Bluerock Residential Growth REIT, Inc.
Q2 2007 Earnings Call Transcript

Published: 29 Jul 2007

[Operator:]

Good afternoon ladies and gentlemen and welcome to BG Group's Second Quarter Results. During the course of this conference call, Frank Chapman, the Chief Executive, will take you briefly through the quarter's key business highlights, and then Ashley Almanza, Chief Financial Officer, will look in more detail at the financial results. After this we will take questions. During this presentation we will be focusing on our Business Performance as highlighted in our results statement. We will also be making various forward-looking statements. Factors that could cause our actual results to differ materially from the results we currently expect are identified in detail in the statement issued today. Thank you, and now over to Frank.

[Frank Chapman:]

Good afternoon, ladies and gentlemen. You'll have seen the results statement, I would like to spend a few moments taking you through the main points before I pass over to Ashley to take us through the financials in detail. In a quarter with a high level of planned maintenance, BG has delivered another good performance, reporting a total operating profit of £747 million pounds. At constant U.S. dollar exchange rates and upstream prices, underlying total operating profit for the quarter increased by 14%, and 8% for the half year. Moving now to our business segments. In Exploration and Production, total operating profit was £565 million pounds reflecting softer UK gas prices, a weaker U.S. dollar and a 3% decrease in production volumes on the same quarter last year. During the quarter, we continued to make good progress on our major projects, such as Karachaganak in Kazakhstan, where we have agreed the terms of the Phase III Gas Sales Agreement. This agreement is a significant milestone in the development of the field and represents the commercialization of more than 7 trillion cubic feet of gas. Additional gas sales resulting from the expansion will also enable increased liquids production for export. In Trinidad and Tobago, we signed contracts totaling US$459 million for the new Poinsettia field project, which forms part of the phased development of the North Coast Marine Area. In Brazil, exploration activities continued, with good progress on both the Carioca exploration well and the Tupi Sul appraisal well. As I have previously mentioned, our 2007 exploration program is weighted towards the second half of the year. The Central Area Transmission System pipeline in the UK remains shut-in, following damage incurred from the anchor of a third party vessel. Inspection and damage assessment work is ongoing. Moving now to LNG. Performance was excellent with total operating profit up 159% to £88 million reflecting a 61% increase in managed volumes and higher prices. Our Shipping and Marketing business continued to perform strongly and we saw record throughput at both the Lake Charles & Elba Island import terminals in the United States. For the half year, LNG total operating profit increased by £37 million to £209 million pounds. During the quarter, we took delivery of the first LNG cargo under our supply contract with Equatorial Guinea LNG. This was delivered into our capacity at Lake Charles in the United States. Also in the US, the recently completed Cypress gas pipeline went into service as scheduled. This will give BG direct access to supply constraint, the constrained Florida market from the Elba Island terminal. In Chile we signed an agreement to supply the 2.5 million ton per annum Quintero LNG import terminal, in which we have a 40% interest. We expect this terminal to begin operation in 2009. In Transmission and Distribution, total operation profit increased by £13 million pounds to £70 million and in Power, we saw an increase of 35% in total operating profit to £31 million. In summary then, we delivered another good operating performance for the quarter with underlying total operating profit up 14%. In our LNG business, we saw an excellent performance driven by strong volume growth. And we continue to advance our future growth program with progress on Karachaganak Phase III and drilling in Brazil. And now I'll hand it over to Ashley for more detailed look at the financials.

[Ashley Almanza:]

