2007 first half results media briefing by the BP Azerbaijan Leadership Team

15 August 2007

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 $180 million in operating expenditure and $1,337 million in capital expenditure. For the full year, we expect to spend $396 million in operating expenditure and $2,569 million in capital expenditure. 

Production
During the first six months of the year we produced a total of 124 million barrels (around 682,000 barrels per day average) from the Chirag, Central Azeri, West Azeri and East Azeri platforms. Our current total daily production is around 730,000 barrels per day. 

Our latest forecast is to produce an average of 686,000 barrels per day (34 million tonnes pa) from the four platforms in total for the full year. Of this, 131,000 barrels per day is expected from Chirag, 243,000 barrels per day from Central Azeri, 180,000 barrels per day from West Azeri and 132,000 barrels per day from East Azeri. 

Chirag has 19 wells in operation (13 oil producers and six water injectors) and is now producing around 130,000 barrels per day. From the start of production in November 1997 to the end of the second quarter 2007, Chirag had produced over 407 million barrels (over 55 million tonnes) of oil. 

Central Azeri (CA) has 15 wells (12 oil producers and three gas injectors). CA is currently producing around 265,000 barrels per day. From the start of production in February 2005 to the end of the second quarter 2007, CA had produced over 171 million barrels (over 23 million tonnes). 
West Azeri (WA) has 9 wells all of which 8 are oil producers. WA is currently producing around 210,000 barrels per day. From the start of production in early January 2006 to the end of the second quarter 2007, WA had produced over 65 million barrels (over 8.8 million tonnes) of oil. 

East Azeri (EA) is currently producing around 124,000 barrels per day from 7 producing wells. From the start of production in October 2006 to the end of the second quarter 2007, EA had produced over 27 million barrels (over 3.6 million tonnes) of oil. 

Drilling

Chirag: We are currently conducting some re-completion works on the A-11 producer in the Balakhany formation and we will then finalise drilling and completion operations on A-21, which is an extended reach drilling water injector. We plan to drill two more sidetrack producer wells on Chirag this year. 

Central Azeri: We completed the fourth platform-drilled well (a producer) in June 2007. Following this we commenced drilling another gas injector – the second to date and this is currently ongoing. We plan to drill one more well from the CA platform by the end of 2007. Drilling activities on this well, which will be a water injector, will commence at the end of September following the planned shutdown of the CA platform. 

West Azeri: Following completion of the sixth platform-drilled well - a producer, we commenced a 6-well conductor driving campaign in early July and this is currently ongoing. Upon completion of installaion of the conductors we will drill the seventh platform well which will be a water injector. We plan to drill one more producer well on WA by the end of 2007. 
Deep Water Gunashli (DWG): Subsea water injection wells drilling continued successfully using the Dada Gorgud semi-submersible rig during the second quarter of this year. The subsea water injection drilling programme includes ten wells. The rig first undertook drilling and completion activities at the south manifold location on well G-01, and then drilled and suspended two further wells - G-02 and G-03. Move of the rig to the north manifold location is planned for September, to drill and complete well F-01 and drill and suspend two other wells - F-02 and F-03. 

Prior to this we completed ten wells before the drilling, utilities and quarters (DUQ) platform jacket was transferred offshore in April. Of these, one is planned as a cuttings re-injection well and one as a platform water injector. We are planning to start-up DWG’s tie-back programme later this year once the topsides offshore installation is complete. 

Associated gas
Since the beginning of this year, supply of associated gas from the CA, WA and EA platforms has continued via the 28” gas subsea pipeline into the Sangachal Terminal and into Azerigas’s national grid system for domestic use. Some of the associated gas produced from the Chirag platform has continued to flow to the SOCAR compression station at Oil Rocks via the existing 16” subsea gas pipeline. The rest of the associated gas from the ACG platforms has continued to flow via in-field subsea gas pipelines to the Compression and Water Injection Platform (C&WP) for re-injection to maintain pressure in the reservoir. 

In 2007 we planned to deliver 1.4 billion cubic meters of ACG associated gas to SOCAR. However, as agreed by AIOC and SOCAR early this year we have been delivering up to 8.0 million standard cubic metres of gas per day to SOCAR since January 1st 2007. 
Export operations
During the first half of 2007 oil from ACG continued to flow via one 24” and two 30” subsea pipelines to the Sangachal terminal. The terminal’s total oil processing capacity will be raised to over one million barrels of oil per day once the ongoing ACG Phase 3 facilities’ ongoing commissioning is complete at the terminal later this year. 

