BP Azerbaijan 2009 Full Year Results and 2010 Plans

Source: www.gulfoilandgas.com 2/23/2010, Location: Asia

BP Azerbaijan provides Business Update - 2009 Full Year Results and 2010 Plans. This business update is a joint press release issued by BP Exploration (Caspian Sea) Limited, in its capacity as operator of the ACG field, BP Exploration (Shah Deniz) Limited, in its capacity as operator of the Shah Deniz field and The Baku-Tbilisi-Ceyhan Pipeline Company and The South Caucasus Pipeline Company, with each of these entities providing information relevant to its project and making any statements applicable to its project.

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

During 2009 ACG spent about $659 million in operating expenditure and $1,051 million in capital expenditure. In 2010 we expect to spend about $ 587 million in operating expenditure and $1,584 million in capital expenditure on ACG activities.

In 2009 we produced an average 817,700 barrels per day (b/d) (more than 298 million barrels or 40.3 million tones) from the Chirag, Central Azeri, West Azeri, East Azeri and Deep Water Gunashli platforms.

Our 2010 plan is to produce an average of 854,000 b/d (about 42.1 million tonnes pa) for the full year from the five producing platforms. Of this, about 90,900 b/d is expected from Chirag, 184,200 b/d from Central Azeri, 285,700 b/d from West Azeri, 158,100 b/d from East Azeri and 135,100 b/d from Deep Water Gunashli.

At the end of 2009:
Chirag had 19 wells in operation (13 oil producers and 6 water injectors) and during 2009 it produced on average about 106,100 b/d.

Central Azeri (CA) had 16 wells (12 oil producers and 4 gas injectors) and in 2009 it produced on average about 190,800 b/d.

West Azeri (WA) had 19 wells (14 of which are oil producers and 5 water injectors) and in 2009 it produced on average around 268,400 b/d.

East Azeri (EA) had 13 wells (9 of which are producers and 4 water injectors) and in 2009 it produced on average around 135,800 b/d.

Deep Water Gunashli (DWG) had 20 wells (11 producers and 9 water injectors) and in 2009 it produced on average around 116,600 b/d of oil.

Associated gas
In 2009, BP as operator of the ACG field continued to supply associated gas via the 28” gas subsea pipeline from three platforms (CA, WA and EA) to the Sangachal terminal and from there into Azerigas’ national grid system for domestic use. Some of the associated gas produced from the Chirag platform was sent to the SOCAR compression station at the Oil Rocks via the existing 16” subsea gas pipeline. The rest of the associated gas from the ACG platforms was sent via in-field subsea gas pipelines to the compression and water injection platform (C&WP) on CA for re-injection to maintain pressure in the reservoir. Gas injection activities currently continue from four wells on CA.

In 2009 we delivered about 377.5 million standard cubic feet (10.7 million cubic metres) per day of ACG associated gas to SOCAR. Although our plan was to hand over a minimum of 1.45 billion cubic metres of associated gas to SOCAR in 2009, and we exceeded this amount by delivering around 4 billion cubic meters.

In 2010 we plan to deliver 1.9 billion cubic meters of ACG associated gas to SOCAR.

Chirag: In April 2009 we completed the oil producer A12v and in July we completed another oil producer sidetrack well (A20z). Our current drilling activities on Chirag are focused on finishing the A-08x sidetrack and a further well intervention campaign with plans to drill one oil producer A-22. We also plan to drill an additional sidetrack, A-07y as an oil producer. 2010 plans for Chirag also include rig maintenance and start up of the multilateral well A23.

Central Azeri: On CA recovery activities continued throughout 2009. After completion of these activities which are currently ongoing on CA we will continue drilling activities in the B24 and B25 water injector wells.

West Azeri: In May we completed a water injector - C20z. During the third and fourth quarters we completed the C21 producer and C22 injector wells. In November we spudded the C19 oil producer which was completed in January 2010. The plan for 2010 is to deliver one producer and one injector.

