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

Business reviewCanadaIn Canada, BP is focused on oil sands, and will use in situ steam-assistedgravity drainage (SAGD) technology. This uses the injection of steaminto the reservoir to warm the bitumen so that it can flow to the surfacethrough recovery wells. BP holds an interest in several oil sands leasesthrough the Sunrise oil sands and Terre de Grace oil sands partnershipsand the Pike Oil Sands joint venture. BP also develops and producesnatural gas, markets natural gas and has significant exploration interests inthe Canadian Beaufort Sea.• The Pike Oil Sands joint venture and the Terre de Grace partnershipsuccessfully completed winter drilling programmes in 2011, which wereconducted to further appraise in situ oil sands resources. In late 2011,Pike Phase 1 moved to project appraisal status.• The Sunrise operator, Husky Energy Inc., commenced building facilities,drilling wells and creating operational systems to bring Phase 1 intoproduction. First production of Phase 1 bitumen is expected in 2014,potentially building to 60,000 barrels per day gross capacity over thesubsequent 24 months.• Interpretation of the 3D seismic survey acquired in 2009 and the seismicdata for the EL446 field acquired in 2010 in the Canadian Beaufort Seacontinued in 2011 and is nearing completion.South AmericaBrazil• On 12 May 2011, after receiving approval from the Brazilian NationalPetroleum, Natural Gas and Biofuels Agency (ANP), BP concludedthe purchase of Devon Energy do Brasil (later renamed BP Energy doBrasil), adding 10 exploration and production blocks to its portfolio. Theacquired blocks give BP a diverse and broad deepwater explorationacreage position offshore Brazil, with interests in seven licence blocksin the Campos basin, one in the Camamu-Almada basin in water depthsranging from 330 to 9,100 feet (100 to 2,780 metres), as well as twoonshore licences in the Parnaíba basin. The Campos basin blocks includethree discoveries – Xerelete, Pre-Salt Wahoo, and Itaipú – and the PolvoField in shallow water, which is currently producing around 19,000boe/dnet. BP completed the drilling of Itaipú-2, the first appraisal well in theItaipú deepwater discovery in November 2011 and is in the process offinishing a second appraisal well.Argentina, Bolivia and ChileBP conducts activity in the Southern Cone region of South America(Argentina, Bolivia and Chile) through PAE, an equity-accounted jointventure with Bridas Corporation in which BP has a 60% interest.• Following the announcement in November 2011 of the termination ofthe sale of BP’s interest in PAE to Bridas, BP no longer classifies theseassets as assets held for sale. Under the share purchase agreementBP was required to make a payment of $700 million to Bridas upontermination in full settlement of any and all past claims between thetwo companies and also as consideration for amendments to the PAEagreement which terminate certain legacy restrictive covenants amongBP, PAE and Bridas. Subsequent to payment of this amount by BP inNovember 2011, Bridas returned this $700 million to BP claiming that theshare purchase agreement was void; BP disputes this claim by Bridasand maintains that the share purchase agreement and its terms whichsurvive termination (including the settlement and termination of legacyrestrictive covenants) remain valid and binding. The $700 million returnedto BP is shown in the balance sheet at 31 December 2011 within cashand cash equivalents and within current trade and other payables.• On 24 January 2012, the Republic of Bolivia issued a press statementdeclaring its intent to nationalize PAE’s interests in the CaipipendiOperations Contract. No formal nationalization process has yetcommenced. PAE and its shareholders BP and Bridas intend tovigorously defend their legal interests under the Caipipendi OperationsContract and available Bilateral Investment Treaties.Trinidad & TobagoBP holds exploration and production licences covering 917,000 acresoffshore of the east coast. Facilities include 13 offshore platforms and oneonshore processing facility. Production is comprised of oil, gas and naturalgas liquids (NGLs).