In April the facility’s operations reached a significant milestone: 1300 days without a day away from work case. The terminal’s performance over the past three years has been outstanding. Commissioning, start-up and integration were successfully completed, including the Phase 1 and Phase 2 processing facilities, BTC main pump station, SCP facilities, Shah Deniz plant, as well as integrating SOCAR’s and third party pipelines into the terminal’s operations. In July Sangachal achieved its highest daily export rate to date when some 905,000 barrels were processed and exported. 

Since April 2007 oil has continued to be transported to the global markets, principally via BTC. The total volume of oil and condensate exported by the end of July via BTC is 180.1 million barrels (over 24 million tonnes). 

The Western Route Export Pipeline (WREP) to Supsa remains shut down to allow the completion of an extended repair programme which includes re-routing of a one kilometre section in Georgia. The pipeline will restart when we complete all the necessary repairs and satisfy ourselves of the integrity of the system. 
Construction

Major highlights to date have included: 
  • installation of Deepwater Gunashli (DWG) Phase 3 north and south subsea manifolds (March and May)
  • sail-away and installation of the Phase 3 Drilling, Utilities and Quarters (DUQ) platform jacket and the Production, Compression, Water Injection and Utilities (PCWU) platform jacket (April and May)
  • commencement of commissioning of Phase 3 facilities at the Sangachal Terminal
  • sail-away and offshore installation of the Drilling, Utilities and Quarters Platform (DUQ) topsides (July)
  • PCWU topsides mechanically completed ( May )
Through our construction contractors we currently employ 6450 people at ACG construction sites and over 70% of these are Azerbaijani nationals. 
Overall Phase 3 (DWG) construction activities have made very good progress this year. We are on target to achieve first production in the second quarter of 2008. This will ultimately raise the Azeri-Chirag-Gunashli offshore facilities’ total oil production capacity to over one million barrels per day.

The latest construction milestone was achieved on July 26 when the topsides of Phase 3 DUQ platform were safely installed offshore onto the jacket in the Deepwater Gunashli part of the ACG field. The 15,656 tonnes topsides sailed away from the Heydar Aliyev Baku Deepwater Jacket Factory fabrication yard on July 25. The DUQ platform is located at 175 metres water depth on the Deepwater Gunashli field. 
The last topsides to be installed for Phase 3 is for the Production, Compression, Water Injection and Utilities (PCWU) platform. The construction of these topsides is now approximately 96% complete and we plan to install them offshore during September 2007 following full completion of the DUQ topsides installation. 

Major progress has been made on subsea installations. This year we began installing the Phase 3 subsea water injection facilities using the Pacific Askari. In March we installed the south flank manifold and umbilical distribution skid, and in May we installed the north flank manifold. These facilities will inject over 400,000 barrels of water per day into the DWG reservoir through six subsea wells drilled from two subsea drilling centres around five-kilometres from the DWG platform. Development of these subsea facilities marks the first significant subsea development in the Caspian Sea and paves the way for future Caspian subsea developments in ACG, Shah Deniz and elsewhere. The Pasific Askari is currently installing flexible pipelines for the DUQ platform. We commenced these activities in April this year and to date five sections have already been installed with the remaining six sections to be completed by the end of this year. We have also recently completed the laying of the 28” gas line and two 30” oil pipelines to connect DWG DUQ platform with the C&WP in Central Azeri. In addition, we are making progress on the Phase 3 east manifold subsea water injection project, which is designed to inject another 200,000 barrels of water per day into the Deepwater Gunashli reservoir through four subsea wells drilled from a single subsea drilling centre. The engineering and procurement of this manifold is currently 75% complete. 
Sangachal Terminal Expansion Programme (STEP) ACG Phase 3 is the next important phase of construction at STEP. Phase 3 construction mechanical completion was achieved on schedule at the end of May, 2007 with commissioning works currently under way and system handover to operations 39% complete. The Phase 3 facilities are expected to be fully complete and started up during the fourth quarter of 2007. 