Thank you, Frank, and good afternoon ladies and gentlemen. As usual I'll comment on operating performance in each segment and then follow with an overview of the group. In E&P, production volumes were 3% down on last year, and this reflects the disposal of our assets in Canada and Mauritania and the earlier phasing of our maintenance program in the UK. Underlying operating profits in E&P business increased by 3% at constant prices and U.S. dollar exchange rate. Principally due to the contribution of oil production from the new Buzzard field and increases in liquids production at Karachaganak. Whilst dollar based realizations for oil and liquids were broadly in line with the prior year, our results were impacted by the 10% weakening in the U.S. dollar. Cash realizations were down 11% reflecting softer prices in the UK and the effect of the weaker U.S. dollar on international gas prices. Unit operating expenditure was $5.41 per barrel for the second quarter. This reflects the extensive maintenance program and the translation of sterling costs at a higher dollar exchange rate. Our exploration expense increased by 31% to £72 million. So far this year, we have completed seven wells with three successes and one well still under evaluation. In addition, we have a further eight wells currently operating. As Frank mentioned, our exploration program for 2007 is weighted towards the second half of the year. On the 1st of July operation of the CATS pipeline was suspended after it was damaged by a ship anchor. CATS carried around 80,000 barrels of oil equivalent today of BG's production and the impact on earnings of losing this production is estimated to be around £20 million per month. The operator BP has indicated that they expect repairs will take several weeks after the completion of the diver inspection currently underway. Turning now to LNG. The LNG business delivered another very strong performance with operating profit up 159%. In shipping and marketing, our managed volumes increased by 61%. Past weaker demand in Europe and Asia offered fewer opportunities to divert cargoes; it also put a premium on access to the U.S. market, where prices remained firm. We purchased 27 additional cargoes for delivery into our U.S. terminal capacity and this more than compensated for market conditions outside of the U.S. The results of course once again demonstrate that our LNG business has the flexibility to perform under a variety of market conditions. Profits from liquefaction increased by £8 million with the increase coming in equal measure from Atlantic LNG and Trinidad and Egyptian LNG. In Transmission and Distribution, total operating profits increased by £13 million, mainly due to reduced gas costs at Comgas, which will be passed back to customers in future periods. Excluding this effect, profits at Comgas were £6 million lower, as a 4% increase in volumes was offset by the effect of a change in sales mix and the cost of expansion into new markets. In early June, we disposed of our equity interest in the U.K. Interconnector, realizing cash proceeds of £165 million. In the Power segments, profits were up 35% to £31 million, and this is principally due to our acquisitions in the United States and Italy. We completed our acquisition of Masspower in May. Operating profit for the Group was broadly in line with 2006 at £747 million and at constant U.S. dollar exchange rates and upstream prices. Underlying operating profit increased by 14% at group level. Excluding the one-off tax charge last year, earnings per share increased by 4%. Our effective tax rate for the half year was 43.3%. Cash conversion remained strong, with cash generated by operations remaining broadly in line with last year at £829 million. Capital investment of £496 million in the quarter included £74 million for the acquisition of Masspower in the U.S. In line with our usual practice, the interim dividend has been set at £0.036 per share, which is half of last year's full year dividend. This represents an increase of 20%. By the end of June, we had returned £219 million under our new share buyback program, and net funds were £213 million. That concludes my remarks ladies and gentlemen and I'll now hand you back to Frank.

[Frank Chapman:]

Thank you Ashley and now we will take your questions. Please could you state your name and company when asking a question. Thank you. Question And Answer

[Operator:]

Thank you very much. Our first question comes from Mr. Ian Reid of UBS. Please go ahead.

[Ian Reid:]

Hi, it's Ian Reid from UBS.

[Frank Chapman:]

Hi, Ian. Good Afternoon.

[Ian Reid:]

Just a couple of questions about CATS if I may. I think you said Ashley that's the line itself carries 80,000 barrels a day of net BG volumes. But presumably there is also additional liquid volumes which have to be shut-in because you can't produce the liquid without furring the gas, is that correct?

[Ashley Almanza:]

The 80,000 barrels a day includes liquids in line. So that's barrel of oil equivalent per day. It's all in.

[Ian Reid:]

Can you give a kind of indication or split between those things?

[Frank Chapman:]

Maybe we will come back to that. Pretty predominately this is gas Ian. It's Frank here.

[Ian Reid:]

Okay. Okay, sorry. And secondly, you said you are looking at about six-week outage, something like that. So is that the sort of number you're plug-in into your production forecasting for the year. Is that the sort of number you want us to plug-in if you like as well?

[Ashley Almanza:]

What I am referring to the statements made by BP, which was... the time is on respecting the line now they will determine what repairs are required and BP indications that it would be several weeks after the inspection is completed and the inspection is underway. And of course, we're at the end of July now.

[Ian Reid:]

Okay.

