 2004E 2005E 2006E 2007E
E&P G&P G&P with extra capital RoACE (DB) RoACE (BG)
Source: Deutsche Bank estimates and company information Source: Deutsche Bank estimates and company information
As we illustrate in Figures 25 and 26, including all of the project finance capital in the
divisional returns of BG’s downstream gas business dilutes the results by a
widening 1-4% over our forecast period. To show the impact of this on group
ROACE we have added the extra capital rather than following BG’s method of
deducting the associated interest. This results in a ROACE 1-2% lower than under
BG’s methodology. Interestingly, the shift changes a pattern of high growth at
constant returns into one of slight dilution 2001-07E.
While these “fully-integrated” accounts may leave BG shy of the nirvana-like top-
quartile growth and rising returns, set within a sector context, we believe BG’s
combination remains better than most.

Figure 27: Sector returns vs. earnings growth 2003-07E
2%
1%
Change in ROCE 2003E-07E

0%
-5% -3% -1% 1% 3% 5%
-1%
average
-2%
-3%
-4%
EPS Growth % 2003E-07E

Deutsche Bank AG
8 April 2003
Figure 28: BG’s net asset value as at 4 April 2003
Remaining Reserves Net Asset Net Asset Net Asset
Field Risk Interest % Liquid mmbbls Gas bcf Oil Equ. mmboe Value £m Value p/share Value $m
Upstream Assets
Bolivia 140 6430 1212 343 9.7 514.4
Los Suris & Palo Marcado 100.0 4 249 45 23.6 0.7 35.4

Itau (risked 60%) 0.60 25.0 21 1538 277 56.7 1.6 85.1
La Vertiente & Escondido 100.0 6 568 100 46.9 1.3 70.3
Margarita (as LNG from 2008, risked 60%) 0.60 37.5 110 4075 789 215.7 6.1 323.6
Egypt 1 8500 1417 1254.1 35.5 1881.1
Rosetta 1.00 40.0 1 741 124 221.4 6.3 332.1
Saffron, Scarab 1.00 50.0 0 1646 274 644.5 18.3 966.8
Egypt LNG Train 1+2 1.00 50.0 0 3882 647 197.4 5.6 296.1
Other uncontracted gas (10c) 1.00 50.0 0 2231 372 148.7 4.2 223.1
Basic return on LNG infrastructure 1.00 35.0 42.0 1.2 63.0
India 37 900 187 347 9.8 520
Panna and Mukhta 1.00 30.0 30 100 46 170.6 4.8 255.9
Tapti (development 70% risked) 0.70 30.0 8 800 141 176.0 5.0 264.1
Indonesia
Tangguh ( from 2007, 65% risked) 0.65 11.0 8 1664 285 211.0 6.0 316.6
Kazakhstan 599 4449 1340 1921.2 54.5 2913.0
Karachaganak 32.5 599 4449 1340 1231.4 34.9 1847.2
Kashagan (sold 16.67%) 16.7 793.5 22.5 1230.0
Tax on disposal at 30% -169.7 -4.8 -263.0
CPC JV 2.0 65.9 1.9 98.8
Thailand
Bongkot 22.2 10 674 122 266.5 7.6 399.8
Tunisia 38 796 171 363.3 10.3 544.9
Miskar 100.0 16 555 108 328.5 9.3 492.8
Hasdrubal (Risked 75%) 0.75 100.0 22 241 62 34.8 1.0 52.2
Trinidad and Tobago 0 3896 649 957.8 27.1 1436.6
East Coast Marine Area (Dolphin) 50.0 0 1768 295 270.1 7.7 405.1
North Coast Marine Area 45.90 0 1083 181 249.9 7.1 374.9
Atlantic LNG Train 1 26.00 0 0 0 242.2 6.9 363.2
Atlantic LNG Train 2 & 3 32.5 0 0 0 256.0 7.3 383.9
Other uncontracted gas (10c/mcf) 1045 174 69.7 2.0 104.5
Trinidad project debt (excluded from balance sheet) -130.0 -3.7 -195.0
UKCS 250.4 1744.5 541.2 2276.2 64.5 3414.3
Major UK developments
Blake 44.0 19 0 19 102.2 2.9 153.3
Buzzard 21.4 107 0 107 220.2 6.2 330.2
Everest Lomond 59.5 12 380 75 641.2 18.2 961.8
Armada 46.8 12 215 48 162.1 4.6 243.1
Elgin Franklin 14.1 49 223 86 405.5 11.5 608.2
Jade 35.0% 9 122 30 122.2 3.5 183.4
Joanne 30.5% 8 93 23 104.0 2.9 156.0
Judy 30.5% 3 46 10 64.8 1.8 97.2
Minerva 65.0% 0 98 16 84.7 2.4 127.0
Other fields various 32 568 127 369.5 10.5 554.2
UK technical reserves various 32 537 121 61.7 1.7 92.6
Other Upstream 0 434 72 14.7 0.4 22.0
Stake in GAIL 1.00 0 0 0 7.5 0.2 11.2
Israel (risked 25%) 0.25 various 0 434 72 7.2 0.2 10.8
Total Upstream 1,115 30,023 6,119 8,016 227.2 12,055
Page 43
Page 44
8 April 2003
Figure 29: BG’s net asset value (continued) as at 4 April 2003
Remaining Reserves Net Asset Net Asset Net Asset
Field Risk Interest % Liquid mmbbls Gas bcf Oil Equ. Mmboe Value £m Value p/share Value £m
Midstream and Downstream Assets EV/EBITDA 2003E

