2007 third quarter results media briefing by the BP Azerbaijan Leadership Team

16 November 2007

Azeri-Chirag-Gunashli (ACG) 

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

During the first nine months of the year ACG spent $302.7 million in operating expenditure and $2,114 million in capital expenditure. For the full year, we expect to spend $425 million in operating expenditure and $2,672 million in capital expenditure. 

Production

During the first nine months of the year we produced a total of about 180 million barrels (about 24.5 million tonnes and around 657,000 barrels per day average) from the Chirag, Central Azeri, West Azeri and East Azeri platforms. Our current total daily production is around 720,000 barrels per day. 

Our latest forecast is to produce an average of 674,000 barrels per day (33 million tonnes pa) from the four platforms in total for the full year. Of this, 131,000 barrels per day is expected from Chirag, 239,500 barrels per day from Central Azeri, 177,500 barrels per day from West Azeri and 126,000 barrels per day from East Azeri. 

Chirag has 21 wells in operation (14 oil producers and 7 water injectors) and is now producing around 116,000 barrels per day. From the start of production in November 1997 to the end of the third quarter 2007, Chirag had produced about 418.4 million barrels (about 57 million tonnes) of oil. 

Central Azeri (CA) has 16 wells (12 oil producers and 4 gas injectors). CA is currently producing around 280,000 barrels per day. From the start of production in February 2005 to the end of the third quarter 2007, CA had produced over 191 million barrels (over 30 million tonnes) of oil. 
West Azeri (WA) has 10 wells (8 of which are oil producers and 2 water injectors). WA is currently producing around 188,000 barrels per day. From the start of production in early January 2006 to the end of the third quarter 2007, WA had produced about 81 million barrels (about 13 million tonnes) of oil. 

East Azeri (EA) is currently producing around 136,000 barrels per day from 7 producing wells. From the start of production in October 2006 to the end of the third quarter 2007, EA had produced about 38 million barrels (about 6 million tonnes) of oil. 

Drilling

Chirag: We recently finalised drilling and completion operations on A-21, which is an extended reach drilling water injector, with exceptional drilling and completion performance and positive initial injection results. Current drilling activities on Chirag are on the A-03z producer where we are conducting planned sidetrack and re-completion works. By the end of this year we plan to drill one more sidetrack producer –A-05z on Chirag. 

Central Azeri: We completed the fourth platform-drilled well (a producer) in June 2007. Following this we successfully drilled another gas injector – the second to be drilled on CA this year. Following the successful completion of the planned major shutdown in September involving the CA platform we commenced drilling another water injection well. Drilling activities on this well are currently ongoing and we plan to complete it by the end of 2007. 
West Azeri: In July we successfully finalised a 6-well conductor driving campaign. Upon completion of installaion of the conductors we drilled the seventh platform well which was a water injector. We then commenced drilling one more producion well on WA. This well is on track to be completed by the end of 2007. 

East Azeri: Following completion of the tie-back activities on the EA pre-drilled wells we successfully drilled and completed the first platform well – a water injector in September. We then commenced drilling of a second water injector in October and this well is on track to be completed by the end of 2007. 

Deep Water Gunashli (DWG): The subsea water injection programme achieved a significant milestone in September with the successful completion of well G-01y at the south manifold. The well exhibited positive injection index performance. The programme has now shifted to the north manifold location where the Dada Gorgud semi-submersible rig will first undertake batch surface interval drilling operations on wells F-02 and F-03 and following this we will commence drilling and completion activities on well F-01, the second planned sub-sea water injector. The subsea water injection drilling programme includes ten wells. 

In addition, on September 19 we commenced the pre-drilled wells tie-back programme on the DWG drilling, utilities and quarters (DUQ) platform following the completion of offshore installation of DUQ topsides. We are planning to batch complete the tie-back programme and commence re-entry and completion activities on the pre-drill template wells before the end of 2007. There are ten DWG pre-drilled wells, of which one is planned as a cuttings re-injection well and one as a platform water injector. These well were drilled before the jacket of the DUQ platform was transferred offshore in April 2007. 
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 delivered up to 8.0 million standard cubic metres of gas per day to SOCAR during the first half of 2007, and this will take our total associated gas delivery to Azerbaijan this year to about 2.2 billion cubic metres. 

Export operations

During the first nine months of 2007 oil from ACG continued to flow via one 24” and two 30” subsea pipelines to the Sangachal terminal. As part of the planned ACG shutdown in September major expansion and upgrade works were also undertaken at the Terminal in order to increase the capacity of the terminal’s overall production and processing systems. 

In October the commissioning of trains 5 and 6 for ACG Phase 3 was completed and the facilities were handed over to operations. This was a huge milestone which marked the successful completion of STEP -Sangachal Terminal Expansion Programme allowing the terminal’s total oil processing capacity to raise to over one million barrels of oil per day. 
The terminal is now a huge integrated facility incorporating Early Oil project (EOP), ACG Phase 1, Phase 2 and Phase 3 processing facilities, BTC main pump station, SCP facilities, Shah Deniz plant, as well as linked with the terminal’s operations are SOCAR’s and third party pipelines. 

The terminal’s highest daily export rate to date was on July 7, 2007 when Sangachal processed and exported a record 999,700 barrels of oil. 

