BP Annual Report and Form 20-F 2011 - Company Reporting

Business reviewwere in Russia (Orenburg, Slavneft, Verkhnechonskoye, Uvat, Talinskoye),Venezuela (Petromonagas) and Argentina (Cerro Dragon).Twelve per cent of our proved reserves are associated with PSAs.The countries in which we operated under PSAs in 2011 were Algeria,Angola, Azerbaijan, Egypt, India, Indonesia, Oman, Trinidad and Vietnam.In addition, the technical service contract (TSC) under which we operate inIraq functions as a PSA.ProductionOur total hydrocarbon production during 2011 averaged 3,454 thousandbarrels of oil equivalent per day (mboe/d). This comprised 2,094mboe/d forsubsidiaries and 1,360mboe/d for equity-accounted entities, a decrease of16% (decreases of 19% for liquids and 13% for gas) and an increase of2% (increases of 2% for liquids and 5% for gas) respectively comparedwith 2010. In aggregate, after adjusting for entitlement impacts in our PSAsand the effect of acquisitions and disposals, production was 7% lowerthan 2010. For subsidiaries, 37% of our production was in the US, 20% inTrinidad and 8% in the UK.The group and its equity-accounted entities have numerous longtermsales commitments in their various business activities, all of whichare expected to be sourced from supplies available to the group thatare not subject to priorities, curtailments or other restrictions. No singlecontract or group of related contracts is material to the group.Acquisitions and disposalsDuring 2011, we undertook a number of acquisitions and disposals. Intotal, disposal transactions generated $1.1 billion in proceeds during2011 including repayment of the $3.5 billion disposal deposit relating toPan American Energy. See Financial statements – Note 5 on page 197.With regards to proved reserves, 211mmboe were acquired in 2011(approximately 94mmboe for subsidiaries and approximately 117mmboefor equity-accounted entities), while 572mmboe were disposed of(approximately 312mmboe for subsidiaries and approximately 260mmboefor equity-accounted entities).Acquisitions• On 24 January 2011, BP exercised a preferential right to acquire Shell’sworking interest in the Marlin and Dorado producing fields in the Gulfof Mexico for a total consideration of $257 million. This brought BP’sworking interest in both fields to 100%.• On 12 May 2011, BP completed the purchase of 10 explorationand production blocks in Brazil from Devon Energy, concluding theagreement announced in 2010.• On 30 August 2011, BP completed its acquisition from RelianceIndustries Limited (RIL) of a 30% stake in 21 oil and gas PSAs thatRIL operates in India for an aggregate consideration of $7.0 billion. InNovember 2011, the two companies formed a 50:50 joint venture for thesourcing and marketing of gas in India. See India for further informationon page 87.Disposals• On 24 January 2011, following the approval of the Colombian authorities,BP completed the sale of its oil and gas exploration, production andtransportation business in Colombia to a consortium of Ecopetrol,Colombia’s national oil company, and Talisman of Canada. The sale hadbeen announced in August 2010.• On 22 February 2011, BP announced its intention to sell its interests ina number of operated oil and gas fields in the UK including the WytchFarm onshore oilfield in Dorset and all of BP’s operated gas fields in thesouthern North Sea, including associated pipeline infrastructure and theDimlington terminal. The sale of Wytch Farm to Perenco UK Limitedcompleted on 14 December 2011 for consideration of up to $610 millionin cash, which includes $55 million contingent on Perenco’s futuredevelopment of the Beacon field and on oil prices in 2011-2013. A saleof the southern North Sea assets has yet to be concluded. The assetsdo not yet meet the criteria to be reclassified as non-current assets heldfor sale and it is not yet possible to estimate the financial effect of theintended disposal of these assets.• In April 2011, the Wattenberg Plant in Colorado was divested toAnadarko for $575 million.• In April 2011, an exchange agreement was signed with BluestoneNatural Resources, LLC for the divestment of a mature gas field in SouthTexas in exchange for acreage in a non-operated property in Eagle Ford.• In June 2011, BP completed the sale of its upstream businesses inVenezuela to TNK-BP.• On 5 July 2011, BP sold half of the 3.29% interest in the Azeri-Chirag-Gunashli development in the Caspian Sea which had been acquired fromDevon Energy in 2010 to Azerbaijan (ACG) Limited, an affiliate whollyowned and controlled by the State Oil Company of the Republic ofAzerbaijan (SOCAR) for $485 million.• On 16 September 2011, the sale of BP’s upstream assets in Pakistanto United Energy Group (UEG) was completed. UEG has now assumedcontrol of the upstream assets. The sale, for $775 million, had beenannounced at the end of 2010.• In October 2011, BP completed the sale of Tuscaloosa assets inLouisiana to Hilcorp Energy I LLC for $110 million.• Also in October 2011, BP completed the sale of its 35% interest in theLan Tay and Lan Do gas fields in Vietnam to TNK-BP. The sale of BP’sinterests in the associated pipeline completed in November 2011. Thesale of BP’s interest in the Phu My 3 power generation plant is expectedto complete in 2012. As at 31 December 2011, this was classified asassets held for sale.• On 5 November 2011, BP received a notice from Bridas Corporation oftermination of the agreement for their purchase of BP’s 60% interestin PAE. As a result of their decision and action, the share purchaseagreement governing this transaction, originally agreed on 28 November2010, has been terminated. BP has repaid the deposit for the transactionof $3.5 billion received at the end of 2010. For details of payments inrespect of the termination of restrictive covenants see page 85.• On 1 December 2011, BP announced the sale of its Canadian NaturalGas Liquid (NGL) business to Plains All American Pipeline L.P. for$1.67 billion subject to closing adjustments. BP’s Canadian NGLbusiness owns, operates and has contractual rights to assets involvedin the extraction, gathering, fractionation, storage, distribution andwholesale marketing of NGLs across Canada and in the Midwest US.As at 31 December 2011 these assets were held as assets held forsale, awaiting completion of the sale.• On 28 December 2011, BP completed the sale of its interests in thePompano and Mica fields in the deepwater Gulf of Mexico to StoneEnergy Corporation for $204 million. The sale includes BP’s 75%operated working interest in the Pompano field and assets and50% non-operated working interest in the Mica field, together witha 51% operated working interest in Mississippi Canyon block 29 andinterests in certain leases located in the vicinity of the Pompano field.• On 28 February 2012, BP announced it had agreed terms with LINNEnergy to sell BP’s Hugoton basin assets (including the JayhawkNGL Plant). Under the agreement, LINN Energy has agreed to pay BP$1.2 billion in cash. Completion of the agreement is subject to closingconditions including the receipt of all necessary governmental andregulatory approvals. The sale is currently expected to complete on30 March 2012.The following discussion reviews operations in our Exploration andProduction business by continent and country, and lists associatedsignificant events that occurred in 2011. BP’s percentage workinginterest in oil and gas assets is shown in brackets. Working interest is thecost-bearing ownership share of an oil or gas lease. Consequently, thepercentages disclosed for certain agreements do not necessarily reflect thepercentage interests in reserves and production.EuropeUnited KingdomBP is the largest producer of hydrocarbons in the UK. Key aspects of ouractivities in the North Sea include a focus on in-field drilling and selectednew field developments.• On 16 November 2010, production from the Rhum gas field in thecentral North Sea was suspended in relation to certain aspects of theEU sanctions. This action was taken to comply with the notificationrequirements in the relevant EU Regulation. Rhum is owned by BP(50%) and the Iranian Oil Company (50%) under a joint operatingBusiness review: BP in more depthBP Annual Report and Form 20-F 2011 83