Global T&D (DCF with upstream equiv. WACC of 10% nom.)) 10.9 1066.5 30.2 1599.7
T&D values by recent deals/market cap. (for reference only, not used in 989.5 28.0 1484.2
current corporate valuation)
Comgas (Brazil) 60.0 751.2 21.3 1126.7
Gujurat Gas (India) 65.0 75.4 2.1 113.1
Metrogas (Argentina) 45.1 0.0 0.0 0.0
Phoenix Gas (N Ireland) 50.0 98.0 2.8 147.1
BBPL (Bolivia/Brazil) 8.1 26.7 0.8 40.0
PTL (N Ireland) 50.0 38.2 1.1 57.4
Other assets (UK Interconnector, Mahanagar, Cruz del Sur, NVGC)
EV/EBITDA 2003E
UK and International Powergen (DCF with 6% WACC, multiples) 9.5 776.3 22.0 1164.5
LNG (Lake Charles, Shipping, DCF) 0.75 114.2 3.2 171.3
Other project debt excluded from balance sheet -232.3 -6.6 -348.4
Total Midstream and Downstream 134.6 1724.8 48.9 2587.2
Corporate Effects 166.0 4.7 249.0

Cash/(Net Debt) end-02 estimate (ex-minority shares of Comgas/Metrogas) -808.3 -22.9 -1212.5
Core NAV 6,568.6 186.2 9,852.9

Risked Upside 2,530.1 71.7 3,795.1
Total NAV 9,098.7 257.9 13,648.0
Deutsche Bank AG
Deutsche Bank AG
8 April 2003
Figure 30: BG profit and loss account (£m)
Year end 31 December 1997 1998 Restated 1999 2000 2001 2002 2003E 2004E 2005E 2006E 2007E
Transco 1,119 1,224
BG Storage 9 7 -8 3 21 0 0 0 0 0 0

E&P 118 161 220 513 606 731 866 852 757 821 837
LNG -4 -9 -3 25 29 8 47 46 66 101 140
Transmission and Distribution 12 13 21 78 119 50 74 135 175 195 222
Power 22 29 47 102 104 124 127 128 130 131 132
Corporate and other 14 145 53 -33 -46 -25 -23 -24 -24 -25 -25
EBIT 1,290 1,570 330 688 833 888 1,091 1,137 1,104 1,223 1,305
Interest/Provisions -343 -416 -88 -80 -80 -80 -72 -61 -67 -85 -90
Exceptional Items 288 73 19 -34 149 -14 0 0 0 0 0
Pre tax Profit 1,235 1,227 261 574 903 794 1,018 1,076 1,037 1,138 1,215
Tax rate (%) 125 34 23 28 32 47.1 40.4 39.2 37.9 37.1 36.9
Tax -1,540 -414 -59 -161 -287 -374 -411 -422 -393 -422 -448
Group Net Income -305 813 202 413 616 420 607 654 644 716 767
Minorities -2 -8 -15 -19 -29 -10 -11 -24 -44 -58 -66
Reported Net Income -307 805 187 394 587 410 596 630 600 657 701
BG Adjusted Net Income -595 732 168 425 471 475 596 630 600 657 701
EPS (Reported) (p) -7.1 20.6 4.8 11.3 16.7 11.6 16.9 17.9 17.0 18.6 19.9
EPS (BG Adjusted/Clean) (p) -13.7 18.7 4.3 12.2 13.4 13.5 16.9 17.9 17.0 18.6 19.9
EPS growth (YoY) -237 182 10 0 26 6 -5 10 7
CFPS (p) 29.3 36.5 10.3 20.4 25.3 25.8 31.8 33.3 31.5 34.8 37.3
Dividend Per Share (p) 4.0 4.3 4.6 2.90 3.0 3.1 3.2 3.3 3.3 3.4 3.5
Dividend Payout Ratio (%) -57 21 95 26 18 27 19 18 20 18 18
Gearing (net debt/equity) (%) NM 40 9 11 15 30 10 8 8 4 1

Gearing (net debt/net debt+equity) (%) NM 29 8 10 13 23 9 8 8 4 1
ROACE (Post-tax) (%) -2 7 7 13 13.0 11.3 13.6 13.4 11.6 11.7 11.6
ROACE (normalised to BG) (%) 9.9 11.5 13.2 11.4 11.5 11.5
Oil Production (kb/d) 44 69 69 68 77 115 125 122 116 140 171
Gas Production (MMcfd) 698 1015 1035 1277 1326 1548 1861 2043 2176 2265 2558
Total Production (kboe/d) 161 238 241 281 298 373 435 463 479 518 597
Production growth (y/y) (%) 48 1 16 6 25 17 6 3 8 15
T&D volumes (net BG share) 3.1 3.2 5.0 7.3 10.6 11.5 13.7 16.7 18.6 19.9 21.7
Oil Price Forecast ($/bbl) 19.31 13.11 27.16 29.00 24.63 25.00 25.50 20.50 21.00 21.50 22.00
Gas Price Forecast (p/therm) 14.9 14.2 13.5 14.0 15.5 14.3 15.2 14.3 13.0 12.8 11.8
Exchange Rate ($/£) 1.64 1.65 1.58 1.52 1.45 1.50 1.60 1.50 1.50 1.50 1.50
Page 45

