BG Group announces that it has signed a Heads of Agreement (HOA) with China National Offshore Oil Corporation (CNOOC) for the sale of certain interests in the Queensland Curtis LNG (QCLNG) project in Australia for $1.93 billion and the sale of liquefied natural gas (LNG) from BG Group’s global LNG portfolio. Fully-termed transaction agreements are expected to be executed in the first half of 2013, and upon closing, CNOOC will reimburse BG Group for its share of QCLNG project capital expenditures incurred from 1 January 2012.

The interests conveyed include a stake in certain upstream tenements and the Train 1 liquefaction facility, as detailed below, but exclude any interest in the Train 2 liquefaction facility, transmission pipeline and QCLNG common facilities.

Under the LNG sale agreement, BG Group will supply CNOOC with 5 million tonnes per annum (mtpa) of LNG for 20 years beginning in 2015, sourced from the Group's global LNG portfolio. Combined with the 3.6 mtpa LNG sale agreement signed with CNOOC in March 2010*, BG Group’s total committed LNG sales to China will be 8.6 mtpa - making the company the largest supplier of LNG to the world’s fastest growing energy market.

The significant transactions contemplated by the agreement will be conditional on applicable government and regulatory approvals.

BG Group Chief Executive Sir Frank Chapman said: “This agreement will substantially increase our partnership with CNOOC in the QCLNG project. The new LNG sales agreement will also enhance our close relationship with CNOOC by providing material new supplies of natural gas to China. We look forward to building our partnership with CNOOC as we progress towards first LNG from the QCLNG project in 2014.”

Sir Frank added: “Equally significant is that this transaction, combined with others recently announced, will provide for an aggregate capital release of $7.6 billion by mid-2013, exceeding the portfolio rationalisation plans we announced in February this year. This progress reflects our commitment to maintain a strong balance sheet and credit rating.”

Under the terms of the HOA:

- CNOOC will acquire a 40% equity interest in QCLNG Train 1, increasing its equity ownership from 10% to 50%;

- CNOOC will acquire a 20% equity interest in the reserves and resources of certain BG Group tenements in the Walloons Fairway region of the Surat Basin, Queensland, increasing its equity ownership from 5% to 25%;

- CNOOC will acquire a 25% working interest in certain upstream tenements held by BG Group in the Bowen Basin, Queensland;

- BG Group and CNOOC will jointly invest in the construction of two LNG ships in China, adding to the two ships already committed under the LNG agreements signed in
March 2010; and,

- CNOOC will have the option to participate as a 25% partner in the first of any potential expansion trains at QCLNG.

BG Group’s Australian business QGC Pty Limited will remain operator and retain majority ownership of the QCLNG project. BG Group will retain:

- Around 74% of its original interest in the upstream resource and related infrastructure; and

- 100% of the project’s common facilities on Curtis Island (LNG tanks, jetty) and the 540 kilometre natural gas pipeline network linking the gas fields to Curtis Island, which together represent approximately 30% of the estimated 2011-2014 project spend.