• On 25 July 2011, BP announced that it had been awarded twodeepwater exploration and production blocks by the government of theRepublic of Trinidad & Tobago. The award was for a 100% interest inblocks 23(a) and TTDAA 14 offshore Trinidad’s east coast, both underPSAs. Government approval is expected in early 2012. These blocks willincrease the acreage in the region by 889,000 acres.• On 26 August 2011, BP announced that first gas had been achievedfrom the Serrette platform. Serrette, sanctioned in May 2009, has adesign capacity of 1 billion cubic feet per day and may deliver a peakproduction of up to 500 million standard cubic feet per day. It is the fifthnormally unmanned installation (NUI) to be designed and constructed inTrinidad & Tobago. The platform will tie into the Cassia B platform.AfricaAngolaBP is present in four major deepwater licences offshore Angola (Blocks 15,17, 18 and 31) and is operator in Blocks 18 and 31. In addition, BP holds a13.6% interest in the first Angolan LNG project.• During the second quarter of 2011, a 40-day planned maintenanceshutdown was conducted on the Greater Plutonio field. Corrosion inthe high pressure gas cooling systems had restricted operations fromSeptember 2010, necessitating a complex replacement project that wassafely completed in June 2011.• The Pazflor deepwater development, located in block 17 (BP 16.67%),came onstream on 24 August 2011, ahead of schedule. It encompassesa new build FPSO, 49 subsea wells, 180 kilometres of flowlines and10,000 tonnes of equipment on the seabed. Pazflor is expected to havea plateau production rate of 220,000boe/d gross which will come fromthe Perpetua, Hortensia, Acacia and Zinia fields. The FPSO has topsidefacilities to process both Oligocene and Miocene age oils.• In December 2011, BP gained access to five new deepwater explorationand production blocks offshore Angola. These gave BP a leading positionin Angola, with interests in nine blocks accounting for a total acreage of30,842km 2 . BP was awarded operatorship of Blocks 19 and 24 with 50%interest, and additional non-operating interests in Blocks 20 (20%) and 25(15%) covering 19,400km 2 in the Kwanza and Benguela basins. BP hasalso taken a 40% stake in the 4,840km 2 Block 26 in the Benguela basin,by agreeing a farm-in deal with Brazilian national oil company, Petrobras,which operates the block. The five new blocks, including block 26, covera total area of 24,000km 2 in water depths from 200 to 2,500 metres, andincrease BP’s total Angolan acreage by 275%.AlgeriaBP is a partner with Sonatrach and Statoil in the In Salah (BP 33.15%)and In Amenas (BP 45.89%) projects, which supply gas to the domesticand European markets. BP is also in a joint venture with Sonatrach inthe Rhourde El Baguel (REB) oilfield (BP 60%), an enhanced oil recoveryproject 75 kilometres east of the Hassi Messaoud oilfield. In addition, BP isin a joint venture with Sonatrach in the Bourarhet Sud block, located to thesouth west of In Amenas.• In 2011, development of the In Salah Southern Fields was approved andthe primary engineering contracts awarded. First gas is expected in 2014.• On 22 December 2011, BP and Sonatrach reached an agreement for BPto withdraw from the REB PSA at the end of 2011.LibyaIn Libya, BP is in partnership with the Libyan Investment Authority (LIA)to explore acreage in the onshore Ghadames and offshore Sirt basins,covered under the exploration and production-sharing agreement ratified inDecember 2007 (BP 85%). BP’s total assets in Libya at 31 December 2011were $437 million. To date, all of the 3D seismic commitment has beencompleted but no exploration wells have yet been drilled.• Due to the outbreak of civil unrest leading to the regime change in Libya,the BP office in Tripoli was closed on 21 February 2011 and our Libyanoperations suspended. BP declared force majeure – the contractualmechanism which flows from the suspension of our activities in Libyaand the imposition of sanctions. We intend to resume explorationactivities with agreement of the new authorities, and when we are sureit is safe to do so. We are currently assessing how long it will take tore-establish exploration operations.Business review: BP in more depthBP Annual Report and Form 20-F 2011 85