Page 46
8 April 2003
Figure 31: BG cashflow (£m)
Year end 31 December 1997 1998 Restated 1999 2000 2001 2002 2003E 2004E 2005E 2006E 2007E
Net income -305 813 202 413 616 420 607 654 644 716 767
Depreciation 1,041 961 402 622 392 395 475 503 507 559 637

Exploration expensed 61 16 28 0 13 10 25 45 55 70 75
Provisions, book (profit)/loss -624 -139 -63 -229 -44 -2
Other non-cash 1,102 -221 -168 -94 -90 88 15 -28 -94 -118 -165
Funds from operations 1,275 1,430 401 712 887 911 1,123 1,174 1,112 1,227 1,315
Disposals 108 121 653 475 17 624
Other/Shares Issued 15 -197 9
Sources 1,383 1,566 401 1,365 1,165 937 1,747 1,174 1,112 1,227 1,315
Exploration -182 -113 -113 -120 -180 -160 -160 -160 -160 -160
Development -813 -381 -580 -878 -820 -845 -895 -880 -765 -860
Capital expenditure -463 -995 -494 -693 -998 -1,000 -1,005 -1,055 -1,040 -925 -1,020
Equity dividends -537 -327 -348 -332 -103 -106 -111 -112 -115 -118 -121
Share buybacks -1,102 -39 0
Acquisitions -120 -802 -151 0 -396
Applications -2102 -1481 -1644 -1176 -1101 -1502 -1116 -1167 -1155 -1043 -1141
Working capital 53 -62 -1 164 -249 -111
Surplus/(deficit) -666 23 -1,244 353 -185 -676 631 7 -43 184 174
Net debt/(cash) 3,886 4,049 302 360 538 1,002 371 364 407 223 49
Shareholders funds 8,909 10,110 3,348 3,358 3,530 3,348 3,870 4,440 4,961 5,498 6,075
Net debt/equity (%) 44 40 9 11 15 30 10 8 8 4 1
Net debt/debt+equity (%) 30 29 8 10 13 23 9 8 8 4 1
Deutsche Bank AG
Deutsche Bank AG
8 April 2003
Figure 32: International valuation matrix as at 4 April 2003
4 April, 2003 Price/ Earnings Ratio (x) Debt-Adjusted Cashflow Multiple (x) Yield
(Clean Earnings) Debt/(debt+ Debt/ F'cast F’cast Earn'gs Cash
equity) (%) Equity Div. Div. Cover Cover
(%) Yield
Company Price/ Price Rec. 2002E 2003E 2004E 2005E 2006E 2007E 2002E 2003E 2004E 2005E 2006E 2007E 2003E 2007E 2003E 2007E 2003E 2003E 2003E 2003E

