2010 third quarter results

30 November 2010

Azeri-Chirag-Gunashli (ACG)

ACG participating interests are: BP (operator – 37.4%), Chevron (11.3%), SOCAR (10%), INPEX (11%), Statoil (8.6%), ExxonMobil (8%), TPAO (6.7%), ITOCHU (4.3%), Hess (2.7%).

During the first three quarters of the year ACG spent $270 million in operating expenditure and $1,149 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 three quarters we produced on average 835,100 barrels per day (b/d) (228 million barrels or 30.8 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) 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 currently has 21 wells in operation (15 oil producers and 6 water injectors) and during the first three quarters of 2010 it produced on average about 98,000 b/d. 

Central Azeri (CA) has 18 wells (13 oil producers 5 gas injectors) and during the first three quarters it produced on average about 206,600 b/d. 

West Azeri (WA) has 21 wells (15 of which are oil producers and 6 water injectors) and during the first three quarters it produced on average around 252,800 b/d. 

East Azeri (EA) has 15 wells (10 of which are oil producers and 5 water injectors) and during the first three quarters it produced on average around 143,500 b/d. 

Deep Water Gunashli (DWG) currently has 22 wells (11 oil producers and 11 water injectors) and during the first three quarters it produced on average about 134,100 b/d of oil. 

Associated gas

During the first three quarters 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 three quarters we delivered around 9.3 million cubic metres (about 328.5 million standard cubic feet) per day of ACG associated gas to SOCAR. In total we delivered 2.5 billion cubic metres (about 89.7 billion standard cubic feet) of associated gas to SOCAR during the first three quarters. 

In total we delivered 2.5 billion cubic metres (about 89.7 billion standard cubic feet) of associated gas to SOCAR during the first three quarters which already exceeds our original plan to deliver 1.9 billion cubic meters of ACG associated gas during the full year. 

Drilling and completion activity

Chirag: In March 2010 we completed the oil producer A08x. In April we spudded A22 oil producer, drilled to the 16” casing point and suspended the well to complete previously suspended drilling activity on A07y which was put on production in October. The remaining plan for the rest of the year is resuming drilling activities on A22. 

Central Azeri: Following commencement of new well delivery activities on CA in April we completed B10y oil producer sidetrack during the second quarter. We then spudded B22z in July and completed it in October. During the remaining part of the year we will continue drilling activities on CA. 

West Azeri: Early this year we completed the C19 producer well and then conducted rig repair activities. In August and in October we completed C 24 and C23 wells respectively. The remaining plan for 2010 is to conduct planned rig maintenance and spud C25 producer in December. 

East Azeri: During the first quarter of 2010 we finished drilling and completions activities on the D17z injector well. We then drilled the D18 producer well which was completed in August. The plan for the fourth quarter of 2010 to continue drilling activities and complete the D19 producer well in mid January 2010. 

Deep Water Gunashli (DWG): During the first quarter we completed the E13 oil producer. During the second quarter we spudded and completed the E14 oil producer. We then drilled E04z to the reservoir section and the well was suspended in October. Currently we are drilling the E15 oil producer which we plan to deliver during the first quarter of 2011. 

On DWG subsea water injection we have also continued drilling and completion operations with the Dada Gorgud and Istiglal rigs. During the first half of 2010 we drilled and completed the H03 and F06 water injectors. We completed activities and started injection on the G04 well in October. 
Chirag Oil Project (COP) pre-drilling: The COP pre-drilling programme commenced in April 2010 with spudding the J01 pre-drill well by the Istiglal rig. We then continued COP drilling activities by the Dada Gorgud rig. The Dada Gorgud has already completed drilling the J01/J01z pilot hole and sidetrack well which are the first of the Chirag Oil Project pre-drill wells and we are currently drilling the second of the 16 COP pre-drill wells. 

Shah Deniz: The SDA-06 well was spudded in February 2010. In addition, we performed surveillance operations on the SDA-04 well during the third quarter of 2010. The remaining plan for the fourth quarter is to continue drilling activities on the SDA-06 well which will be completed in 2011. 

Shah Deniz Full Field Development (FFD) appraisal: Appraisal activities to support plans for the Shah Deniz full field development continue. As part of these activities the SDX-06 appraisal well is being drilled with the Istiglal rig. The well was spudded in July with a planned total depth of 6,272m. SDX-06 is located in the northern part of the field. The well is expected to be completed in 2011. 

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 three quarters of 2010 the Sangachal Terminal exported about 244 million barrels of oil (including about 213,5 million barrels through Baku-Tbilisi-Ceyhan (BTC), about 23 million barrels through the western route export pipeline [WREP] and over 7,5 million barrels through rail). On average about 19,3 million standard cubic metres ( 683 million standard cubic feet) of Shah Deniz gas was exported from the terminal daily during the first three quarters of 2010. 

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 three quarters BTC spent $20.1 million in capital expenditures. 

