2010 second quarter results

10 August 2010

Azeri-Chirag-Gunashli (ACG)

ACG participating interests are: BP (operator – 34.1%), Chevron (10.2%), SOCAR (10%), INPEX (10%), Statoil (8.6%), ExxonMobil (8%), TPAO (6.8%), Devon (5.6%), ITOCHU (3.9%), Hess (2.7%).

During the first half of the year ACG spent about $189.7 million in operating expenditure and $774 million in capital expenditure. For the full year we expect to spend about $ 587 million in operating expenditure and $1,584 million in capital expenditure on ACG activities. 

Production

During the first half we produced an average 827.600 barrels per day (b/d) (150 million barrels or 20.2 million tonnes) from the Chirag, Central Azeri, West Azeri, East Azeri and Deep Water Gunashli platforms. 

Our full year plan remains to be an average of 854,000 b/d (about 42.1 million tonnes pa) production from the five ACG platforms. Of this, about 90,900 b/d is expected from Chirag, 184,200 b/d from Central Azeri, 285,700 b/d from West Azeri, 158,100 b/d from East Azeri and 135,100 b/d from Deep Water Gunashli. 

Chirag has 19 wells in operation (13 oil producers and 6 water injectors) and during the first half of 2010 it produced on average about 104,300 b/d. 

Central Azeri (CA) has 18 wells (13 oil producers 5 gas injectors) and during the first half it produced on average about 202.500 b/d. 

West Azeri (WA) has 21 wells (15 of which are oil producers and 6 water injectors) and during the first half it produced on average around 256.000 b/d. 

East Azeri (EA) has 14 wells (9 of which are oil producers and 5 water injectors) and during the first half it produced on average around 138.400 b/d. 

Deep Water Gunashli (DWG) has 22 wells (12 oil producers and 10 water injectors) and during the first half it produced on average about 126.400 b/d of oil. 

Associated gas

During the first half BP as operator of the ACG field continued to supply associated gas via the 28” gas subsea pipeline from three platforms (CA, WA and EA) to the Sangachal terminal and from there into Azerigas’ national grid system for domestic use. Some of the associated gas produced from the Chirag platform was sent to the SOCAR compression station at the Oil Rocks via the existing 16” subsea gas pipeline. The rest of the associated gas from the ACG platforms was sent via in-field subsea gas pipelines to the compression and water injection platform (C&WP) on CA for re-injection to maintain pressure in the reservoir. Gas injection activities currently continue from five wells on CA. 

During the first half we delivered around 9.5 million cubic metres ( about 334.5 million standard cubic feet) per day of ACG associated gas to SOCAR. In total we delivered 1.7 billion cubic metres (about 60.5 billion standard cubic feet) of associated gas to SOCAR during the first half. 

For the full year we plan to deliver 1.9 billion cubic meters of ACG associated gas to SOCAR. 

Drilling

Chirag: In March 2010 we completed the oil producer A08x. In April we spudded A22 oil producer and drilled until 16” casing point, the well is currently suspended due to crane change out operations. Our current activities on Chirag are focused on completing crane change out. We also plan to spud an additional sidetrack, A-07y as an oil producer in 2010. 

Central Azeri: Recovery activities were completed in March 2010 and on April 7th we commenced new well delivery activity on CA. During the second quarter we completed B10y oil producer sidetrack. During the remaining part of the year we will continue drilling activities. The current plan is to drill and complete the B22z injector well in 4Q. 

West Azeri: Early this year we completed the C19 producer well and conducted rig repair activities. In addition, we spudded the C23 injector in February. Currently we are finishing C24 oil producer. The remaining plan for 2010 is to continue delivering new development wells and conduct planned rig maintenance scheduled for the second half of the year. 

East Azeri: During the second quarter of 2010 we finished drilling and completions activities in the D17z well. Our plan for 2010 is to drill and complete two more oil producers - D18 and D19. 