[Frank Chapman:]

I think it a bit... one has to be cautious Ian, in making to specific targets in terms of when the pipeline will be back in service. Because as yet, the investigation as to the possible damage has not been completed. So, we need to do that work. And as soon as we got that information we'll have a much better and clearer picture of how we are going to approach the repair and how long it will take.

[Ian Reid:]

Okay, thanks and just one final thing on the Dragon. Can you just give us an update on the progress there? When you see first cargo arriving?

[Frank Chapman:]

We actually said in the previous call, Dragon will be complete and ready for service on schedule at the end of this year.

[Ian Reid:]

Okay. So it's end of the year and that's when you intend to commission it, presumably. Okay.

[Frank Chapman:]

Absolutely, yes.

[Ian Reid:]

All right. Thanks very much.

[Ashley Almanza:]

Okay.

[Frank Chapman:]

Thank you.

[Operator:]

Our next question coming from Neil McMahon from Stanford Bernstein. Please go ahead, Neil.

[Neil McMahon:]

Hi. Good afternoon.

[Ashley Almanza:]

Good afternoon.

[Frank Chapman:]

Hi Neil.

[Ian Reid:]

Few questions really, it's great to see that on Karachaganak project you got that agreement through. Can you give us any more color on the prices you got for the gas or anything that we can use to look at the economics of that particular project?

[Frank Chapman:]

No, I don't really want to at this stage, prior to all the finalization work going on disclose the terms and conditions of that agreement. So if I had to say, Karachaganak gas is getting more valuable. We used to say that the economics are driven more or less by the liquids equation here. And once liquids still dominate the economics, the gas is becoming progressively more valuable and we have sort to clearly achieve the best that we can. I really wouldn't like to say more than that Neil, at the moment. We do... I would say probably, however that, we have worked hard to get mechanisms in the agreement, which provide a linkage to the market in time. So that this won't be an absolute price that's fixed forever.

[Neil McMahon:]

Okay. In the past Frank, I think what you said was of $0.50 to $1, so if we go a bit north of that, we are not going to be a million miles ace?

[Frank Chapman:]

Yes, I am not going to say anything in response to that Neil. I don't want to start speculation and quotations that I said it was this much. I really... I am not going there. We have signed the heads of terms. We are in the process of completing agreement. I don't want to comment on that until all of the parties have agreed on the sort of disclosure that we will make.

[Neil McMahon:]

Okay, maybe just another question going further east. Could you give us an update on where you are with oil search in terms of the Papua, New Guinea potential LNG development and have you seen any attractive conditions in Japan, given their Earthquake and that are spiking LNG prices at the minute?

[Frank Chapman:]

Well, with oil search, we have as you know being doing some work with them and that work continues. And again, I am not going to speculate on where that's going whether we finished the work and we've got some something definitive to say, we'll be very pleased to share that with you. In terms of what's going to happen in the marketplace, clearly we are aware of these developments and we are thinking through how this will develop and what sought of opportunities will emerge from those set of circumstances.

[Neil McMahon:]

Okay, thanks.

[Operator:]

[Operator Instructions]. Our next question comes from Mark Iannotti [ph] from Merrill Lynch

[Unidentified Analyst:]

Hi guys, its Mark. Just a quick question here.

[Ashley Almanza:]

Hi Mark.

[Unidentified Analyst:]

Firstly, do you have any insurance against the lost gas volumes? And then a second question, I've forgotten the second question --

[Ashley Almanza:]

Let me answer your first question Mark and comeback on your second question, you were going to ask. The standard insurance terms in the industry on pipelines is a deductible of 60 to 90 days with that tending towards 90 days, and very heavy premiums. So, we like many in the industry don't have business interruption insurance on the pipeline. We do have damage insurance so the cost of repairs will be covered by insurance with a small excess, but we don't have business interruption. So that 20 million pounds earnings impact per month that I mentioned is really addressing the lost profit without any offset from insurance.

[Unidentified Analyst:]

Okay, thanks. I've remember the second question. It looks like your cash tax is quite low again for second quarter running. If you can, any updated guidance you want to give us on that?

[Ashley Almanza:]

On the effective tax rate, we are below guidance with 43.3. I am comfortable with 44% fairly, you know, we do what we can to reduce tax charge and we will continue to do that. And I'd look to give you an update in the third quarter as to whether or not we are going to do better than 44%.

