First quarter 2016 results

ACG participating interests are: BP (35.8 per cent), SOCAR (11.6 per cent), Chevron (11.3 per cent), INPEX (11 per cent), Statoil (8.6 per cent), ExxonMobil (8 per cent), TPAO (6.8 per cent), ITOCHU (4.3 per cent), ONGC Videsh Limited (OVL) (2.7 per cent).

BP Exploration (Caspian Sea) Limited is the operator on behalf of the Contractor Parties to the ACG Production Sharing Agreement.

In the first quarter of 2016, we spent approximately $137 million in operating expenditure and $396 million in capital expenditure on ACG activities.

Production

In the first quarter, ACG continued to safely and reliably deliver stable production. Total ACG production for the quarter was on average 651,000 barrels per day (b/d) (over 59 million barrels or 8 million tonnes in total) from the Chirag (46,000 b/d), Central Azeri (155,000 b/d), West Azeri (116,000 b/d), East Azeri (69,000 b/d), Deepwater Gunashli (139,000 b/d) and West Chirag (126,000 b/d) platforms.

At the end of the first quarter of 2016, 95 oil wells were producing, while 41 wells were used for gas or water injection.

Drilling and completion

ACG completed 5 oil producer wells and 2 water injection wells during the first quarter of 2016

Associated gas

In the first quarter of 2016, ACG delivered an average of 7.6 million cubic metres per day of ACG associated gas to SOCAR (692 million cubic metres in total), primarily at the Sangachal Terminal but also to SOCAR’s Oil Rocks facility. The remainder of the associated gas produced was re-injected for reservoir pressure maintenance.

Oil and gas from ACG and Shah Deniz continued to flow via subsea pipelines to the Sangachal Terminal.

The daily capacity of the Terminal’s processing systems is currently 1.2 million barrels of crude oil and about 29.5 million standard cubic metres of Shah Deniz gas, while overall processing and export capacity for gas, including ACG associated gas is about 49.3 million standard cubic metres per day.

In the first quarter of 2016, the Sangachal Terminal exported about 75 million barrels of oil and condensate. This included around 67 million barrels through Baku-Tbilisi-Ceyhan (BTC) and more than 8 million barrels through the Western Route Export Pipeline (WREP).

Gas is exported via the South Caucasus Pipeline (SCP) and via a SOCAR gas pipeline connecting the Terminal’s gas processing facilities with Azerigas’s national grid system.

On average, 29.4 million standard cubic metres (around 1039 million standard cubic feet) of Shah Deniz gas was exported from the Terminal daily during the first quarter.

The BTC Co. shareholders are: BP (30.1 per cent); AzBTC (25.00 per cent); Chevron (8.90 per cent); Statoil (8.71 per cent); TPAO (6.53 per cent); ENI (5.00 per cent); Total (5.00 per cent), ITOCHU (3.40 per cent); INPEX (2.50 per cent), CIECO (2.50 per cent) and ONGC (BTC) Limited (2.36 per cent).

During the first quarter of 2016, BTC spent approximately $29 million in operating expenditure and $11 million in capital expenditure.

Since the 1,768km BTC pipeline became operational in June 2006 it has carried a total of about 2.43 billion barrels (around 324 million tonnes) of crude oil loaded on 3,194 tankers and sent to world markets.

In the first quarter of 2016, BTC exported around 67 million barrels (about 9 million tonnes) of crude oil loaded on 82 tankers at Ceyhan.

The BTC pipeline currently carries mainly ACG crude oil and Shah Deniz condensate from Azerbaijan. In addition, other crude oil and condensate continue to be transported via BTC, including volumes from Turkmenistan and Kazakhstan.

Shah Deniz participating interests are: BP (operator – 28.8 per cent), AzSD (10.0 per cent), SGC Upstream (6.7 per cent), Petronas (15.5 per cent), Lukoil (10 per cent), NICO (10 per cent) and TPAO (19 per cent).