Currency target
Integrated
US/UK average 19.5 14.0 15.1 14.5 13.9 13.4 10.8 8.2 8.4 8.1 7.8 7.6 21 19 28 25 6.2 3.5 2.5 4.7
OECD average 15.4 11.4 11.7 11.0 10.4 10.1 8.2 6.6 6.5 6.1 5.7 5.4 21 9 29 16 5.2 3.6 2.9 6.3
Emerging Markets average 7.5 6.9 7.1 6.4 5.2 5.0 5.7 5.2 4.8 4.1 3.5 3.2 6 -14 20 -8 0.5 3.2 9.5 14.6
Global average 10.8 9.5 9.9 9.3 8.5 8.3 7.1 5.9 5.7 5.3 4.8 4.5 16 1 27 7 6.9 3.4 5.4 9.6
Three Sisters
BP 407.00 p 470 Buy 19.6 14.6 15.5 15.2 14.6 14.6 10.6 8.5 8.5 8.2 7.9 7.8 23 23 30 29 16.1 4.0 1.7 3.4
Exxon Mobil 35.05 $ 40 Buy 22.3 17.7 18.5 17.9 17.1 16.6 12.2 10.3 10.5 10.2 9.8 9.5 5 9 5 10 0.9 2.7 2.1 3.7
Shell RD 39.12 E 42 Hold 18.6 13.6 14.1 13.1 12.6 12.2 11.2 8.0 8.3 8.0 7.9 7.8 23 25 28 31 1.9 4.8 1.5 1.9
Shell T&T 388.00 p 430 Hold 18.4 14.3 14.5 13.5 13.1 12.6 10.2 8.1 8.4 8.1 7.9 7.9 23 25 28 31 16.9 4.3 1.6 3.1
Three Sisters Average 19.7 15.1 15.7 14.9 14.3 14.0 11.0 8.7 8.9 8.7 8.4 8.3 19 20 23 25 8.9 3.9 1.7 3.0
European Mid Caps
BG 250.25 p 265 Hold 20.4 14.8 14.0 14.7 13.4 12.6 11.4 8.0 7.8 8.2 7.3 6.7 9 1 10 1 3.2 1.3 5.3 10.0
Eni 13.20 E 16.50 Buy 11.9 9.6 9.9 9.0 8.3 7.8 7.0 6.1 6.1 5.6 5.2 4.8 35 21.2 52 26.1 0.8 5.9 1.8 3.7
Norsk Hydro 276.50 NOK 265.00 Hold 12.9 8.4 8.2 6.8 6.6 6.6 5.7 4.4 4.3 4.0 3.9 3.7 28 23 39 31 11.0 4.0 3.0 8.2
Repsol 13.61 E 13.50 Hold 11.5 8.5 9.1 8.5 7.7 7.3 5.0 5.4 5.0 4.7 4.2 3.8 28 11 38 12 0.4 2.6 4.4 11.6
Statoil 56.00 NOK 62.00 Buy 10.9 8.6 10.1 9.6 8.6 8.6 5.2 4.0 4.2 4.2 3.8 3.6 25 20 33 26 3.0 5.3 2.2 5.6
TOTAL 123.80 E 140.00 Hold 15.9 11.8 12.4 12.3 11.7 11.5 9.7 6.6 6.5 6.4 6.1 6.0 15 10 20 15 4.3 3.5 2.4 4.7
Mid Cap European Average 13.9 10.3 10.6 10.1 9.4 9.1 7.3 5.7 5.7 5.5 5.1 4.8 23 14 32 18 3.8 3.8 3.2 7.3
US Mid Caps
ChevronTexaco 64.40 $ 60.00 Hold 18.4 13.5 16.7 16.3 15.2 14.0 10.4 7.3 7.8 7.5 7.1 6.7 24 15 32 17 2.9 4.5 1.7 3.4
ConocoPhillips * 52.31 $ 52.00 Hold 18.9 9.4 12.1 10.7 11.4 10.8 9.6 7.0 7.6 6.7 6.8 6.5 38 35 60 53 1.5 2.9 3.7 7.6
Occidental 30.62 $ 32.00 Hold 10.4 8.9 12.5 13.2 12.2 12.2 6.0 5.5 6.2 6.3 5.7 5.7 32 17 47 20 1.0 3.4 3.3 6.4
Marathon 23.77 $ 20.50 Sell 14.6 8.3 9.9 10.2 10.4 10.9 5.0 3.7 3.9 3.7 3.7 3.8 37 21 59 27 0.9 3.9 3.1 9.6
Mid Cap US Average 15.6 10.0 12.8 12.6 12.3 12.0 7.8 5.9 6.4 6.1 5.8 5.7 32.8 21.8 49.6 29.3 1.6 3.6 2.9 6.8
CEE Refining & Marketing
Hellenic Petroleum 4.92 E 6.80 Hold 13.4 10.6 6.5 6.4 6.2 6.2 8.3 7.0 4.4 3.8 3.3 3.0 7 -22 8 -18 0.2 3.1 3.1 6.1
OMV 103.90 E 99.00 Hold 8.5 7.7 6.7 6.7 6.8 7.5 5.2 5.4 5.0 4.9 4.9 5.2 28 29 37 40 3.4 3.3 4.0 6.9
MOL 5290 HUF 6900 Buy 10.7 9.4 9.7 7.5 6.1 5.5 5.7 5.3 5.6 4.5 3.5 2.7 25 -18 35 -15 125.0 2.4 4.5 11.8
PKN 17.20 PLN 19.00 Hold 13.2 9.9 9.2 8.1 7.2 6.8 3.5 3.9 3.3 2.4 1.6 0.9 6 -67 7 -40 0.48 2.8 3.6 9.1
CEE Refining & Marketing Average 11.5 9.4 8.0 7.2 6.6 6.5 5.7 5.4 4.6 3.9 3.3 3.0 17 -20 22 -8 32.3 2.9 3.8 8.5
Rest of World
BHP Billiton 9.41 AUD 11.05 Buy 10.2 15.7 12.8 11.0 9.9 8.9 6.3 9.7 8.7 7.8 7.0 6.1 35 14 53 17 0.14 1.5 0.0 4.2
Gazprom ** 12.10 $ 17.76 Buy 11.5 8.7 6.9 5.4 4.1 3.7 11.8 10.1 6.2 4.5 2.9 2.0 25 0 20 0 0.00 0.0 10.0 16.7
LUKoil Holdings 14.06 $ 21.75 Buy 6.5 4.2 4.7 3.9 3.5 3.3 4.4 3.0 3.2 2.6 2.3 2.0 6 -4 7 -4 0.39 2.8 8.6 13.0
Petrobras 16.53 $ 23.00 Buy 6.5 3.9 3.9 3.6 3.2 2.2 3.7 3.5 3.2 2.9 2.6 2.2 23 0 70 0 1.1 6.4 4.0 7.0
Sasol *** 90.10 ZAR 135 Buy 7.1 4.9 4.5 3.9 3.4 3.0 7.7 4.9 4.0 3.6 3.0 2.3 20 -35 24 -26 3.2 3.6 3.5 3.3
Surgut 0.29 $ 0.41 Hold 8.0 5.0 5.4 4.7 4.4 4.1 5.3 2.9 2.9 2.3 1.9 1.5 -58 -67 -37 -40 0.00 0.4 51.6 67.9
Tatneft 0.84 $ 0.82 Hold 3.1 2.6 3.0 3.3 3.3 3.3 3.2 4.3 2.6 2.6 2.4 2.2 13 3 16 3 0.03 3.2 12.2 16.6
Woodside 10.61 AUD 14.70 Buy 9.7 9.6 12.9 12.5 12.5 14.8 8.9 7.5 10.3 8.5 8.2 9.5 21 -10 27 -9 0.39 3.7 3.3 4.0
YUKOS Oil 9.67 $ 11.20 Buy 6.4 5.9 6.8 5.9 5.6 5.4 4.4 3.8 4.1 3.4 3.0 2.7 -73 -68 -42 -40 0.24 2.5 6.7 8.0
Rest of World Average 7.5 6.9 7.1 6.4 5.2 5.0 5.7 5.2 4.8 4.1 3.5 3.2 6.0 -14.0 19.8 -7.7 0.5 3.2 9.5 14.6
* Conoco Phillips - Merged figures post 1 January 2002
** P/E and forecast dividend based on ADR data
*** Sasol data based on June year end data/estimates for the appropriate year.
Source: Deutsche Bank estimates, Reuters and company information
Page 47
Page 48
8 April 2003
Figure 33: Growth as at 4 April 2003
4 April, 2003 Compound Growth Yield/ Payout Size and Structure
01-Jan-00 EPS Adj % Div. % Volume Div. Yield Payout Mkt Cap Ent Value EV/2001 State Largest Cap Cap EV/Cap. Price to Earnings
boe % To US Inv Ratio % ($bn). ($bn) Prov Res O'ship S'hold Emp. Emp Emp %) Book Volatility
% % .% ($bn) ($bn). Ratio % Index
Company 2003-07E 2003-07E 2003-07E 2003E 2007E 2003E 2007E Current Current 2003E 2006E 2003E 2003E 1992-03E