[Unidentified Analyst:]

But on cash tax?

[Ashley Almanza:]

Yes, cash tax. I wouldn't change any guidance on that. I think it's... it can be lumpy. It's lower because of the mix of profits. Actually, we are paying tax on account in the first half for the mix of profits at the end of 2006. And just simply, the mix of profits at the end of 2006 reduced the UK cash tax payment. But I treat it as a one-off Mark.

[Unidentified Analyst:]

Okay, thanks.

[Ashley Almanza:]

Okay.

[Operator:]

Our next question comes from Neil Perry of Morgan Stanley. Please go ahead.

[Neil Perry:]

Afternoon gentlemen.

[Frank Chapman:]

Good afternoon Neil.

[Neil Perry:]

Hello. Two things

[Frank Chapman:]

Sorry I beg your pardon, Ashley and let me just take the second question first if can and then Ashley will come back on the cost. The LNG business, did you say that historically we haven't made any money out of spot trade?

[Neil Perry:]

Well no, I am talking before you were diverting. You used to make relatively thin margins on your spot trading.

[Frank Chapman:]

Well, I think really what we have to see here is this whole situation both in terms of our asset line up, our cost structure as well as what's happening in the world in the LNG trade exchange significantly and what we have seen is two sets... two specific and distinctive sets of trading arrangements, last year when there was a lot demand in Europe and a lot of demand in the Far East and a scarcity of spot volumes that we were able to make good margins on diversions. This year when there's less demand in those countries, there's a greater availability of cargoes and BG's advantaged access to the U.S. market at a lower cost structure than others allows us to attract cargoes in that way and make margin in a very different market. I think that's the only thing sensible, one can say about this. Going back further in time, one is trying to extrapolate from a fundamentally different set of circumstances. So at the moment, I think it's fair to say that the strategy is demonstrating that it's possible to make money from this flexible portfolio in different market conditions and that's probably all one can say about it.

[Ashley Almanza:]

And Neil on costs. If I can answer in two parts, the first part being the operating costs and then come on to CapEx. Operating costs last year we held broadly flat. So if you look at it over a two year period, we've gone from about $4 a barrel and our guidance at constant exchange rates was $4.70. So less than 10% to random over two years and we said $2 to the pound but that guidance raised to around $4.90 a barrel. So if you look across the industry, top quartile performance on OpEx has been about 10% to 15% per annum. We are at the preferred end of that spectrum. Clearly, this year and this quarter first of all, we had the effect of the maintenance program which caused our year end OpEx to spike for the full year at 2 to 1. I am still comfortable with $4.90 as adjusted. We are going to have to adjust that for the effective CATS, losing 80,000 barrels a day will obviously have an impact on either cost metrics but I don't see that as effecting for the longer run that's obviously a one-off event. On capital costs, we are obviously, we went long on a lot of our contracts, capital contracts and therefore we enjoyed a period of inflation from cost escalation, but those were rolled off about a year ago and we have been procuring goods and services in the same market as the industry and clearly we've seen rig rate inflation seismic cost inflation and generally tightness in the contracting market and continue to see that. We would say though that we don't see those costs increasing at the same rate as they have been in the last two years. There is some abatement of the rate of increase, but it's too early to say whether or not we've reached the top of the cost cycle, bit of a full answer but that's our view.

[Neil Perry:]

Okay. Thank you.

[Ashley Almanza:]

Okay.

[Operator:]

Our next question comes from Colin Smith of Dresdner Kleinwort Wasserstein. Please go ahead.

[Colin Smith:]

Good afternoon, gentlemen.

[Ashley Almanza:]

Afternoon Colin.

[Colin Smith:]

Few questions if I may. First one is, can you just confirm whether or not you got into peaking capacity at Lake Charles this time around. And obviously you have given us an expanded since the last time you had that effect. If you didn't, can you tell us what sort of cargo volumes we need to see before you would get into it? And the second question was, do you still expect to get SIP on the quarter [ph] this year?

