First quarter 2017 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 2017, we spent approximately $111 million in operating expenditure and about $304 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 581,000 barrels per day (b/d) (over 52 million barrels or over 7 million tonnes in total) from the Chirag (55,000 b/d), Central Azeri (124,000 b/d), West Azeri (112,000 b/d), East Azeri (75,000 b/d), Deepwater Gunashli (121,000 b/d) and West Chirag (94,000 b/d) platforms.

At the end of the first quarter, 107 oil wells were producing, while 48 wells were used for gas or water injection.

Drilling and completion

ACG completed 5 oil producers and 2 water injector wells during the first quarter of 2017.

Associated gas

In the first quarter of 2017, ACG delivered an average of 12.1 million cubic metres per day of ACG associated gas to SOCAR (1.1 billion 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.

In the first quarter of 2017, 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.

During the first quarter, the Sangachal terminal exported more than 69 million barrels of oil. This included over 60.5 million barrels through Baku-Tbilisi-Ceyhan (BTC), over 7.5 million barrels through the Western Route Export Pipeline (WREP), and more than 1.1 million barrels via a separate condensate export line.

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

On average, 26.5 million standard cubic metres (about 936 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).

In the first quarter of 2017, BTC spent approximately $29 million in operating expenditure and $5 million in capital expenditure.

Since the 1,768km BTC pipeline became operational in June 2006 till the end of March 2017 it carried a total of about 2.67 billion barrels (around 357 million tonnes) of crude oil loaded on 3,502 tankers and sent to world markets.

In the first quarter of 2017, BTC exported 61.7 million barrels (about 8.3 million tonnes) of crude oil loaded on 77 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 three months of 2017, Shah Deniz spent approximately $113 million in operating expenditure and about $835 million in capital expenditure, the majority of which was associated with the Shah Deniz Stage 2 project.

Production

In the first quarter of 2017, the Shah Deniz field continued to provide deliveries of gas to markets in Azerbaijan (to SOCAR), Georgia (to GOGC), Turkey (to BOTAS) and to BTC Company in multiple locations.

During the quarter, the field produced about 2.4 billion standard cubic metres (bcm) of gas and 0.6 million tonnes (about 4.6 million barrels) of condensate.

The existing Shah Deniz facilities’ production capacity is currently 30.0 million standard cubic metres of gas per day or around 10.9bcma.

Drilling

In the first quarter of 2017, Shah Deniz existing (Alpha) platform completed drilling operations of the SDA10 well deep hole and commenced completion operations, which are currently ongoing.

The Istiglal drilling rig completed SDC03 and SDC02 wells in the first quarter. The rig has then moved to the SDC01 well location to perform completion operations. The Heydar Aliyev (Maersk Explorer) rig drilled the top-hole sections of the SDF01 and SDF02 wells and is currently drilling the SDF01 well lower section.

The above two rigs have already drilled 12 wells and completed three wells in preparation for the commencement of Shah Deniz Stage 2 and subsequent production ramp up. Drilling operations will continue to deliver all wells required to reach the planned plateau level.In the first three months of 2017, Shah Deniz spent approximately $113 million in operating expenditure and about $835 million in capital expenditure, the majority of which was associated with the Shah Deniz Stage 2 project.

During the first quarter of 2017, implementation of the Shah Deniz Stage 2 project continued successfully. The project is now over 92% 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 (BDJF) and along the pipeline route.

In March, a significant milestone was achieved in the project with the sail away of the jacket for the second of the Shah Deniz Stage 2 platforms. The Quarters and Utilities (QU) platform jacket sailed away from the BDJF yard and was successfully launched and installed in the Shah Deniz contract area in the Caspian Sea. Pile installation and final completion activities of the QU jacket structure are still on-going.

The construction and commissioning of the subsea construction vessel (SCV) “Khankendi” are progressing well at the Baku Shipyard. The vessel’s 900-tonne main crane was recently successfully load tested. In summer 2017, the vessel will sail away from the shipyard quay for sea trials in the Caspian Sea which is a significant milestone on SD2 project delivery.

At the ATA yard, construction of both Shah Deniz 2 platform topsides units is complete and commissioning activities are well underway. The plan is to sail away these decks for offshore installation in the summer of 2017.

The Sangachal terminal – already one of the world's largest oil and gas terminals – is progressing well with its expansion plans in order to be able to process the additional gas volumes.

At the peak of project activities, over 24,000 people were involved in construction works 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 2017, SCP spent about $6 million in operating expenditure and around $191 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 21.4 million cubic metres of gas per day during the first three months of 2017.

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 2017, SCPX activities continued successfully along the pipeline route across Azerbaijan and Georgia. Overall, 89% of the construction and commissioning scope is already completed.

In Azerbaijan, mainline construction continues with approximately 320km of pipe welded and 263km of backfill complete. All five of the planned horizontal directional drilling activities have also been completed, the last one having been completed in April 2017.

In Georgia, mainline construction is complete with about 62km of pipe welded, coated, lowered into trenches and backfilled.

Hydro-testing of the pipeline is ongoing in both Azerbaijan and Georgia.

Construction works continue at the two compressor stations in Georgia, with 96% progress at the first and 70% at the second station achieved. Both stations are on track for 2018 start up. Metering station (Area 81) construction works are approximately 95% complete and on track for 2017 start-up.

The processing of the 3D data acquired in 2016 from the Shallow Water Absheron Peninsula (SWAP) contract area is ongoing. The full processing is expected to complete by the third quarter of 2017, while the seismic interpretation will be completed by the fourth quarter of the year.

We also continue planning for the first exploration well on the Shafag-Asiman block.