Estimate Estimate
Integrated
Three Sisters
BP -1.7 6.4 4.3 4.0 5.4 58 79 142.6 162.9 10 - 4 91.6 96.3 178 200 0.81
Exxon Mobil 1.7 2.1 2.8 2.7 2.9 48 48 234.8 237.4 11 - 4 79.1 90.4 300 297 0.54
Shell RD 1.5 3.9 1.1 4.8 5.6 62 68 87.92 99.29 5 - 3 50.2 55.5 198 220 0.38
Shell T&T 1.5 3.9 1.1 4.3 5.4 62 68 59.10 66.68 3 - 3 33.4 37.0 199 222 0.38
Three Sisters Average 0.8 4.1 2.3 3.9 4.8 57 66 131.1 141.6 8 na 4 63.6 69.8 219 235 0.53
European Mid Caps
BG 2.5 0.9 7.6 1.3 1.4 19 18 13.9 15.4 10 - - 6.8 8.1 225 226 1.15
Eni 5.2 4.0 4.9 5.9 6.9 56 54 53.5 64.0 9 30 30 46.7 49.6 137 179 0.69
Norsk Hydro 4.4 2.6 5.0 4.0 4.7 33 31 9.8 13.7 7 44 44 14.9 17.7 92 89 0.55
Repsol 3.9 8.7 4.6 2.6 3.7 23 27 17.8 29.0 5 - 10 27.7 29.0 105 93 0.48
Statoil 0.3 0.0 4.5 5.3 5.6 46 48 14.3 17.3 4 82 82 12.2 14.0 142 150 0.37
TOTAL -0.5 3.1 4.0 3.5 4.1 41 47 87.0 95.2 9 1 5 44.9 46.4 212 230 1.15
Mid Cap European Average 2.6 3.2 5.1 3.8 4.4 36 38 32.7 39.1 7 25 22 25.5 27.5 152 161 0.73
US Mid Caps
ChevronTexaco -0.9 2.5 2.7 4.5 4.9 60 69 68.5 79.6 7 - 9 45.7 52.3 174 204 0.61
ConocoPhillips* -3.3 6.1 1.3 2.9 3.6 27 39 35.5 56.3 12 - - 53.6 60.6 105 66 0.79
Occidental -7.6 0.0 -1.6 3.4 3.4 30 41 11.5 15.6 7 - 4 10.2 10.6 153 113 na
Marathon -6.6 0.0 -1.9 3.9 3.9 32 42 7.4 11.4 11 - - 9.2 9.3 124 80 na
US Mid Cap Average -4.6 2.1 0.1 3.6 4.0 37.5 48.0 30.7 40.7 9.1 na 9 29.7 33.2 139.3 115.9 0.7
Hellenic Petroleum 14.3 16.5 8.2 0.0 0.1 33 35 1.3 1.4 na 58 - 1.6 2.0 92 97 na
OMV 0.5 4.1 0.2 3.3 3.8 25 29 3.0 3.7 11 35 35 3.6 4.9 103 122 na
MOL 15.5 15.8 2.9 2.4 4.3 22 24 2.2 3.0 1 - - 2.9 3.2 105 115 na
PKN 9.0 12.1 3.3 2.8 4.4 28 30 1.8 2.1 na - - 2.4 2.8 88 86 na
CEE Refining & Marketing Average 9.8 12.1 3.6 2.1 3.1 27 29 2.1 2.6 6 35 35 2.6 3.2 97 105 na
Rest of World
BHP Billiton 15.5 13.2 6.2 2.7 4.5 43 40 34.9 41.5 na - - 17.5 17.5 237 282 na
Gazprom ** 23.6 6.0 0.5 1.1 1.4 10 5 28.6 31.4 na 38 38 52.9 57.2 59 61 na
LUKoil Holdings 6.0 35.4 3.4 2.8 9.2 12 31 11.4 13.2 1 - - 16.5 22.1 80 56 na
Petrobras 8.0 20.7 6.9 6.4 0.0 25 39 18.0 27.8 3 56 56 22.6 27.9 123 127 na
Sasol *** 14.2 8.6 3.6 5.9 8.9 34 34 7.1 7.2 na - - 2.8 2.6 258 297 0.30
Surgut 4.8 5.1 5.9 0.4 0.5 2 9 12.7 8.3 1 - - 8.4 10.3 99 92 na
Tatneft -6.2 -2.6 0.0 3.2 2.9 8 9 1.7 2.6 5 31 31 5.5 6.3 47 29 na
Woodside 6.0 2.3 -6.4 3.2 2.1 31 50 4.2 5.0 4 - 34 2.5 2.4 196 212 na
Deutsche Bank AG
YUKOS Oil 2.2 28.1 4.8 2.5 6.8 15 37 20.5 16.4 1 - 82 6.7 10.1 244 144 na
Rest of World Average 7.8 11.9 2.7 3.2 3.3 23.6 30.5 17.6 19.8 2.5 - - 20.5 22.4 134.4 130.7 0.3
** Gazprom dividend and share numbers calculated using ADR data, Market Cap. calculated using both ordinary and ADR shares
Deutsche Bank AG
8 April 2003
Figure 34: ROCE (%) as at 4 April 2003
Company 2001 2002E 2003E 2004E 2005E 2006E 2007E Net change
Integrated
Three Sisters
BP pro-forma 19.8 13.0 15.4 13.3 13.4 13.6 13.4 -2.0