Deep Water Gunashli (DWG):During the first quarter we completed the E13 oil producer. In the second quarter we spudded and completed the E14 oil producer and currently we are drilling the E-04 oil producer sidetrack which we plan to deliver by the end of 2010. 

In addition, the Dada Gorgud has continued drilling and completion operations on the DWG subsea water injection drilling programme. During the first half of 2010 we drilled and completed the H03 and F-06 water injectors. 

Chirag Oil Project (COP)

Our construction activities in the first half of 2010 continued on schedule and according to plan. 

We moved the Chirag Oil Project (COP) into execute phase through sanctioning this $6 billion development on March 9. 

Since that time the project has made very good progress awarding six key contracts amounting in total to some $814 million. The awards followed an extensive bidding and negotiation process and included contracts for fabrication of the jacket and subsea template with associated pin piles and a riser support frame for the brownfield work on the Deepwater Gunashli production, compression, water injection and utilities platform (PCWU); for the fabrication, assembly, hook-up and commissioning of the PDQ integrated deck, including the drilling facilities; for the transportation and installation of the subsea template; for the engineering, procurement and construction of the living quarters; for the engineering of the offshore facilities; and, for the engineering of the drilling facilities.
 
These awards maintain AIOC's commitment to optimise the use of Azerbaijan’s local resources. The project is expected to consume around 9 million manhours during construction work with 90% of this work being undertaken in Azerbaijan and of this, around 80% will be carried out by local workforce. Additionally, the contractors are encouraged to make maximum use of local subcontractors and we expect over 30% of the total COP spend to be expended in Azerbaijan. 

Further key contracts are currently being finalised and future announcements will follow for the award of subsea pipeline installation and diving works, and the transportation and installation of the jacket and topsides. 

On June 21 COP achieved a major milestone safely installing the pre-drilling template and 4 pin piles – the first major offshore facility, by the Derrick Barge Azerbaijan which has been upgraded to meet the project demands. The template was precisely installed over an existing pre-drilled wellhead and was set down on the soft seabed on large load spreading mudmats. 

The template is an important component of the project infrastructure and will provide the foundation for an extended pre-drilling programme to be undertaken in the period before the jacket is installed in 2012. The 218 tonne structure is the largest ACG pre-drill template constructed to date with 20 drilling slots, as opposed to 12 slots in all previous templates. The full scope of the COP pre-drilling program consists of 15 top-set wells and one cuttings re-injection well (a total of 16 wells). 

COP pre-drilling:

During the second quarter we spudded J01 pre-drill well using the Istiglal rig and also drilled a geotechnical borehole on the COP location. Following on from the template installation, the Dada Gorgud rig will be used to drill all remaining wells, starting in the second half of 2010. 

COP milestones for the remaining part of the year:

  • Award main transportation and installation contract - 3Q
  • Award pipeline coating contract - 3Q
  • Award pipeline installation and diving contract - 3Q
  • Start jacket fabrication - 4Q
  • Deliver 1st major equipment package to Baku - 4Q

Export operations

Oil and gas from ACG and Shah Deniz continue to flow via subsea pipelines to the Sangachal terminal. 

The capacity of the terminal’s overall processing systems is currently 1.2 million barrels of oil and 25.5 million cubic metres of Shah Deniz gas per day (about 39.5 million cubic metres in total) per day. 

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

During the first half of 2010 the Sangachal Terminal exported about 156.4 million barrels of oil (including about 136 million barrels through Baku-Tbilisi-Ceyhan (BTC), about 16 million barrels through the western route export pipeline [WREP] and about 4.7 million barrels through rail). On average about 20 million standard cubic metres (about 700 million standard cubic feet) of Shah Deniz gas was exported from the terminal daily during the first half. 

Baku-Tbilisi-Ceyhan (BTC)

The BTC Co. shareholders are: BP (30.1%); AzBTC (25.00%); Chevron (8.90%); Statoil (8.71%); TPAO (6.53%); ENI (5.00%); Total (5.00%), Itochu (3.40%); INPEX (2.50%), ConocoPhillips (2.50%) and Hess (2.36%).

