A ) C A P I TA L E X P E N D I T U R E
As at 31 December 2002, the Group had placed contracts for capital expenditure amounting to £401m (2001 £615m) of which £nil (2001 £nil) related to the Company. As at 31 December 2002, BG’s joint ventures and associated undertakings had placed contracts for capital expenditure, BG’s share of which amounted to £29m (2001 £116m).
B ) D E CO M M I S S I O N I N G CO ST S
BG has contingent liabilities in respect of the future decommissioning costs of gas and oil assets disposed of to a third party should this party fail to meet their remediation obligations. While the amounts of future costs could be significant, BG has obtained indemnities against these potential liabilities.
C ) F U T U R E W E L L CO ST S
As at 31 December 2002, certain petroleum licences granted to BG contained outstanding obligations to drill exploration wells, some of which were firm commitments and others contingent. The cost attributable to BG of drilling such wells is estimated to be £21m (2001 £42m).
D ) L E A S E CO M M I TM E N T S
Commitments for the following year under operating leases were as follows:
Land and buildings Other
2002 2001 2002 2001
£m £m £m £m
T H E G R O U P
Expiring:
Within one year – 2 2 17
Between one and five years 1 3 1 –
Thereafter 9 8 43 32
10 13 46 49
Commitments under operating leases were as follows:
Land and buildings Other
2002 2001 2002 2001
£m £m £m £m
T H E G R O U P
Amounts due within:
One year 10 13 46 49 Two years 10 9 43 49 Three years 9 9 42 49 Four years 9 8 42 49 Five years 9 8 42 49 Thereafter 147 135 67 390
As at 31 December 2002, the Company had no commitments under operating leases (2001 £nil). Certain expenditure under operating leases is recovered from third parties under partnership agreements. As at 31 December 2002, the Group had entered into commitments under finance leases commencing after that date of £218m (2001 £nil).
25 COMMITMENTS AN D CONTI NGENC I ES continued
E ) G UA R A N T E E S
The Group has guaranteed its share of the repayment of principal, any associated premium and interest on certain loans taken out by joint ventures and associated undertakings. As at 31 December 2002, the Sterling equivalent amounted to £100m (2001 £103m). A subsidiary undertaking, BG Energy Holdings Limited, has guaranteed the repayment of principal, any associated premium and interest on loans due by its subsidiary undertakings. As at 31 December 2002, the Sterling equivalent amounted to £756m (2001 £217m).
F ) L E G A L P R O C E E D I N G S
BG International Limited, a wholly-owned subsidiary undertaking of BG, is one of seven companies (collectively known as the ‘Contractor’) holding interests under a Production Sharing Agreement (the ‘PSA’) with the Republic of Kazakhstan (RoK) with rights to drill in a sector of the north-east Caspian Sea. BG International Limited currently has a one-sixth interest in the PSA. In June 2002, the Kashagan discovery was declared commercial. In December 2002, the Development Plan and Budget (DP&B) for the Kashagan Development was submitted to the RoK. The RoK subsequently wrote to the Contractor alleging that the DP&B was non-compliant with the PSA and that this constituted a material breach of the PSA, which would entitle the RoK to terminate the PSA. The Contractor has rejected these allegations. In the event of any proceedings arising from these disputes the Contractor intends to contest vigorously these allegations. However, the PSA contains provisions for amicable
settlement of disputes and discussions have taken place.
First Gas Power Corporation (FGPC), in which BG has a 40% shareholding, is in dispute with Siemens AG, Siemens Power Generation and Siemens Inc. (collectively Siemens) relating to Siemens’ construction for FGPC of the Santa Rita power station. The dispute arises from delays in project completion. FGPC is claiming liquidated damages of approximately £62m owing from Siemens to FGPC and has withheld approximately £59m from its milestone payments to Siemens. Siemens is claiming that FGPC is not entitled to any remedy (including liquidated damages) for the delay in completion of the project and is seeking payment of the amounts withheld by FGPC and additional unspecified amounts for costs, loss of profit and finance charges arising from the delay. Siemens made a formal request for arbitration in January 2003. FGPC plans to contest vigorously all Siemens’ claims, including those claims that seek recovery of amounts withheld by FGPC as liquidated damages. FGPC plans to seek the additional £3m (approximately) owed by Siemens in liquidated damages as well as additional amounts in counterclaims against Siemens.
In addition, various Group undertakings are parties to legal actions and claims which arise in the ordinary course of business. While the outcome of some of these matters cannot readily be foreseen, it is considered that they will be resolved without material effect on the net asset position as shown in these Financial Statements. Further detail in respect of litigation can be found in the Operating and Financial Review, page 38.
G ) OT H E R
Other financial commitments of the Group as at 31 December 2002 comprised a 22 year contract for capacity at Lake Charles, a liquefied natural gas importation terminal. Amounts payable under this contract are due as follows: less than one year £32m (2001 £34m); between one and two years £32m (2001 £35m); between two and three years £39m (2001 £35m); between three and four years £68m (2001 £38m); between four and five years £68m (2001 £43m) and thereafter £1 085m (2001 £739m). BG Energy Holdings Limited, a subsidiary undertaking, has guaranteed these commitments.
The amount of other contingencies and commitments as at 31 December 2002 (mainly the provision of indemnities to third parties in respect of the Company and its subsidiary undertakings, in the normal course of business) amounted to £2 336m (2001 £2 903m), of which £581m (2001 £1 095m) related to the Company. Within this amount, £1 064m related to guarantees and indemnities given in respect of a number of exploration and production developments, most of which expired after five years. This included a guarantee given by BG Group plc to the Republic of Kazakhstan and the Closed Joint Stock Company National Oil and Gas Company Kazakoil (now KazMunaiGas) under the Final Production Sharing Agreement (FPSA) in respect of contractual obligations and related contractual documents for the Karachaganak field (£500m). The latest date for the expiry of the guarantee is the end of the FPSA (2038). In addition, £268m related to guarantees in respect of the Premier Power CCGT project (due for completion in 2003) and £421m related to an indemnity in respect of warranties given on the sale of a business, the last of which expires in 2008. These amounts represent the maximum amounts payable. The balance related to various guarantees and contingencies arising in the ordinary course of business. BG’s share of other commitments and contingencies in respect of its joint ventures and associated undertakings amounted to £147m (2001 £134m).
H ) C R O S S I N D E M N I T Y
Effective from demerger, BG Energy Holdings Limited entered into an indemnity in favour of Transco Holdings plc (a subsidiary undertaking of Lattice) in relation to any liability incurred by it which relates to the business of BG and which arises as a result of guarantees given by Transco plc (a subsidiary undertaking of Lattice) prior to demerger. The obligations guaranteed by Transco plc as at 31 December 2002 amounted to £13m (2001 £441m).