[Ashley Almanza:]

On your first question, there were days when we had very high rates of dispatch from Lake Charles and I recon that would have been in peaking capacity for several days throughout the quarter. Your second question on cargoes or Part B on cargoes, could you repeat that please, Colin?

[Colin Smith:]

Was really just in terms of getting significantly into peaking, what sort of volumes would you need to be running through Lake Charles on a quarterly basis?

[Ashley Almanza:]

Yes, over 2 Bcf a day on the top of my head. I couldn't do the arithmetic transit and to cargoes but I think the sorts of cargoes that we have run through Lake Charles this quarter would be an indication. We've got obviously in the second half, we took only one cargo from Equatorial Guinea in the first half. And we've got Equatorial Guinea for all of the second half so depending on prices in under markets, if the U.S. remains relatively firm then there would be a great prospects of hitting peaking capacity in the second half.

[Frank Chapman:]

On the OKLNG, I mean, I think we will recognize that the industry is facing significant cost pressures and that is translating into schedule pressures. The situation with OKLNG of course is that it forms part of a large program in Nigeria. It has got a lot of gas down there. There is a large program of LNG expansion, which will put Nigeria as the second largest LNG producer in the world. Where OKLNG is at the moment is that we have received as you know the combatancy feed starting to come from two sources and we are working on one of those feed studies now through a value engineering, which is really focused on cost reduction as well as volume increase for the same cost, and we will be looking at both the contracting strategy and any implications that has the planning. So that work is going on right now and we will share with you the results of that work as it becomes available.

[Colin Smith:]

Would it be safe there for me to assume that business development cost don't actually go down in the second half?

[Ashley Almanza:]

I think that's a reasonable assumption.

[Frank Chapman:]

Yes, that's probably right.

[Colin Smith:]

Thank you.

[Ashley Almanza:]

Okay.

[Operator:]

Our next question comes from Nick Pope of Lehman Brothers. Please go ahead.

[Nick Pope:]

Thanks very much. Good afternoon.

[Ashley Almanza:]

Good afternoon Nick.

[Nick Pope:]

Wanting to ask about the international gas price. I was a little surprised that it fell by a penny or so in the second quarter. I was just wondering what were the reasons for that, was it a production mix effect or was it something else?

[Ashley Almanza:]

Year-on-year, it's largely the effect of the U.S. dollar, year-on-year international gas prices down 11% and the U.S. dollar down 10%, and most of our international gas is dollar denominated. The weakness in dollar was principally the cause of the 12-month period. In any given quarter, so sequential quarter you can also be affected by mix and what is happening to Henry Hub. These are the many instances Henry Hub indexed.

[Nick Pope:]

Okay. Thanks very much.

[Ashley Almanza:]

Okay.

[Operator:]

Our next question comes from Lucas Herrmann of Deutsche Bank. Please go ahead.

[Lucas Herrmann:]

Yeah. Thanks very much. Good afternoon gentlemen.

[Frank Chapman:]

Hi Lucas.

[Ashley Almanza:]

Good afternoon.

[Lucas Herrmann:]

A few questions if I might. First CapEx in the LNG business, Ashley how do you see it moving I mean it's compassing but it's fallen pretty dramatically. What should we be anticipating this year around and further around given the bulk of the infrastructure expense been laid?

[Ashley Almanza:]

I think it's only for this year. The two projects are contributing to LNG spend would be Dragon LNG of course which is in homes rate [ph] and then the new investment Quintero terminal in Chile. We also of course got an ongoing program of shipping, so I would actually expect LNG investment to pick up a little bit now with and the addition of Quintero and with the final delivery of LNG tankers.

[Lucas Herrmann:]

Thanks. And secondly two questions to Frank. Can you point the closure through June. To what extent did you diverse you cargo of your spot cargoes into Lake Charles benefit from the closure of that facility. How much a... this is probably the wrong word. But how much of an impact on volume did that have. And secondly just the Pacific Basin in general; how important do you feel it is that you have a physical presence in that market? If oil search doesn't work out in terms of agreement, how important for you do you think it is given the scale of the market and the opportunity that you are physically present there now?

