To: BG Group senior management Date: 14/09/2012

From: Mr. Liam Dinh

Subject: Appraisal of an internally generate investment proposal to extract gas
Area: Investment proposal
BG group is a UK based Gas Company specialise in natural gas with the strategy of focusing
on high value markets and low cost has helped them be competitive and strong grow over
decade. Hence, BG group seeks to make many investments to maintain its position along with
the market demand. Any investment in gas industry from upstream to downstream requires
extensive capital, unexpected costs. Therefore, the proposal needs to be appraised in many
aspects to give the desired results with acceptable risks.
The criteria suggested to be used in appraisal the proposal including non financial and
financial aspect (as given). However, although the proposal is doing well in analysing
financial aspect but it lack of considering important factors in non-financial side, which
seriously affect the decision making and consequences after. First, the stakeholder interests
are not well-informed in the investment appraisal. The stakeholders are not provided key
information, for example, about the investment regarding how long to get back their money
as well as the inaccurate in estimating EMV (addition capital cover the risks beside a risk free
investment), because of not supporting the average probability of successful drilling. Any
investment appraisal is expected to put stakeholder interest in its heart. Secondly, the
proposal is lack of emphasize in externalities which caused by natural gas extraction process.
Externalities should be examined both onshore and offshore to give the overall picture and
the costs if the BG group is forced to bear all. The negative externalities can be the chemical
to extract gas and oil after drilling absorb in underground water stream (onshore) or pollute
underwater environment (offshore).
In conclusion, this report recommends that the proposal can be approved with condition by
keep practicing financial aspect and reinforce non-financial aspect, by taking into account
the interest of stakeholder particularly in time to break even and most likely probability of
successful drilling. Lastly, negative externalities should be add as an important criteria in
appraisal the proposal.
Reference
Investment appraisal technique: Accounting rate of return n.d, Business Link,
http://www.businesslink.gov.uk/bdotg/action/detail?itemId=1081822244&r.i=1081822890&
r.l1=1073858790&r.l2=1073858944&r.l3=1081822141&r.s=m&r.t=RESOURCES&type=
RESOURCES
Uzair B A 2012, Externalities: Shale gas and the risks we are talking, viewed as 27 May,
http://tribune.com.pk/story/384951/externalities-shale-gas-and-the-risks-we-are-taking/