BP 9.9 6.9 9.7 8.2 8.3 8.6 8.5 -1.3
Exxon Mobil 20.5 15.0 17.0 15.2 14.8 14.7 14.5 -2.5
RD/Shell pro-forma 21.4 15.7 15.3 13.7 13.8 13.6 13.4 -1.9
RD/Shell 19.8 13.6 13.6 12.2 12.3 12.2 12.1 -1.5
Three Sisters Average 17.9 12.6 14.4 12.6 12.6 12.6 12.4 -1.9
European Mid Caps
BG 13.0 11.3 13.6 13.4 11.6 11.7 11.6 -2.0
Eni 18.0 14.4 13.7 12.0 12.3 12.6 12.6 -1.1
Norsk Hydro 9.1 7.6 8.1 7.9 8.4 8.2 7.9 -0.2
Repsol 8.2 7.0 9.0 8.2 8.4 8.9 9.0 0.0
Statoil 15.2 14.8 15.8 12.6 12.5 13.0 12.8 -3.0
TOTAL 17.4 14.6 16.3 15.0 14.6 14.9 14.8 -1.5
Mid Cap European Average 13.5 11.6 12.8 11.5 11.3 11.6 11.5 -1.3
US Mid Caps
ChevronTexaco 21.0 10.9 12.2 9.7 9.4 9.7 10.0 -2.2
ConocoPhillips * 10.4 4.2 7.3 5.6 6.0 5.5 5.6 -1.7
Occidental 17.0 11.8 14.2 10.5 9.6 10.0 10.4 -3.8
Marathon 17.4 8.1 11.2 9.6 9.1 8.7 7.2 -4.0
Mid Cap US Average 15.7 8.7 11.2 8.8 8.5 8.5 8.3 -2.9
Hellenic Petroleum 4.1 7.8 8.0 12.2 11.6 11.1 10.5 2.5
OMV 13.1 10.6 11.7 11.8 10.8 9.9 8.5 -3.2
MOL 0.5 7.7 8.3 7.8 9.8 11.5 12.6 4.3
PKN 5.0 7.3 8.3 8.1 8.3 8.8 9.0 0.7
CEE Refining & Marketing Average 5.7 8.4 9.1 10.0 10.1 10.3 10.2 1.1
Rest of World
BHP Billiton 9.1 10.2 9.0 10.4 11.6 12.6 14.3 5.3
Gazprom 0.9 5.3 6.2 7.8 9.6 12.3 12.8 6.6
LUKoil Holdings 18.2 14.5 17.9 14.4 15.7 15.8 15.4 -2.5
Petrobras 14.0 11.2 16.8 15.7 16.1 17.4 17.3 0.5
Sasol *** 33.7 32.4 33.5 38.1 40.4 45.4 52.7 19.2
Surgut 27.2 20.7 25.0 21.7 23.2 23.2 22.8 -2.2
Tatneft 17.4 10.0 13.3 10.7 9.4 8.9 8.3 -4.9
Woodside 25.7 21.2 19.7 13.0 15.2 14.0 10.4 -9.3
YUKOS Oil 96.1 49.4 49.8 36.7 37.1 33.9 31.4 -18.3
Rest of World Average 25.9 17.7 19.1 16.8 17.7 18.3 18.6 -0.4
Page 49
Disclosures
Additional Information Available upon Request
Disclosure Checklist
Company Ticker Recent Price Disclosure
BG Group Plc BG.L 236.00 2,6,8,9
ChevronTexaco Corporation CVX 64.40 6,8,9
ENI S.P.A. ENI.MI 13.20 2,6,7,8,9,10
Repsol-YPF, S.A. REP.MC 13.61 2,5,6,8,9,10
ConocoPhillips COP 52.31 6,8,9
1. Within the past year, Deutsche Bank and/or its affiliate(s) has managed or co-managed a public offering for this
company, for which it received fees.
2. Deutsche Bank and/or its affiliate(s) makes a market in securities issued by this company.
3. Deutsche Bank and/or its affiliate(s) acts as a corporate broker or sponsor to this company.
4. The author of or an individual who assisted in the preparation of this report (or a member of his/her household) has
a direct ownership position in securities issued by this company or derivatives thereof.
5. An employee of Deutsche Bank and/or its affiliate(s) serves on the board of directors of this company.
6. Deutsche Bank and/or its affiliate(s) owns one percent or more of any class of common equity securities of this
company.
7. Deutsche Bank and/or its affiliate(s) has received compensation from this company for the provision of investment
banking or financial advisory services within the past year.
8. Deutsche Bank and/or its affiliate(s) expects to receive or intends to seek compensation for investment banking
services from this company in the next three months.
9. Deutsche Bank and/or its affiliate(s) was a member of a syndicate which has underwritten, within the last five
years, the last public offering of this company.
10. Deutsche Bank and/or its affiliate(s) holds 1% or more of the share capital of this company, calculated under
computational methods required by German law.
11. Please see special footnote below for other relevant disclosures.
Deutsche Bank AG and/or one of its affiliates is advising BP plc, on the proposed acquisition of a 51% stake in E.ON
AG's Veba Oel unit and the sale of BP's Gelsenberg unit to E.ON, including its 25.5% stake in Ruhrgas. Separately,
Deutsche Bank AG and/or an affiliate(s) is advising BP plc., UK on the proposed disposal of its North and North East
German service station assets to Polski Koncern Naftowy SA., Poland (aka PKN). Separately, Deutsche Bank AG and/or
an affiliate(s) is advising BP plc., UK on the proposed disposal of the upstream oil businesses of Veba Canada Oil & Gas
to Petro-Canada, Canada. Separately, Deutsche Bank AG and/or an affiliate is acting as advisor to BP plc., UK in respect
of the proposed disposal of certain E&P assets to Apache Corp., USA.
The above-mentioned conflicts of interest may also pertain to other companies cross-referenced in this report.
For company specific disclosures relating to cross-referenced recommendations or estimates made in this
report, please refer to the most recently published single-company report on that company or visit our global
disclosure look-up page on our website at http://equities.research.db.com.
The views expressed in this report accurately reflect the personal views of the
undersigned lead analyst about the subject issuers and the securities of those
issuers. In addition, the undersigned lead analyst has not and will not receive any
compensation for providing a specific recommendation or view in this report.
Caroline Cook