In the first quarter of 2016, Shah Deniz spent approximately $116 million in operating expenditure and about $928 million in capital expenditure, the majority of which was associated with the Shah Deniz Stage 2 project.

Production

In the first quarter, the Shah Deniz field continued to provide reliable deliveries of gas to markets in Azerbaijan (to SOCAR), Georgia (to GOGC), BTC Company and Turkey (to BOTAS).

During this period, the field produced about 2.7 billion standard cubic metres (bcm) of gas and 0.6 million tonnes (about 5 million barrels) of condensate.

The existing Shah Deniz facilities’ production capacity is currently 29.5 million standard cubic metres of gas per day or around 10.8bcma.

Drilling

During the first quarter of 2016, the top hole sections of two gas producer wells (SDA09 and SDA10) were drilled for Shah Deniz Stage 1.

The Istiglal rig is currently at the shipyard for major upgrade and certification work. This work is expected to be complete in the second quarter of 2016. The Heydar Aliyev rig completed SDG02 well to 10” liner and then moved to drill the same section on SDG04 well in the first quarter of 2016. These two rigs have already drilled nine production wells in preparation for the first gas from Shah Deniz Stage 2 and subsequent production ramp up. Drilling operations will continue in order to deliver all wells required to reach the planned plateau level.

 In the first quarter of 2016, implementation of the Shah Deniz Stage 2 project continued successfully. The project is now over 70% complete in terms of engineering, procurement and construction, and remains on target for first gas from Shah Deniz Stage 2 in 2018.

Project activities continue at all offshore and onshore sites and fabrication yards of the country including the Sangachal Terminal, ATA (AMEC/Tekfen/Azfen) yard near Baku, Baku Deepwater Jackets Factory and along the pipeline route.

The pipe-lay barge Israfil Huseynov has installed about 40 kilometers of the 32-inch subsea export pipeline in accordance with the plan.

In the first quarter of 2016, we also started commissioning activities on the two Shah Deniz 2 topside units at the ATA yard and nearly all of the 50 living quarter modules have already been installed on the quarters and utilities platform. The integration of the hull strips and bow blocks of the subsea construction vessel Khankendi is now complete, with the launch of the vessel out of the dry dock at the Baku Shipyard planned for May. Once completed, this new vessel will be deployed to the Shah Deniz 2 area for the construction of the subsea structures.

In the first quarter of 2016, over 22,000 people were involved in construction activities across all main contracts in Azerbaijan and over 80% of them were Azerbaijani nationals.

The SCP Co. shareholders are: BP (28.8 per cent), AzSCP (10.0 per cent), SGC Midstream (6.7 per cent), Petronas (15.5 per cent), Lukoil (10 per cent), NICO (10 per cent) and TPAO (19 per cent).

In the first quarter of 2016, SCP spent about $6 million in operating expenditure and around $236 million in capital expenditure.

The pipeline has been operational since late 2006, transporting Shah Deniz gas to Azerbaijan, Georgia and Turkey.

SCP’s daily average throughput was about 21.6 million cubic metres of gas per day in the first quarter.

The SCP has a dual operatorship with BP as the technical operator being responsible for construction and operation of the SCP facilities and SOCAR, as commercial operator, responsible for SCP's commercial operation.

In the first quarter of 2016, SCPX activities continued along the pipeline route across Azerbaijan and Georgia.

In Azerbaijan, mainline construction continued to ramp up with approximately 83km of pipe welded, 57km of pipe coated and 36km of pipe lowered into trenches. Trenching, lowering, laying and backfilling activities are progressing. Stocks of pipe have been building up at the pipe yards along the route with more than 80% of the pipe needed for the Azerbaijan section already stored at Mugan, Kurdamir, Yevlakh, Qazanchi and Dallar pipe yards. The first horizontal directional drilling site at Agsu Canal has been completed and the works are underway for the second drilling at Goychay.

