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

Business reviewagreement dating back to the early 1970s. Rhum remains shut-in. Therestart and safe operation of Rhum remains contingent on the availabilityof third parties to provide services to Rhum. Such services are not as yetall available and it is presently unclear when resumption of productionmay be possible.• On 13 July 2011, BP and its co-venturers announced an agreement toprogress a major redevelopment of the Schiehallion and Loyal oilfieldsto the west of the Shetland Islands. The investment of circa $5 billionin the redevelopment of the fields is expected to extend the fieldlife to 2035. The project involves replacing the existing SchiehallionFloating, Production, Storage and Offloading (FPSO) vessel with anew FPSO which is scheduled to be installed in 2015. BP will have a36.3% ownership interest in the new FPSO. There will also be a majorinvestment in the upgrading and replacement of the subsea facilitiesto enable full development of the reserves. Production is scheduled tocommence from the new facilities in 2016.• On 6 September 2011, BP and its co-venturers announced an agreementto invest up to $1.2 billion to progress a project to develop the Kinnoullreservoir in the central UK North Sea (BP 77.06%). The reservoir willbe connected to BP’s Andrew platform, enabling production from theAndrew area to extend to 2021.• On 13 October 2011, BP announced that a major milestone had beenreached on the Devenick gas project (BP 88.7%) with the installation ofa 600‐tonne module to receive gas and condensate from the Devenickreservoir. Production from the field is due to commence in 2012.• On 13 October 2011, BP announced the successful completion of awell drilled to establish a southwest extension of the Clair field, west ofShetland in the UK North Sea. This well confirmed recoverable oil froma new portion of the field, and also discovered oil in a new, shallowerreservoir horizon. During 2012, a further seismic survey of the field isplanned, to understand the reservoir structure in more detail.• Also on 13 October 2011, BP announced that the UK government hadgranted BP and its partners Shell, ConocoPhillips and Chevron, approvalto proceed with the $7.6 billion Clair Ridge project (BP 28.6%), thesecond phase of development of the Clair field.Rest of EuropeOur activities in the Rest of Europe are in Norway.• In 2011, the Valhall redevelopment project continued, with productionswitch-over to the new facility scheduled for 2012. The redevelopmentconsists of a new processing platform required as a result of the existingplatform suffering subsidence from extraction of hydrocarbons andincludes a ‘power from shore system’ eliminating all gas-fired equipmentoffshore.• On 14 August 2011, the FPSO vessel for the Skarv field arrived onlocation in the Norwegian Sea. Hook up of risers and commissioning workis ongoing and production is due to commence at the Skarv field in 2012.• On 6 October 2011, the Ula field on the Norwegian Continental Shelfcelebrated 25 years of production.North AmericaUnited StatesOur activities within the US take place in three main areas: deepwater Gulfof Mexico, Lower 48 states and Alaska.Deepwater Gulf of MexicoFor further information on the activities of BP’s Gulf Coast RestorationOrganization established following the Deepwater Horizon oil spill, seepages 76-79.BP is the largest producer of hydrocarbons and the largest acreageholder in the deepwater Gulf of Mexico, operating seven production hubs.• Following BP’s success in lease sale 213 in March 2010, seven of theleases awarded in 2010 were executed in 2011 and a further five leasesfrom the sale were awarded and executed in 2011.• During 2011, preparations for safely restarting drilling operations inthe Gulf of Mexico were progressed. In July 2011, BP announcedthe implementation of a new set of voluntary drilling standards for itsoperations in the Gulf of Mexico. The standards go beyond existingregulatory obligations and have been developed through lessons learnedfollowing the Deepwater Horizon oil spill in 2010. By the end of 2011there were five BP-operated deepwater rigs engaged in abandonmentand appraisal activities in the Gulf of Mexico. A permit to drill an appraisalwell at Kaskida was approved and drilling operations commenced inOctober. Looking forward to 2012, plans include the drilling of exploration,appraisal and development wells and the start-up of additional three rigs,subject to receiving approvals from the US regulators.• On 7 September 2011, BP announced the drilling of a successfulappraisal well in a previously untested northern segment of the Mad Dogfield in the Gulf of Mexico. The well, located on Green Canyon Block738, approximately 140 miles south of Grand Isle, Louisiana, confirmsa significant resource extension for the Mad Dog field complex, whichincludes the existing field, in production since 2005, and appraisal drillingof the Mad Dog South field in 2008 and 2009. Due to the materialityof the Mad Dog South finds, BP has been advancing developmentoptions to increase production from Mad Dog and has now sanctionedthe final investment decision on Mad Dog Phase 2. This will be the firstBP-operated, standalone facility in a decade and will develop significantadditional resources through the addition of subsea water injection andinstallation of a new production host.• On 14 December 2011, the Bureau of Ocean Energy Management heldits first western Gulf of Mexico lease sale since August 2009. BP bid onleases for 15 blocks and expects to be awarded leases for 11 blocks inearly 2012.Lower 48 statesThe North America Gas business operates onshore in the Lower 48 statesproducing natural gas, natural gas liquids and coalbed methane across ninestates. In 2011, BP drilled 148 wells as operator across the US, includingthe Wyoming, San Juan, Anadarko, Arkoma and East Texas basins. BP alsocontinues to participate in Eagle Ford, Fayetteville and other non-operatedpositions. For further information on the use of fracking in our shale gasassets see page 71.AlaskaBP operates 15 North Slope oilfields (including Prudhoe Bay, Endicott,Northstar, and Milne Point) and four North Slope pipelines, and owns asignificant interest in six other producing fields.• The Point Thomson Unit (PTU) was terminated by administrativedecision of the State of Alaska Department of Natural Resources (DNR)in November 2006 (BP 32%). ExxonMobil, the operator, and the otherunit owners, including BP, appealed the unit termination in the AlaskaSuperior Court. On 11 January 2010, the Alaska Superior Court reversedthe DNR’s administrative decision to terminate the unit, and in thesecond quarter of 2010, the State of Alaska Supreme Court grantedthe DNR’s petition for a limited review. Briefs have been submitted tothe Alaska Supreme Court, and a decision is expected in 2012. In themeantime, ExxonMobil and the State of Alaska have also informed theother unit owners, including BP, that they have reached a preliminarysettlement agreement. BP and the other owners asked to participatein the settlement discussions but were precluded. We are currentlyanalysing the agreement.• In light of the closure of the Denali operations (see page 88 for furtherdetails) BP continues to explore ways to commercialize its North Slopegas resources.• On 29 November 2007, BP Exploration (Alaska) Inc. (BPXA) pled guiltyto a misdemeanour violation under the US Water Pollution Control Actto settle the criminal allegations by the state and federal governmentrelated to leaks in 2006 from oil transit lines in the Prudhoe Bay unit.The penalty included payment of $20 million with three years’ probationthat was due to expire on 29 November 2010. On 29 November 2009,a spill of approximately 360 barrels of crude oil and produced water wasdiscovered beneath a ruptured frozen three-phase flow line running froma well pad to the Lisburne Processing Center. On 17 November 2010,the US Probation Officer filed a petition in federal district court to revokeBPXA’s probation based on an allegation that the Lisburne spill was acriminal violation of state or federal law. In November 2011, a hearingwas held in federal court in Anchorage. On 27 December 2011, thecourt issued a final decision denying the government’s petition andreleasing BPXA from probation. See page 165 in Legal proceedings forfurther details.84 BP Annual Report and Form 20-F 2011