Historical Recommendations and Target Price: BG Group Plc (BG.L)

(as of 4/7/2003)
GBP350.00 Previous Recommendations
1 23
GBP300.00 Strong Buy
4
567 8 Buy
9
GBP250.00 Market Perform
Underperform
Security Price
GBP200.00 Not Rated

Suspended Rating
GBP150.00
Current
GBP100.00 Recommendations
GBP50.00 Buy
Hold
GBP- Sell
Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan
00 00 00 01 01 01 01 02 02 02 02 03
Not Rated
Suspended Rating
Date
1. 10/26/2000: Downgrade to Market Perform

*New Recommendation
6. 11/25/2002: Hold, Target Price Change GBP 240.00
2. 2/20/2002: Market Perform, Target Price Change GBP 260.00 7. 11/27/2002: Hold, Target Price Change GBP 250.00
5. 11/20/2002: Hold, Target Price Change GBP 250.00
Rating Key Rating Dispersion and Banking Relationships
Buy: Total return expected to appreciate 10% or more over a

12-month period
400
Hold: Total return expected to be between 10% to –10%
over a 12-month period 300
Sell: Total return expected to depreciate 10% or more over a
12-month period 200
100
0
Sell Hold Buy
Companies Covered Cos. w/ Banking Relationship

Deutsche Bank AG European Equity Research
European locations
Deutsche Bank AG London Deutsche-Equities SA Deutsche Bank AG Deutsche Bank Sim S.p.a
1 Great Winchester Street 3, Avenue de Friedland Equity Research Via Santa Margherita 4
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Tel: (44) 20 7545 8000 Germany
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Fax: (33) 1 53 75 07 01 Fax: (49) 69 910 34225/7 Fax: (39) 0 24 024 2636
Deutsche Bank AG DB Corretora - Sociedade Deutsche Securities Deutsche Bank AG

