Tanzania Oil and GasOpportunities and Challenges

03 October 2012Mark Stearnes

Legal noticeCertain statements included in this presentation contain forward-looking information concerning BG Group plc’s strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which BG Group plc operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within BG Group plc’s control or can be predicted by BG Group plc. Although BG Group plc believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from the guidance given in this presentation for a number of reasons. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the “Principal risks and uncertainties” included in the BG Group plc Annual Report & Accounts 2011. Nothing in this presentation should be construed as a profit forecast and no part of this presentation constitutes, or shall be taken to constitute, an invitation or inducement to invest in BG Group plc or any other entity, and must not be relied upon in any way in connection with any investment decision. BG Group plc undertakes no obligation to update any forward-looking statements.

No representation or warranty, express or implied, is or will be made in relation to the accuracy or completeness of the information in this presentation and no responsibility or liability is or will be accepted by BG Group plc or any of its respective subsidiaries, affiliates and associated companies (or by any of their respective officers, employees or agents) in relation to it.

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3

Agenda

1

Offshore East Africa – upstream overviewOffshore East Africa – upstream overview2

Tanzania – success so farTanzania – success so far3

Doing business in Tanzania (and wider East Africa)Doing business in Tanzania (and wider East Africa)4

BG Group

4

BG Group – Who we are

• Market leader:

– FTSE top ten company

– Market capitalisation

– Circa $70bn

– Production approximately 70% gas; 30% oil

• Global gas major:

– Over 6 000 employees; 65% outside UK

BG Group Global Gas Major

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Countries of current operation

BG Group is active in more than 20 countries across five continents

BG Group countries

Trinidad &Tobago

Egypt

KazakhstanUK

India

Uruguay

Bolivia Brazil

USA

Italy

TunisiaThailand

Singapore

Areas of PA

Norway

China

MadagascarChile

AustraliaTanzaniaKenya

Global portfolio

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Demerger and development

1986 1997 1999 2000 2002 2005

British Gas

BG Plc BG Group Plc

Lattice

National GridTransco National Grid

Centrica

www.bg-group.com

www.nationalgrid.com

www.centrica.com

Who we are

A proven record of performance

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Responsible conduct Integrity GovernanceStrategy/investment

Responsible to our peopleHSSE, RecruitmentTraining, developmentEquality & diversity

Environmentally responsibleEnvironmental impactsClimate changeBiodiversity

Responsible to societyHuman rightsCommunity relationsCapacity buildingInvestment

The way we conduct business

Working sustainablyHow we do it

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Agenda

1

Offshore East Africa – upstream overviewOffshore East Africa – upstream overview2

Tanzania – success so farTanzania – success so far3

Doing business in Tanzania (and wider East Africa)Doing business in Tanzania (and wider East Africa)4

BG Group & Global LNG

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Oil and Gas East Africa

• Large Frontier plays

– Sizeable blocks

– Deep to ultra deep water

– Several recent discoveries

• Material resource potential

– Multiple play types

– Multi-TCF gas potential

• Stable/ progressive governments

• Favourably located for LNG markets

– India and Asian Pacific

An exciting exploration “hot-spot”

BG

Mozambique – Anadarko & Eni

discoveries

Kenya – Tullow: onshore oil discovery

Tanzania – BG: 6, Statoil: 2

deepwater gas discoveries

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Agenda

1

Offshore East Africa – upstream overviewOffshore East Africa – upstream overview2

Tanzania – success so farTanzania – success so far3

Doing business in Tanzania (and wider East Africa)Doing business in Tanzania (and wider East Africa)4

BG Group & Global LNG

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Tanzania – Deepwater activity

• Incumbents

– Smaller Africa focussed independents

• Majors renewed interest

• Some companies still targeting oil

• Two producing gas fields with sufficient reserves for domestic demand

• 4th offshore deepwater licensing round planned in 4Q 2012

Two producing fields: Songo Songo & Mnazi Bay

Block 12

Block 11

Block 10

Block 9

Block 8

Block 7

Block 6

Block 5

Block 4

Block 3

Block 1

Block 2Block 2E.