[Frank Chapman:]

I can go find the effect... you can regard the affect as small. In terms of physical presence in the Pacific, of course we do have the advantage position of having around 40 million tonnes per annum contracted over a very long period and that does already provide us with opportunities to trade in for the Pacific market, but at our strategy presentation other points along the way I have made it fairly clear that a physical presence in the Asia Pacific area with a source of supply there would facilitate a greater capability to cross arbitrage between the Pacific and Atlantic Basins and therefore that becomes for us an objective. I do want to emphasize however that LNG is scarce and the period over which scarcity is getting longer and therefore this isn't a pre requisite for success with the strategy but it would be a move which I think would enhance our opportunities. As a final closing remark, I think that our focus on the Atlantic Basin the choice to do that has been a good one and the stepping out to the Pacific Basin is a sensible objective to set but it by no means deludes the importance of the Atlantic Basin where growth will be much greater in percentage terms than in the Pacific Basin.

[Lucas Herrmann:]

I am sorry. Final one if I might Atlantic LNG trained for... is it fully commissioned now with... you're running at full phase or --?

[Ashley Almanza:]

Train force its actually gone through its pre-commercial phase and is now in its full commercial phase and I have had some operational problems, teething problems but I think that's consistent with a start of a very large new plant but they are now running in full commercial phase.

[Lucas Herrmann:]

All right. Thank you.

[Operator:]

Our next question comes from Juniv Shah [ph] with J.P. Morgan. Please go ahead.

[Unidentified Analyst:]

Hi, good afternoon gentlemen.

[Frank Chapman:]

Hi there.

[Unidentified Analyst:]

I've got few questions. First one is, at the last call you mentioned that your growing exposure to Henry Hub gas prices in your long-term contracts. I just wondered what sort of proportion of international contracts has Henry Hub indexed and my second question is on Oman. Which I understand you've been drilling at the Abu Butabul discovery recently. Just any news on that? and what sort of size are we looking at possibly? Thanks.

[Frank Chapman:]

I will ask Ashley to come back to the Henry Hub Indexation. Abu Butabul was a subject we presented on in February of this year. If I recall correctly, we said something like, in place volumes of a very wide range, I think the slide said through the 17 Bcf in place; very wide range. Drilling hasn't yet started, we are currently shooting seismic and I expect that we will spot out first well in the fourth quarter of this year and then continue with drilling maybe several more wells in the course of 2008.

[Ashley Almanza:]

Juniv on the Henry Hub, I think the best guide is if you look at that back of annual report we've got... production by field, by country and essentially train two of Egyptian LNG is Henry Hub indexed all of the liquefaction sales out of Atlantic on Henry Hubs. So those are the principle Henry hub indexes. And you can get the production numbers out of the back of annual report, just give a look there.

[Unidentified Analyst:]

Great. Thanks so much.

[Ashley Almanza:]

Okay.

[Operator:]

[Operator Instructions] and our next question comes from Neil McMahon from Stanford Bernstein. Please go ahead Neil.

[Neil McMahon:]

Hi just a few follow-up ones from me. Just could give us an update on the gas... gas contract and what's going on there... and will there possible to book any reserves under that and this year. And then maybe just a final question, I know you've been talking about costs, it seems like the recent deal, I think the KBR deal to build our new facility, LNG facility in Algeria. Looks like it's the cost of those facilities are increasing quite rapidly. I don't know if that's specific throughout location or if it's what you're seeing in the marketplace as well?

[Frank Chapman:]

Yes, I mean on costs, I think we will know, as I mentioned earlier on, this is a challenging cost environment and you know it's something that we are... working our way through. I think the... my belief is that costs have followed commodity prices up. But then we need to be particularly cautious at this point that costs have not overshoot and I think that full order books having courage the building in to some bids, unrealistic margins. And I think that they pushing back in time of quite a few major projects as we have seen around the world is going to start reducing the abundance of work there is for some of the major contracts and therefore will come through in terms of their views of what pricing they can achieve. So I think it is a time, as I've said I think before on the conference call, that we have to be particularly careful and cautious, not to enter this cycle at the top of the pricing curve where we maybe and this is the speculative statement on my part, maybe an overshoot situation. In terms of Gaza, we said... we have to maintain the position for long-term. Now, this is a challenging environment. We need to make sure that the agreements that we put into place are robust, and there is still quite a bit of technical and commercial work to go on. So we are engaged in that right now and when we finish that work, we'll be in a position to advice you where we are and to proceed and move to sanction the project and with that the booking of the reserve. So I am not going to speculate at this stage on timing. This is a difficult to set of circumstances and we'll update you as we can, over the next periods.