During the third quarter oil continued to be transported from the Sangachal terminal to the global markets, principally via BTC. The total volume of oil and condensate exported in October via BTC was 20.3 million barrels (over 2.7 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

2007 Major Projects 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)
  • installation of Phase 2 and Phase 3 pipelines (June and July)
  • installation of 14” diameter produced water disposal pipeline (immediately prior to major shutdown end August)
  • completion of brownfield project installation (September)
  • sail-away and offshore installation of DUQ topsides (July) and PCWU topsides (September)
  • Commence tie-backs on DWG - September
  • delivery of DWG East Manifold Subsea Water Injection trees to Baku (September)
  • completion of oil and gas processing trains 5 and 6 for Phase 3 at the Sangachal Terminal (October)
As part of our construction activities we also undertook between September 3 and 16 a planned major ACG shutdown, which was in fact the biggest shutdown in BP this year. The scope of work included 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 included 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 undertaken as part of this planned programme also covered the WA, EA and Chirag platforms. 

Through our construction contractors we currently employ about 3500 people at ACG construction sites and over 72% of these are Azerbaijani nationals. 

Overall Phase 3 (DWG) construction activities have made very good progress this year with both platforms now installed offshore and ongoing commissioning activities progressing on schedule. We are on target to achieve first production from DWG 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. 
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 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. 

In October the Pacific Askari completed umbilical installation and is currently awaiting delivery of final flexible pipeline sections for the DUQ platform. We commenced these activities in April this year and to date eight sections have already been installed with the remaining three sections for the South flank to be completed by the end of this year. 

We also completed this year the laying of the 28” gas line and two 30” oil pipelines to connect DWG DUQ platform with Central Azeri, and a 16” water injection pipeline between East and Central Azeri. At the end of August just immediately prior to the major shutdown we completed installation of a 14” diameter produced water disposal pipeline. This new 186 km environmentally safe pipeline for produced water, which is a very good solution for Azerbaijan, has been laid between the onshore Sangachal terminal and the Central Azeri C&WP. The pipeline is currently being commissioned and will be operational in the third quarter of 2008. 
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 water injection trees for these wells arrived in Azerbaijanin September. Engineering and procurement of the manifold is complete and was shipped to Baku last week. 

The only remaining 2007 ACG project milestone is continued delivery of all main produced water treatment packages to site during the fourth quarter. 

Baku-Tbilisi-Ceyhan (BTC) 

The BTC Co. shareholders are: BP (30.1%); AzBTC (25.00%); Chevron (8.90%); StatoilHydro (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 nine months of this year BTC spent $109 million in capital expenditure and the total capital expenditures in 2007 are expected to be $174 million. 

On September 22 BTC celebrated the lifting of the 250th tanker from the Ceyhan Terminal. Since our first tanker lifting from Ceyhan in June 2006 we have sent to world markets in total 292 tankerloads ( 235 million barrels, 29.3 million tonnes) of oil via the BTC pipeline. We expect the next milestone of 300th tanker lifting later this month. 
BTC’s daily record throughput rate of 903,000 barrels per day was achieved in July 2007. The pipeline’s average daily throughput for October was about 653.5 thousands 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 have continued since 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%), StatoilHydro (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 nine months of 2007, the project spent $108 million of the planned $219 million operating expenditure for the full year, and $266 million of the planned $372 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 increase as the remaining pre-drilled well is brought on stream by the end of the year. Drilling of new wells will commence from the platform later this year. 

During the first nine months of 2007 Shah Deniz produced 1.7 billion cubic meters of gas and 0.5 million tonnes of condensate. 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

We drilled SDX-04 to a Caspian-record depth of more than 7,300 metres in the south western part of the Shah Deniz field and the well encountered gas condensate in the main target horizons extending the field to the south. The well also discovered a new high pressure reservoir in a deeper structure below the currently producing reservoir. 

The SDX-04 was an exploration and appraisal well, drilled some 70 kilometres south east of Baku. 

The exploration discovery represents a potentially significant find. There will be appraisal to fully delineate the new structure in the next few years. 

Test flows during the appraisal phase were at the maximum capacity of the on-board equipment of 35 million standard cubic feet a day (1 million standard cubic meters a day). Results confirm sufficient gas at Shah Deniz for a second stage of development. Although further work is required to define this second phase it will likely be similar or larger than stage 1 -- 8.6 bcma (billion cubic metres a year). 
South Caucasus Pipeline (SCP) 

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

During the first nine months of 2007 we spent $56 million of the planned $73 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%, KNOC 20% and Shell 5%): Upon completion of the SDX-04 testing and suspension of well, we moved the Istiglal rig to the Inam exploration area on November 7 to start the planned drilling activities for INX-2 exploration well under the Inam PSA. 

On November 11 we spudded the well in the offshore Inam contract area, which covers 225 square kilometers approximately 140 km south of Baku. Water depths in the area vary between 45 metres in the north to 200 metres in the south. The so-called “Inam Bank” in the central part of the area has a minimum water depth of four metres. 

The target depth of the INX-2 well is approximately 5,300 metres. 
The well planning has taken several years using the experience from SOCAR’s well from the early 1990s and the 2000-01 INX-1 well on the southern flank of the structure, as well as the extensive 3-dimensional seismic survey carried out in 1999. The INX-2 drilling is using a 15 000 psi-rated blowout preventor equipment (BOPE). 

The planned drilling period is in excess of 200 days and will extend into 2008.

Further information:
Tamam Bayatly at BP’s Press Office in Baku, telephone: 994 (0) 12 599 4557