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

Business review• In March 2011, TNK-BP completed the acquisition of 74.9% of CJSC‘Toplivozapravochny kompleks Sheremetyevo’, the operator of jet fuelstorage and into-wing fuelling services at Sheremetyevo InternationalAirport in Moscow.• In June 2011, TNK-BP completed the acquisition from BP of stakes inthree upstream assets in Venezuela. Acquisition of these assets wasannounced in October 2010.• In October 2011, TNK-BP entered into an agreement with HRT Oil & Gasfor the acquisition of a 45% stake in 21 blocks in the Brazilian SolimoesBasin. These oil and gas exploration blocks are operated by HRT Oil &Gas, and cover an area of approximately 48,000km 2 .• Also in October 2011, TNK-BP announced that the Vietnamese Ministryof Investment and Trade granted TNK Vietnam, a Vietnam-basedsubsidiary of TNK-BP, the investment licence to operate offshore gasBlock 6.1. TNK-BP acquired BP’s 35% stake in Block 6.1, an integratedgas to power project which contains the Lan Tay and Lan Do gascondensate fields. As part of the deal, TNK-BP also acquired BP’s 32.7%interest in the Nam Con Son Pipeline. Acquisition of these assets wasannounced in October 2010.• Five minority shareholders of OAO TNK-BP Holding (TBH) filed a civilaction in Tyumen, Siberia, against BP Russia Investments Limited andBP p.l.c. seeking to recover alleged losses of $13 billion relating to BP’sattempt to form a strategic alliance with Rosneft in January 2011. Theaction was dismissed by the Tyumen court fully on its merits. The OmskAppellate court confirmed the Tyumen court of first instance’s dismissalof the minority suits. See Legal proceedings on page 166 for furtherinformation.• On 9 February 2012, BP reached agreement with its Russian partnersin TNK-BP on temporary amendments to the memorandum and articlesof association of TNK-BP Limited and the SHA that reduce quorumrequirements to require presence of directors nominated by BP andAAR only. The amendments are aimed at enabling the continuingfunctioning of the board of directors of TNK-BP (board of directors) whiletwo independent directors who recently resigned are being replaced.This change is currently set to expire on 31 March 2012, unless bothindependent directors are appointed earlier.• On 9 February 2012, BP also reached agreement with its Russianpartners in TNK-BP regarding certain changes to the management boardof its main management company in Russia OAO TNK-BP Management(management board). The changes were aimed at restructuring andoptimizing the management board, following the elimination of thedeputy TNK-BP group chief executive officer role. The restructuredmanagement board will now consist of six people. BP will have theright to nominate the chairman of the management board, as wellas two executive directors in charge of upstream and downstreamrespectively (the BP members). AAR will have the right to nominatetwo other executive directors (the AAR members). The sixth member— the chief financial officer — will be nominated by the chairman of themanagement board. The chairman of the management board will in timealso have the right to nominate the executive directors, subject to priorconcurrence by the respective shareholder. All of the aforementionednominations will require approval by the board of directors as a majoritymatter, except for the chairman of the management board whoseappointment will require approval as a unanimous reserved matter. Aspart of the agreement, BP and AAR agreed to approve the continuedappointment of the chief executive officer and the appointment of theirrespective executive directors, with such appointments to expire no laterthan 31 December 2013.• All other provisions of the SHA (including those related to the reviewof new business opportunities, the board of directors and disputeresolution) remain unchanged.SakhalinBP has interests in Sakhalin through a joint venture company, ElvaryNeftegaz, in which BP holds a 49% equity interest, and its partner,Rosneft, holds the remaining 51% interest. In 2011, the process to exitthe licence areas held by Elvary Neftegaz and liquidate the joint venturecommenced. This follows the write-down of BP’s investment at the end of2010 following an unsuccessful exploration programme.Middle EastProduction in the Middle East consists principally of the productionentitlement of associates in Abu Dhabi, where we have equity interests of9.5% and 14.67% in onshore and offshore concessions respectively. TheAbu Dhabi onshore concession expires in January 2014 with a consequentreduction in production of approximately 140mb/d.• In the first quarter of 2011, extended well test production began in Oman.• In August 2011, the seismic survey of the Risha concession in Jordanwas successfully completed.India• On 30 August 2011, BP and Reliance Industries Limited (RIL) announcedthe completion of BP’s acquisition of a 30% stake in 21 oil and gas PSAsthat RIL operates in India, including the producing KG D6 block. BP paidRIL an aggregate consideration of $7.0 billion for the interests acquiredin the 21 PSAs. Further performance payments of up to $1.8 billion couldbe paid in case of exploration success in certain blocks that result inthe development of commercial discoveries. This step commenced theplanned alliance which will operate across the gas value chain in India,from exploration and production to distribution and marketing.• On 17 November 2011, the two companies formed a 50:50 joint venturefor the sourcing and marketing of gas in India.IraqFollowing a successful bid with PetroChina to run the Rumaila oilfieldin June 2009, the technical service contract (TSC) became effectiveon 17 December 2009. BP holds a 38% working interest and is thelead contractor. Rumaila is one of the world’s largest oilfields and wasdiscovered by BP in 1953 and comprises five producing reservoirs. BPtogether with its partners is actively refurbishing the wells and facilities.With the achievement of the improved production target on 25 December2010, BP and PetroChina became eligible for service fees pursuant to theTSC. In 2011 both companies lifted cargoes from the Basra terminal aspayment for service fees due.AustralasiaAustraliaBP is one of seven partners in the North West Shelf (NWS) venture whichhas been producing LNG, pipeline gas, condensate, LPG and oil since the1980s. Six partners (including BP) hold an equal 16.67% interest in thegas infrastructure and an equal 15.78% interest in the gas and condensatereserves, with a seventh partner owning the remaining 5.32%. BP also hasa 16.67% interest in the NWS oil reserves and related infrastructure. TheNWS venture is currently the principal supplier to the domestic market inWestern Australia and one of the largest LNG export projects in Asia withfive LNG trains a in operation. BP also holds a 5.375% interest in theJansz-Io field which is part of the Greater Gorgon project (Chevron,ExxonMobil and Shell) and is currently being developed.• In January 2011, BP announced that it had been awarded fourdeepwater offshore exploration blocks in the Ceduna Sub Basinwithin the Great Australian Bight, off the coast of South Australia. Theexploration work is to be phased over six years with a 3D seismic surveycovering approximately 12,500km 2 commenced in November 2011 andcontinuing into 2012. Following interpretation of the seismic survey, BPwill drill four deepwater wells in this frontier exploration basin.Eastern IndonesiaBP has a 100% interest in an exploration asset, the North Arafura PSA,located on the coast of the Arafura Sea, 480 kilometres south east of ourTangguh LNG plant (BP 37.16% and operator) and covering an area of justover 5,000km 2 . In addition, BP owns a 32% interest in Chevron’s operatedWest Papua I and III PSAs, located circa 120 kilometres to the south of theTangguh LNG plant (see Liquefied natural gas on page 88).• In December 2011, BP signed contracts with the Government ofIndonesia for two deepwater PSAs; West Aru I and II. The PSAs arelocated 500 kilometres south west of the North Arafura PSA and 200kilometres west of the Aru island group, covering areas of 8,100km 2 and8,300km 2 respectively. BP holds 100% interest in the PSAs and expectsto commence seismic operations in the near future.a An LNG train is a processing facility used to liquefy and purify LNG.Business review: BP in more depthBP Annual Report and Form 20-F 2011 87