[Neil McMahon:]

Okay, thanks.

[Operator:]

Our next question comes from Colin Smith of Dresdner Kleinwort Wasserstein. Please go ahead.

[Colin Smith:]

Hi gentlemen. I have a couple of more as well please. Just on then, if you look at your coming on the net cash position and the share buybacks through... sort of £200 million or so, I guess my working assumption I know you never said this was that the £750 million which comes through would be done this year. And I am just wondering if you might want to comment about the rate at which you intend to address, what's in your mind about the rates at which you execute that program. And the second question I had with just coming back to CATS, to make sure that I understand sort of what the alternatives are. I guess in my mind I am thinking that there is possibly, and this is a question, no need to do any repairs or at least not once that keep the pipeline shut down. Second the coating each repairs, or third you need to actually repair a section of pipeline and I wonder if you could just talk a little bit about whether those are the correct options and/or of possible chances and for the timing associated with each outcome might be?

[Frank Chapman:]

Colin I am sorry, it is highly speculative at this stage to start contemplating different categories of damage and different repair ratings. I really don't want to go there, as BP has said the work is ongoing. We will know a lot more in the next week to 10 days and at that point, we will be able to share more meaningful information once we have decided the repair method that we are going to use.

[Ashley Almanza:]

On net cash we didn't specify a period for the buyback but I think that as we did with the first buy back we varied the rate. We have been running at the rate which I would regard at the bottom of the range. So, it wouldn't be unreasonable to anticipate a pick-up in the second half of the year.

[Colin Smith:]

Thanks very much.

[Ashley Almanza:]

Okay.

[Frank Chapman:]

Thank you Colin.

[Operator:]

Our next question comes from Jason Kenny of ING. Please go ahead Jason. One moment please. Please go ahead Jason.

[Jason Kenny:]

Hi, this is Jason from ING.

[Frank Chapman:]

Hi Jason.

[Jason Kenny:]

Couple of questions on LNG. Could you broadly say that LNG is volume driven rather than margin driven today and maybe as an insider, how best a forecast the number of cargoes for the second half or just generally that allow you to get it delivered on a quarterly basis. I don't know how you're guiding or if you're able to guide on the number of cargoes quarterly and the second question is just on exploration. I know you said you got three successes and one well ongoing eight wells ongoing, sorry. Have you got a number of prospective new well stocks in the second half?

[Frank Chapman:]

Let me take the last question first. We have guided you towards 22 to 24 wells this year and so when we get to halfway mark we've effectively got 15 wells that have either being completed or in the process of being drilled. Clearly with eight operating at the moment plus the remaining five or six or seven wells to start later this year we are going to be finishing the vast majority of the activity in the second half of the year. It's pretty much the pick your wage in towards the second half of the year. In terms of adding heat volume, Ashley you want to comment?

[Ashley Almanza:]

Yeah. Sure. It's... Jason I think that it is obviously driven by both volume and margin and the guidance that we gave in February for shipping and marketing, I am still comfortable with I think in terms of outlook for the second half of the year that EBITDA guidance is still good. The sizing from quarter-to-quarter this is annual guidance and we have seen that market conditions change quarter-to-quarter but equally we have seen that business can generate the return in a variety of market conditions. So whether its... when volumes are down typically, margins are up and the reverse is true. The guidance that we gave in February really I think its good for both of those eventualities.

[Jason Kenny:]

Okay. Thanks very much.

[Ashley Almanza:]

You're welcome.

[Operator:]

As there are no further questions, we will now hand over to Frank Chapman for closing comments.

[Frank Chapman:]

Okay. Thank you for your questions. Finally, I'd like to recap the main highlights. BG has delivered a good operating performance with underlying total operating profit up 14% for the quarter and 8% for the half year. And we continue to advance on our future growth program. Thank you for taking part in the conference call today and I'd like to remind you that we will be announcing our third quarter results on the 1st of November. Thank you and goodbye.