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

Since June 4, 2006 up to the end of November 2010, 1354 tankers were loaded at Ceyhan with a total of over 1,063 million barrels (142.4 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 three quarters of 2010 was about 213,5 million barrels ( over 28,6 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 three quarters Shah Deniz spent $ 121 million in operating expenditure and $251.1 million 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 three quarters 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 three quarters of 2010 the field produced more than 5.3 billion cubic meters (more than 188 billion cubic feet) of gas and 1.4 million tonnes (11.5 million barrels) of condensate or more than 29 million cubic meters of gas per day ( 690 million standard cubic feet per day) and about 41,900 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 more than 2 million tonnes (around 16 million barrels) of condensate. 

Since the start of Shah Deniz production in late 2006 till the end of September 2010 about 46 million barrels (about 5.8 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. 

Shah Deniz Full Field Development (FFD)

Shah Deniz FFD is a giant project which is expected to add a further 16 billion cubic meters per year (bcma) of gas production to the existing 8 bcma from Stage 1, opening up Azerbaijan as a major gas supplier to new gas markets. It is currently one of the largest gas development projects in the world. The project is designed to bring increased supply and diversity to the European gas markets through a new Southern Corridor. 

The Shah Deniz FFD concept includes two new bridge-linked production platforms with 16bcma offshore processing capacity, up to 30 subsea wells to be drilled with 2 semi-submersible rigs, 500 km of subsea pipeline network in up to 550m water depth, expansion of the Sangachal Terminal with compressors for Shah Deniz and the South Caucasus Pipeline (SCP), expansion of the SCP to Turkey through a new 400 km line in Azerbaijan and two new compression stations in Georgia, planned gas sales to Turkey, Georgia and Europe. At this stage the project plans to deliver First Gas in 2017. 

Engineering studies have continued during the first three quarters of 2010 to advance the Shah Deniz FFD and associated South Caucasus pipeline expansion projects. These works will continue throughout 2010 into 2011.
 
The project progress was enhanced by the Memorandum of Understanding (MOU) signed in Istanbul in June by the Government of Azerbaijan and the Government of Turkey. The MOU was signed 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 marked a major step forward towards conclusion of required agreements for Shah Deniz FFD gas sales to Turkey and beyond and is a milestone that underpins the significance of the Shah Deniz full field development plans and paves the way for the project to move forward towards a final investment decision by the Shah Deniz partnership. 

It is planned that the project itself will take Shah Deniz FFD gas to the Turkish border. In order to transport the gas to Turkish and European markets, the project will need further new pipeline infrastructure. At this stage discussions are underway to define the route which best meets the needs of all parties involved – and which will with Turkey establish a new Southern Corridor for gas supply to Europe. 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 three quarters SCP spent $6.9 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 three quarters SCP daily average throughput was 15.3 million cubic meters (over 540 million cubic feet) of gas or more than 96,000 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

BP and SOCAR (the State Oil Company of the Republic of Azerbaijan) signed on October 7 a new production sharing agreement (PSA) on joint exploration and development of the Shafag-Asiman structure in the Azerbaijan sector of the Caspian Sea. This marked the beginning of BP’s bilateral cooperation with SOCAR in exploration and development of a new offshore block. 

The signing of the PSA followed the earlier concluded Heads of Agreement (HOA) which defined the basic commercial principles of the contract. Under the PSA BP will be the operator with 50 per cent interest while SOCAR will hold the remaining 50 per cent equity. 

The block lies some 125 kilometers (78 miles) to the South-East of Baku. It covers an area of some 1100 square kilometers and has never been explored before. It is located in a deepwater section of about 650-800 meters with reservoir depth of about 7000 meters

People

At the end of the third quarter of 2010, BP Azerbaijan directly employed 2,127 Azerbaijani nationals. 87 percent of BP’s permanent professionals in Azerbaijan are nationals and many of them are in very senior leadership positions. 

In 2010 we continued our staff nationalization programme with a focus on recruiting local technicians and developing national managers. During the first three quarters of 2010 69 technicians and 35 challengers were recruited. By early November BP had recruited 91 technicians and 38 Azerbaijani national challengers

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 three quarters of 2010 BP and co-venturers spent around $3.54 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’s support for the publication of a fundamental research book about Haji Zeynalabdin Taghiyev
  • BP’s support for the publication of major research on who the author of the famous Azerbaijani novel “Ali and Nino” is.
  • 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 annual bursary awards to 58 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.
  • 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 and co-venturers’ award of a grant to create economic and entrepreneurial opportunities for community members and help young people acquire leadership and entrepreneurial skills while gaining hands-on experience in starting their own businesses or implementing small economic projects.
  • BP and its co-venturers’ new project called "The Community Based Support to Producers of Dairy Products" along BTC/SCP in Azerbaijan.
  • 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.
  • Completion of 13 community infrastructure projects out of planned 39 during the first three quarters as part of the “Management of Community Micro-projects” programme along BTC/SCP in Azerbaijan.
  • 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 representatives of the Gobustan State Historical-Artistic Reserve, the Azerbaijan Institute of Archaeology and a group of Turkish and Georgian experts.
For further information please contact:
Tamam Bayatly, BP Baku Press office, telephone:      994 (0) 12 437 7573

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