During the first half BTC spent $13.4 million in capital expenditures and the full year plan is $69 million. 

BTC’s throughput capacity is currently 1.2 million b/d. 

Since June 4, 2006 up to the end of June 2010, 1195 tankers were loaded at Ceyhan with a total of about 938 million barrels (about 125.6 million tonnes) of crude oil transported via BTC and sent to world markets. 

On July 21, 2010 BTC achieved its highest daily throughput (to date) of 1.057million barrels per day. 

The total volume of oil exported via BTC during the first half of 2010 was about 136 million barrels (around 18 million tonnes). 

The BTC pipeline currently carries mainly ACG oil and Shah Deniz condensate from Azerbaijan. Following the signature of a new transportation agreement in July 2010, crude oil from Turkmenistan has and continues to be transported. BTC also has ongoing agreements to carry oil from the Tengiz field in Kazakhstan. 

Shah Deniz

Shah Deniz participating interests are: BP (operator – 25.5%), Statoil (25.5%), SOCAR (10%), LUKOIL (10%), NICO (10%), Total (10%), and TPAO (9%).

During the first half Shah Deniz spent $ 81.3 million in operating expenditure and $162.2million in capital expenditure. 

For the full year we are planning to spend $177.8 million in operating expenditure and $604.8 million in capital expenditure on Shah Deniz activities

Production

During the first half the field continued to produce from four wells to off-take points in Azerbaijan, Georgia and the Turkish border. The gas from Shah Deniz Stage 1 continues to be sold to Azerbaijan, GOGC (Georgia), BOTAS and the BTC Company. 

During the first half of 2010 the field produced about 3.6 billion cubic meters (about 127 billion cubic feet) of gas and 1 million tonnes (7.7 million barrels) of condensate or about 20 million cubic meters of gas per day (700 million standard cubic feet per day) and about 42.700 barrels of condensate per day. 

For the full year we plan to produce 7.6 billion cubic meters (around 269 billion cubic feet) of gas and 2.01 million tonnes (around 16 million barrels) of condensate. 

Since the start of Shah Deniz production in late 2006 till the end of the first half of 2010 about 42.4 million barrels (about 5.3 million tonnes) of Shah Deniz condensate was exported to world markets. 

Production will increase as new platform-drilled wells are brought on stream over the next few years. Plateau production from Stage 1 is expected to be 8.6 billion cubic meters of gas per annum and approximately 45,000 b/d of condensate. 

Drilling

Early this year we completed commissioning the new wells system and in February we spudded the sixth production well, SDA-06 from the platform. In addition, we will conduct surveillance operations on SDA-04 during the fourth quarter of 2010. 

Shah Deniz Stage 2

Engineering studies and cost estimates have continued during the first half to advance the Shah Deniz stage 2 and associated South Caucasus pipeline expansion projects. These works will continue throughout 2010. 

In the meantime on June 7, 2010 the Government of Azerbaijan and the Government of Turkey signed in Istanbul a Memorandum of Understanding (MOU) as part of a package of documents that shall regulate the sale of Azerbaijani gas to Turkey and transit terms for transportation of the gas to the European markets through the territory of Turkey. This marks a major step forward towards conclusion of required agreements for Stage 2 gas sales to Turkey and beyond and is a milestone that underpins the significance of the Shah Deniz Stage 2 development plans and paves the way for the project to move forward towards a final investment decision by Shah Deniz partnership. At this stage discussions to define the best option for further gas marketing and sales continue and these are led by the Azerbaijani government/SOCAR involving the Shah Deniz partnership. 

South Caucasus Pipeline (SCP)

The SCP Co. shareholders are: BP (technical operator – 25.5%), Statoil (commercial operator - 25.5%), Azerbaijan SCP Ltd. (10%), LUKOIL (10%), NICO (10%), Total (10%), and TPAO (9%).

During the first half SCP spent $4.9 million in capital expenditures. For the full year we expect to spend $12.7 million in SCP capital expenditure. 