Pande

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Success in first deepwater wells

• Farm-in June 2010, 60% of Blocks 1, 3 & 4

• BG Operatorship – 1st July 2011

• Six successful wells

– Gas discoveries

– Still in exploration phase

• Appraisal program in Q3 / Q4 2012

• Also acquired substantial siesmic;5140 sq km 3D followed by 2,500 sq km 3D seismic in Block 1; evaluation ongoing

• In-country presence in Dar es Salaam and Mtwara – high quality national staff

• LNG Implementation Agreement and PSA gas terms already in place

TANZANIA

MOZAMBIQUE

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Sharing the Operations Supply Base in Mtwara

• BG Operates the Mtwara Supply base on behalf of other offshore Operators (Petrobras, Statoil, Ophir)

– Upgrade commenced in 4Q 2011 to enable multiple drilling operations with improvements to benefit existing port users (cashew nut farmers)

– Tanzanian Ports Authority plans to develop free trade port and export corridor

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Agenda

1

Offshore East Africa – upstream overviewOffshore East Africa – upstream overview2

Tanzania – success so farTanzania – success so far3

ChallengesChallenges4

BG Group & Global LNG

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Capacity building initiatives

• BG scholarship scheme with the British Council and Nelson Mandela African Institute for Science and Technology

• Support for G&G studies at the University of Dar Es Salaam and University of Dodoma

• Pilot project for long term industry vocational training with VSO and VETA

• Mtwara road safety programme in partnership with National Institute of Transport

• School support program in Mtwara

• Marine Conservation and livelihoods project in partnership with Mnazi-Bay Ruvuma Estuary Marine Park

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• Operational challenges

– Lack of infrastructure and local service industries

– Deep water drilling

– Environmentally sensitive

– Capacity and skills development

– Piracy

• Joint initiatives for:

– Sharing port facilities in Mtwara

– Mutual Assistance between IOCs/ use of best technology

– Incident response (e.g. oil spill)

– Cooperation with Tanzanian navy

Operational challenges – remote location

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Business Environment Challenges

• Capacity and capability within Government and Parastatals

• Stability of contractual environment

• Levels of education and training within general population

• Direct experience of Oil and Gas

• Robustness of business systems and processes

• HSSE

LNG will require huge investment

Upstream

c. 35-45% of investment

Liquefaction Shipping Regasification Markets

c. 35-40% of investment

c. 20-25% of investment

c. 8% of investment

• $50 - 100 million per exploration well (deepwater)

• $8 - 20 billion upstream development cost

• 2 - 6 sq. mile site

• 3,500 construction personnel

• $5 - 16 billion downstream development cost

• $300+ million cost per vessel

• $5 million voyage cost (fuel, port, charter, boil-off) to India

• c.120 cargo loadings per year

• $90 - 350 billion gross sales revenue over project life

Figures are highly variable depending on project scope and scale

• 1 LNG tank can store two Boeing 777’s

• $600+ million investment

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LNG versus oil – illustrative cash flow

LNG development = longer lead times but significant long term benefits

LNG

Oil

LNG Expansion

Time from discovery of reserves

Bil

lio

n (

$)

Based on a generic greenfield LNG project

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LNG could deliver unprecedented benefits

• Positive impact on FDI, export earnings and government revenues

• Enabling legislation needed to maximise benefits

• Key challenges:

– Long lead time

– Political / institutional capacity

– Petroleum sector reforms

– Domestic energy expectations

– Macroeconomic impacts

– Exchange rate appreciation; “Resource Curse”

Source: IMF, International Financial Statistics

Tanzania has had no experience of such large projects

Historic Foreign Direct Investment (FDI)

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1,000

1992

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US

$ m

illio

n

Thank you