Herengracht 450 Corretora de Valores S.V.B, S.A. Stureplan 4 A, Box 5781
1017 CA Amsterdam Mobiliários, SA P0 de la Castellana, 42 S-114 87 Stockholm
Netherlands Rua Castilho 20-5 7th Floor Sweden
125069 Lisbon 28046 Madrid
Tel: (31) 20 555 4911 Portugal Spain Tel: (46) 8 463 5500
Fax: (31) 20 555 4428 Tel: (351) 21 311 1200 Tel: (34) 91 335 5544 Fax: (46) 8 463 5550
Fax: (351) 21 353 5241 Fax: (34) 91 782 8465
Deutsche Bank AG Deutsche Bank AG Deutsche Bank AG, Helsinki Deutsche Bank AG
Erskine House Uraniastrasse 9 Kaivokatu 10 A, P.O.Box 650 Hohenstaufengasse 4
68 Queen Street PO Box 7370 FIN-00101 Helsinki 1010 Vienna
Edinburgh, EH2 4NP 8023 Zürich Finland Austria
Switzerland
Tel: (44) 131 240 8000 Tel: (41) 1 224 5000 Tel: (358) 9 25 25 25 0 Tel: (43) 1 5318 10
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International locations
Deutsche Bank Securities Inc. Deutsche Bank AG Deutsche Bank AG Deutsche Bank AG
31 West 52nd Street Große Gallusstraße 10-14 Level 19, Grosvenor Place 2-11-1 Nagatacho, 20th Floor
New York, NY 10019 60272 Frankfurt am Main 225 George Street Sanno Park Tower
United States of America Germany Sydney, NSW 2000 Chiyoda-ku, Tokyo 100-6171
Tel: (212) 469 5000 Tel: (49) 69 910 41339 Australia Japan
Tel: (61) 29258 1234 Tel: (813) 5401 6990
Deutsche Bank AG
Level 55
Cheung Kong Centre
2 Queen’s Road Central
Hong Kong
Tel: (852) 2203 8888
Additional information available on request

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively “Deutsche Bank”). The information herein is believed
by Deutsche Bank to be reliable and has been obtained from public sources believed to be reliable, but Deutsche Bank makes no representation as to the accuracy or
completeness of such information.
Important Information Regarding Our Independence. The research analysts responsible for the preparation of this report receive compensation that is based
upon, among other factors, Deutsche Bank’s overall investment banking revenues.
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03.04.08 LNG Projects DB

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Equity Research Europe UK

Oil & Gas

8 April 2003 Emerging Themes

BG Group Plc Hold

LNG: projects into A review of BG's LNG-based assets has

added 0-5% to our financial forecasts and

Caroline Cook Al Stanton Paul Sankey

8 April 2003 Emerging Themes

BG Group Plc Hold

LNG: projects into numbers Price/Price Relative

associated development capital on balance sheet, we suspect that

BG GROUP PLC Integrated Oils GBp 250.3

Cash Flow (GBP m) Margin Trends (%)

Balance Sheet (GBP m) Returns on Capital (%)

Caroline Cook Tel: +44 131 240 7642 Updated: 04-Apr-03

Page 2 Deutsche Bank AG

Deutsche Bank AG Page 3

BG LNG – developing a new business ............................................. 5

The LNG plants ................................................................................ 11

Lake Charles and Brindisi – how might they work? ..................... 31

Cash: how does the money flow? .................................................. 37

Page 4 Deutsche Bank AG

BG LNG – developing a new

Who, what and why?

Figure 1: BG’s earnings mix

E&P LNG T&D Power EPS CEPS

Source: Deutsche Bank estimates and company information

Deutsche Bank AG Page 5

The LNG plants

Beyond the active plants, BG is generating a list of potential projects, of which

We provide a full analysis of BG’s LNG plants in the next section.

Page 6 Deutsche Bank AG

Oil & Gas BG Group Plc

Libya Abu Dhabi

Existing BG LNG projects

Possible new BG LNG projects

Source: Deutsche Bank estimates and company information

Shipping and trading

Figure 3: BG’s LNG shipping fleet

Due for delivery in 2003/04

LT charter to Gas Natural

126 mcm lng x4

138 mcm lng x5

Current fleet on Due for delivery in 2005/06

Shipping capacity due to rise from 645mcm to 1,600mcm by end-06

Source: Deutsche Bank estimates and company information

The shipping fleet

Page 8 Deutsche Bank AG

BG’s target is to be balanced in terms of shipping capacity versus LNG production.

1.40 Egypt -Spain/

Source: Deutsche Bank estimates and company information

Deutsche Bank AG Page 9

Europe). We describe our understanding of the Lake Charles opportunity in greater

As these own-trading opportunities materialise, so should BG’s regasification access

New business expense

Our financial forecasts assume a constant expense of £20m/year.

Page 10 Deutsche Bank AG

The LNG plants

Trinidad: strong foundation

Figure 5: Trinidad gas: big volumes for a small island

Source: Deutsche Bank estimates and company information

More than Brian Lara

Following much negotiation, BG brought the Dolphin field in ECMA onstream in