The pipeline has been operational since late 2006 transporting gas to Azerbaijan and Georgia, and starting July 2007 to Turkey from Shah Deniz Stage 1. 

During the first half SCP daily average throughput was about 15 million cubic meters (around 524 million cubic feet) of gas or more than 93,000 barrels of oil equivalent per day. 

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

Exploration

On July 13 2009, BP and SOCAR signed a memorandum of understanding (MOU) to jointly explore and develop the Shafag Asiman structure in the Azerbaijan sector of the Caspian Sea. This structure, located in a deepwater section of about 650-800 meters with reservoir depth of about 7,000 meters, covers an area of some 1100 square kilometers and has never been explored before. The MOU, grants BP the exclusive right to negotiate a production sharing agreement to explore and develop the structure. 

As a result of the progress made since that time, BP and SOCAR recently signed a document called Heads of Agreement (HOA) which defines the basic commercial principles for the Shafag Asiman Production Sharing Agreement (PSA). 

People

At the end of the second quarter of 2010, BP Azerbaijan directly employed 2,051 Azerbaijani nationals. 86 per cent of BP’s permanent professionals in Azerbaijan are nationals and many of them are in very senior leadership positions. 

In 2010 we will continue our staff nationalization programme with a focus on recruiting local technicians and developing national managers - 120 technicians and 50 Azerbaijani national challengers to be recruited in 2010. To that end we will continue our extensive training programmes through CTTC and other existing training courses. 

Major sustainable development initiatives

Success of our projects in the Caspian in part depends on our ability to create tangible benefits from our presence for the people of Azerbaijan. To achieve this, we continue to carry out major sustainable development initiatives 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, as well as technical assistance to public institutions. 

During the first half of 2010 BP and co-venturers spent around $2.63 million in Azerbaijan alone on such sustainable development projects. 

BP and its co-venturers will continue their sustainable development initiatives to support local enterprise development and capacity building throughout Azerbaijan to assist the country in strengthening its economy. 

The most recent examples of such initiatives have been: 
  • BP and co-venturers’ award of a grant to enhance economic development through strengthening the agricultural sector in the Garadaghly community along the BTC and SCP pipelines.
  • BP and its co-venturers’ new community project aimed at setting up greenhouse agriculture in the Goranboy district of Azerbaijan. The main objective of the project is to foster sustainable economic development opportunities for the communities along the BTC and SCP pipelines.
  • Completion of six community infrastructure projects during the first half as part of the “Management of Community Micro-projects” programme including rehabilitation of village roads and construction of community potable water systems.
  • BP and co-venturers’ award of a major grant to the local business service provider AZERMS LLC for implementation of the Enterprise Development and Training Programme (EDTP) initiated in 2007 to develop local oil and gas sector companies. The project war earlier implemented by an international company.
  • BP and BTC/SCP co-venturers’ support of cultural heritage capacity-building training for some 43 representatives of the Gobustan State Historical-Artistic Reserve, the Azerbaijan Institute of Archaeology and the Georgian National Museum.
  • BP’s annual bursary awards to a group of first and second year students of the Azerbaijan State Oil Academy. The bursary awards programme is part of BP’s major educational support commitment and is aimed at promoting the best students specializing in petroleum engineering and geosciences at the State Oil Academy. Some 58 Oil Academy students received bursary awards during a BP-hosted ceremony on May 26 2010.
  • BP's ongoing support for the Baku-based Qafqaz University to broaden its scope to cover undergraduate education in chemical, petroleum, and mechanical engineering disciplines.
  • BP’s ongoing Geosciences and Engineering Speaker Series (BPGESS) initiative which is designed to enhance commitment by future generations of engineers to promoting geosciences in Azerbaijan.
  • BP’s support for the publication of a fundamental research book about Haji Zeynalabdin Taghiyev

Presentation slides

For further information please contact:
Tamam Bayatly, BP Baku Press office, telephone:      994 (0) 12 437 7573