In Georgia, trenching, lowering and lay activities commenced during the first quarter. Mainline construction continued to ramp up with nearly 34km of pipe welded and more than 10km coated. Construction works have continued at both of the compressor stations, with 42% progress at the first and 12% at the second station achieved. Metering station (Area 81) construction works are approximately 26% complete and on track for 2018 completion.

Final interpretation of the Shafag-Asiman 3D seismic dataset was completed during the first quarter of 2016 and work has commenced on planning for the first exploration well on the structure.

The 2D seismic survey in the Shallow Water Absheron Peninsula (SWAP) contract area was safely completed in December 2015. This was followed by data processing, planned to be completed in May. We will then commence interpretation of the 2D seismic dataset. Planning for the 3D seismic acquisition programme for the area has been completed, with acquisition scheduled to start in the second quarter of 2016.

At the end of the first quarter of 2016, the number of BP’s Azerbaijani national employees was 2,926, including fixed-term employees. 85% of BP’s professional employees in Azerbaijan are nationals and many of them are in senior positions, including five members of the regional leadership team.

BP remains committed to achieving a nationalization target of 90% for professional staff by the end of 2018. This envisages nationalizing some professional roles that are currently occupied by expatriate employees. Non-professional staff of BP in Azerbaijan is already 100% nationalized. The nationalization agenda also includes further optimization of BP’s learning and development programmes, close participation in public and private sector initiatives in order to further improve the local talent market.

As part of the nationalization plan, effective 1 January 2016, Elkhan Mammadov was appointed Vice-President for Production. This new appointment marks the first national vice-president role with a technical portfolio of responsibilities in BP Azerbaijan. Another new appointment was Orkhan Guliyev’s announcement as Vice-President for Safety and Operational Risk, which will be effective June 2016.

The success of projects in the Caspian region depends, in part, on the operators’ ability to create tangible benefits from these projects for the people of the region. To achieve this, BP continues to implement major social investment projects, which include educational programmes, building skills and capabilities in local communities, improving access to social infrastructure in communities, supporting local enterprises through provision of access to finance and training, support for cultural legacy and sport, as well as technical assistance to public institutions.

During the first quarter of 2016, BP and the co-venturers in BP-operated joint ventures spent $0.34 million in Azerbaijan alone on social investment projects.

BP (on behalf of the co-venturers in the joint ventures that it operates) will continue their social investment initiatives in support of local capacity-building and enterprise development throughout Azerbaijan to assist the country in strengthening its economy.

Some examples of such projects in Azerbaijan are:

• Enterprise Development and Training Programme (EDTP), which is a multi-million dollar initiative in support of local business development. The programme is part of efforts to increase local content of contracts in Azerbaijan and contribute to the healthy and transparent development of the local economy. Since its start the EDTP has aimed to contribute to the broadening of Azerbaijan’s economic base and to enhancing the capacity of local firms to compete in domestic markets, the wider Caspian region and beyond. The EDTP has proven to be an excellent opportunity for local enterprises to reach international standards and compete for supply contracts in the oil and gas industry.

• The School of Project Management (SPM) established by BP (on behalf of the co-venturers in the joint ventures that it operates) in Azerbaijan. The SPM is designed to develop project management capabilities of individuals representing the private and public sectors. To date the SPM has trained 325 national project managers with international certificates.

• BP (on behalf of the co-venturers in the joint ventures that it operates) are also co-operating with SOCAR in the training and development of national workforce and in the human resources area. The companies continue to work together to create training and development opportunities for Azerbaijani nationals specializing in the oil and gas industry related disciplines. As part of this commitment vocational and technical discipline training support is being provided through SOCAR’s Regional Technical Training Centre in Gobustan, for a large group of representatives of the local communities residing in the neighbourhood of the Sangachal Terminal - Sangachal, Umid, Azimkend and Gobustan settlements. To date BP and the co-venturers in the joint ventures that BP operates in Azerbaijan have sponsored more than 130 technicians training at the Centre - 79 in 2015, and 55 in 2016.