As part of our construction activities we will also undertake in September a planned major ACG shutdown, which we believe will be the biggest shutdown in BP this year. The scope of work will include a brownfield installation programme to complete appropriate tie-ins and installations that will allow us to increase the capacity of the overall production and processing systems. In addition to tie-ins, these activities will include installation of a second flash gas compressor, a produced water treatment module and Phase 3 export gas compressor on the Central Azeri C&WP using the Derrick Barge Azerbaijan. Since C&WP is the hub for processing of the associated gas produced from ACG, works to be undertaken as part of this planned programme will also cover the WA, EA and Chirag platforms. While the actual date of the programme start-up is weather dependent, significant planning and preparation work has already been done to ensure that it is carried out safely. 

The remaining 2007 ACG project milestones are: 
  • complete brownfield project installation - 3Q
  • deliver DWG East Manifold Subsea Water Injection trees to Baku - 4Q
  • complete produced water pipelay - 4Q
  • deliver all main produced water packages to site - 4Q
  • complete trains 5 and 6 at the Sangachal Terminal - 4Q
  • install PCWU topsides - 4Q
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 of this year BTC spent $52 million in capital expenditure and the total capital expenditures in 2007 are expected to be $170 million. 

BTC celebrated its first anniversary on July 13 with remarkable achievements. On July 7 it carried oil from the Sangachal terminal to Ceyhan at a rate of over one million barrels per day for several hours and on July 9 we loaded the 200th tanker at Ceyhan. BTC’s daily record throughput rate of 905,000 was also achieved in July. The pipeline’s average daily throughput for July was about 700,000 barrels of oil per day and we are on target to achieve one million barrels per day (approximately 50 million tonnes per year) in late 2008. At its peak the Ceyhan terminal will fill 1-2 tankers per day. 

Deliveries of Shah Deniz condensate into the BTC pipeline began with the start of Shah Deniz production earlier this year. 

We expect that future volumes will include those from other Caspian fields. 

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%).


The Shah Deniz project is a gas condensate development in the Azerbaijan sector of the Caspian Sea with planned gas export to markets in Azerbaijan, Georgia and Turkey. 

During the first half of 2007, the project spent $75 million of the planned $196 million operating expenditure for the full year, and $177 million of the planned $378 million annual capital expenditure on Shah Deniz activities. 

The field has been producing steadily since early March to off-take points in Azerbaijan and Georgia. In July the first gas started to flow into BOTAS’s gas transportation system through the South Caucasus Pipeline (SCP), which is routed through Azerbaijan and Georgia. The gas from Shah Deniz Stage 1 is currently sold to Azerbaijan, GOGC (Georgia), BOTAS and the BTC Company. 


Shah Deniz production is currently in excess of 500 mmscfd (about 14.2 million cmd) of gas and over 30,000 barrels of condensate per day. Production will continue to increase during the year as the remaining pre-drilled well is brought on stream. Drilling of new wells will commence from the platform later this year. 

In 2007 we plan to produce an average of around 63,000 barrels of oil equivalent per day (or 2.8 bn cubic metres of gas and 0.8 million tonnes of condensate for the entire year) from Shah Deniz. Plateau production from Stage 1 will be 8.6 billion cubic meters of gas per annum and approximately 45,000 barrels of condensate per day. 

Appraisal drilling
Work on the exploration and appraisal well SDX-04 continues with drilling of the geological sidetrack. In March 2007 we logged the deep section of the pre-Fasila formation to a depth of 7301m, which made it the deepest well ever drilled in the Caspian. 

The geological sidetrack has now been successfully drilled and logged to a depth of 6650m. We are currently preparing to production test the well. We will know the results of these appraisal and exploration activities after we have completed analysis of the new data . 

South Caucasus Pipeline (SCP) 

The SCP Co. shareholders are: BP (technical operator – 25.5%), Statoil (commercial operator - 25.5%), the State Oil Company of Azerbaijan Republic (SOCAR - 10%), LUKoil (10%), NICO (10%), Total (10%), and TPAO (9%). 
During the first six months of 2007 we spent $31 million of the planned $62 million for capital expenditure on SCP activities in 2007. 

The pipeline has been operational since late 2006 transporting gas to Azerbaijan and Georgia from Shah Deniz Stage 1. Following its commissioning the pipeline was successfully tied-in with the Turkish pipeline system at the Georgian – Turkish border and the first gas started to flow into BOTAS’s gas transportation system in July 2007. 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

Inam PSA (BP 25% and operator, SOCAR 50% and Shell 25%): Planning of the INX-2 well (using the Istiglal rig) has moved into the final stage. The start of drilling activities will follow completion of the SDX-04 testing


For further information please contact:
Tamam Bayatly, BP Baku Press Office, telephone: 994 (0) 12 599 4557