At the end of the first quarter of 2017, the number of BP’s Azerbaijani national employees was 2,785 including fixed-term employees. 87% of BP’s professional employees in Azerbaijan are nationals and many of them are in senior positions, including six 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.

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.

In 2016, BP and the co-venturers in BP-operated joint ventures spent $1.51 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:

• A new partnership with the Ministry of Education which BP (on behalf of the co-venturers in the joint ventures that it operates) launched in September 2016 to support the enhancement of the agricultural vocational training in Azerbaijan. The project is expected to result in the development of a range of new agricultural occupations and trades thus contributing to the country’s plans to raise the efficiency of the agricultural sector. Under this partnership, BP and its co-venturers have committed to upgrading agricultural vocational education framework in Azerbaijan. While this one-year project was initiated as a pilot phase, if successful its experience will be used to cover all agricultural vocational schools across the country

• The Enterprise Development Programme (EDP), initiated by BP (on behalf of the co-venturers in the joint ventures that it operates), is a multi-million dollar initiative in support of local business development. The programme is part of the efforts to increase local content of contracts in Azerbaijan and contribute to the healthy and transparent development of the local economy. BP and its co-venturers announced their decision in November 2016 to extend this programme, which was launched in June 2007, for two more years.

• 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. In 2016 the programme entered its sustainability phase with a target to start to be run by local instructors from the third quarter of 2017.

• BP (on behalf of the co-venturers in the joint ventures that BP operates in Azerbaijan) are supporting neighbouring communities in developing IT skills. As part of this initiative 50 people from the Sangachal and Umid residential areas near Baku completed CISCO certified IT skills and capacities training, expanding their employment opportunities. In 2016 the programme was expanded to a large number of new communities including those along the BP-operated pipeline routes. It is expected that some 200 members of the local communities will benefit from this new initiative. In addition, the programme covers support to 23 most successful graduates from the previous phase of the CISCO training courses, providing them with further opportunities to acquire advanced IT skills and improve their English language knowledge. They are planned to take the internationally recognized Cisco Certified Network Associates certification exam upon graduation.

• BP (on behalf of the co-venturers in the South Caucasus Pipeline Company) launched in 2016 a new community capacity-building project in five districts along the pipeline route - Goranboy, Samukh, Shamkir, Tovuz and Agstafa. The project is part of the South Caucasus Pipeline Expansion (SCPX) project’s social investment programme. The project is specifically designed to enhance the quality of English language teaching in the communities. It is implemented by the British Council in collaboration with the Ministry of Education of Azerbaijan.

• BP (on behalf of the co-venturers in the joint ventures that BP operates in Azerbaijan) are also implementing a new project to supply a large number of kindergartens in the regions along the pipeline routes with computers. The purpose of the project is to create opportunities for pre-school aged children to develop their cognitive skills. To date, 335 computers have been donated to 56 communities in the Garadagh, Hajigabul, Kurdamir, Ujar, Agdash, Yevlax, Goranboy, Samukh, Shamkir, Tovuz and Agstafa regions.

• BP (on behalf of the co-venturers in the joint ventures that BP operates in Azerbaijan) have partnered with the International Organization for Migration (IOM) to support the transition of international best practices in facilitating efficient implementation of migration strategies, policies and legislation through capacity-building and technical assistance. The beneficiaries of the project are the state agencies dealing with the visa matters.

• BP (on behalf of the co-venturers in the joint ventures that BP operates in Azerbaijan) established the first Big Data, Data Sciences Instruction and Research Centre in Azerbaijan. The Centre, which was established at Baku’s ADA University, will result in commencement of a new Master’s Degree programme in Big Data Analytics and Data Sciences which will help meet the needs for data scientists and big data analysts.  It is also designed to have a wider impact by providing opportunities for utilization of the resources of the new Centre by public institutions and private sector representatives.

• BP (on behalf of the co-venturers in the South Caucasus Pipeline Company) launched a new project to build early intervention services in ten districts along the pipeline route - Hajigabul, Kurdamir, Agdash, Ujar, Yevlakh,  Samukh, Goranboy, Shamkir, Tovuz, Agstafa. The project is part of the South Caucasus Pipeline Expansion (SCPX) project’s social investment programme. The aim of the project is to raise both community and health sector awareness of the importance of early intervention in the process of children’s development.

• BP’s business lectures at Baku Higher Oil School by BP experts and senior executives. These are designed to support national petroleum engineers’ development in Azerbaijan.  As part of this initiative, BP senior managers and members of the leadership team regularly give lectures and presentations at this University, sharing their knowledge and experience and providing information about BP’s activities, technology, operations processes and mechanisms.

• BP’s ongoing support for the development of sport through its partnership with Azerbaijan’s National Olympic and Paralympic Committees. As part of this partnership BP funds a number of development and capacity building programmes and supports a group of national athletes. In 2016 BP extended its partnership agreement to support Azerbaijan’s national teams, both National Committees and a group of seven national athletes until the end of 2020.

• BP is also supporting Baku 2017 Islamic Solidarity Games. As an Official Partner of the Games BP supports its goals of promoting international peace and harmony - through its values of solidarity, togetherness and unity.  The project is part of BP’s commitment to supporting the development of Azerbaijan’s sporting potential and is in line with the long-term successful partnership with Azerbaijan’s National Olympic and Paralympic Committees. It also builds on BP’s experience and close cooperation with the Baku 2015 European Games and  London 2012 Olympic and Paralympic Games. As part of the partnership with the Games BP continues to support seven national athlete ambassadors and supports the delivery of the Baku 2017 Games-time Volunteer Programme – an initiative which will help 6,000 young people not only have the chance to play an important part in delivering the Games, but also benefit from a comprehensive training opportunity, designed to develop their leadership, presentation, communication and public speaking skills.