• BP (on behalf of the co-venturers in the joint ventures that BP operates in Azerbaijan) are also supporting neighbouring communities in developing IT skills. As part of this initiative 50 people from the Sangachal and Umid residential areas near Baku have completed CISCO certified IT skills and capacities training, expanding their employment opportunities.

• BP’s ongoing support for the development of sport through its partnership with Azerbaijan’s National Olympic and Paralympic Committees. This partnership includes supporting a group of national athletes in their preparation for major international sporting events as well as assisting elite athlete development in Azerbaijan. As part of this partnership BP has funded a number of development and capacity building programmes including development of aspiring medal hopes for Azerbaijan and the Baku 2015 Games Academy initiative

• BP's ongoing support for the Baku-based Qafqaz University to broaden its scope to cover undergraduate education in three engineering disciplines, including chemical, mechanical and civil engineering. As part of this project the chemical engineering department was established in 2009 and in 2011, BP opened five fully equipped modern laboratories for this department. In 2011, the mechanical engineering department was opened at the University and in December 2013, BP presented eleven world-class laboratories to this department. Work is currently underway to support the establishment of laboratories in the civil engineering department.

• BP’s business lectures at Baku Higher Oil School, which are designed to support national petroleum engineers’ development in Azerbaijan. In addition to a series of lectures presented by BP experts and senior executives, Gordon Birrell, BP’s Regional President for Azerbaijan, Georgia and Turkey, has met with the teaching staff and students of Baku Higher Oil School sharing his own experience in the industry and information about BP operations and plans.

• In addition, during the first quarter of 2016, BP and its co-venturers spent more than $0.3 million on sustainable development projects in Georgia.

• Some examples of such initiatives are:

• Community Development Initiative - launched in 2003 with the aim to deepen positive relationships and provide positive contribution to the socio-economic development in local communities living near the facilities operated by BP (on behalf of the co-venturers in the joint ventures that BP operates in Georgia). The programme results include improved livelihood, employment and civil society capacity building with the focus on agriculture and business development, rural infrastructure rehabilitation and youth empowerment. More than 300 rural infrastructure projects have been implemented and more than 800 businesses have been established since the inception of the programme.

• Energy Efficiency Project - aims at promoting national energy security, as well as global environment protection, by improving energy efficiency in Georgian communities through provision of various tools and devices for reducing the CO2 emissions. Together with other activities, the Project introduces renewable energy and energy efficiency technologies that are implemented in various social buildings across the country – thus demonstrating that by introducing clean energy technologies, it is possible to significantly reduce the energy bills, improve the quality of the supplied energy, and reduce the negative impact on the environment.We have launched energy efficiency projects in five cities in Georgia.

• The Project Management College (PMC) - established in Georgia in 2011, initiated and funded by BP (on behalf of the co-venturers in the joint ventures that BP operates in Georgia) in partnership with the Free University. PMC has created a pool of qualified project managers, project management professionals and local instructors in the country. More on www.pmc.com.ge

• BP’s Official Partnership with the Georgian National Paralympic Committee and Paralympic Athletes started in 2012 with the London Paralympic Games and has continued through 2016 for the Paralympic games in Rio. Through this partnership, BP has put a special focus on supporting Paralympic athlete development. BP provides resources to support athletes during training and competition, ensuring they have the necessary coaching, equipment and travel capabilities. In partnership with the National Paralympic Committee and athlete ambassadors, BP is supporting a campaign aimed at raising Paralympic awareness and inspiring local communities. This is part of BP’s extended support for the Paralympic Movement by becoming an official partner of the Agitos Foundation’s Grant Support Programme (GSP) which provides financial support to IPC members to develop para-sports around the world.

• BP’s ‘English language training for local media’ training programme implemented by the British Council helped more than 300 local journalists develop important language and professional skills.