East Azeri: Drilling operations continued on EA throughout 2009 with completion of the water injection well D15, a successful work-over on D09 and completion of the D14 producer well in November. Following this we spudded the D17 water injector well which we are currently drilling. Our plan for 2010 is to drill and complete two more oil producers - D18 and D16.

Deep Water Gunashli (DWG): Following the completion of the pre-drilled wells programme with all 10 pre-drill wells now operational and after performing the first driving campaign, we completed the first platform well - E11z in August 2009. Additionally the E12 oil producer was drilled and completed on the south flank of the field. We are currently drilling the E13 oil producer on DWG which we are planning to complete during the first quarter of 2010. By the end of 2010 two more oil producers are planned to be delivered. Additionally, we will drive five conductor slots during the first and second quarters.

In addition, the Dada Gorgud has continued drilling and completion operations on the DWG subsea water injection drilling programme. During 2009 we drilled and completed H01z/y, H02, H04 and F04 water injector wells. The DWG subsea water injection drilling programme will continue during the first and second quarters of 2010. This will be followed by the Chirag Oil Project (COP) pre-drill campaign in the third quarter.

Export operations
Oil and gas from ACG and Shah Deniz continue to flow via subsea pipelines to the Sangachal terminal.

The capacity of the terminal’s overall processing systems is currently 1.2 million barrels of oil and 25.5 million cubic metres of Shah Deniz gas per day (about 39.5 million cubic metres in total) per day.

During 2009 the Sangachal Terminal exported about 326,8 million barrels of oil (including Baku-Tbilisi-Ceyhan (BTC) 285 million barrels, Western route export pipeline (WREP) 31.4 million barrels and rail 10.4 million barrels). On average 16.91 million cubic metres (597.16 million standard cubic feet) of Shah Deniz gas was exported from the terminal daily in 2009.

Gas is exported via the South Caucasus Pipeline (SCP) and via a SOCAR gas pipeline connecting the terminal’s gas processing facilities and Azerigas’s national grid system.

The terminal’s highest daily export rate in 2009 was on September 23 when Sangachal processed and exported 1,112,402 barrels of oil (of this 946,297 barrels went into BTC, 89,967 barrels went into WREP and the remaining 76,138 barrels were exported by rail).

ACG projects construction activities
Our construction activities throughout 2009 continued on schedule and according to plan.

We completed the installation and commissioning of the water injection systems for a total of ten wells on Deepwater Gunashli – four in the north, three in the south and three in the east manifolds. The installation and commissioning of the systems for a further three wells is currently scheduled to be completed by the third quarter of 2010 - one of these is at the east and two at the north manifolds.. Altogether, this will allow us to inject approximately 400,000 b/d of water into the DWG reservoir through 13 subsea wells drilled from three subsea drilling centres which are located between 3.2 kilometers and 5.2 kilometers 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.

At Sangachal, in 2009 we completed and commissioned the produced water facilities as part of the Sangachal terminal expansion programme (STEP). We started produced water export to Central Azeri in March 2009 and re-injection into the ACG field started in early July 2009. Phases 4 and 5 of the onshore produced water plant were handed over to operations in mid-September 2009 and we are currently re-injecting 20,000 - 25,000 barrels per day of ACG produced water back into the reservoir routinely.

The next step in developing the ACG field is the Chirag Oil Project (COP). We expect to sanction the project during the first quarter of 2010.

In December 2009 we published the COP Environmental and Social Impact Assessment (ESIA) document, which examines the potential environmental and social impacts of the full project activities, and describes the recommended mitigation measures. Overview of COP design and activities was provided to the scientific community, non-governmental organisations, the general public and the media. In addition, a series of public meetings were held to inform all interested parties about the project, associated controls and mitigation, and comments received from the public have been considered to ensure that COP design is environmentally and socially sound. In December we also started fabrication of the template for COP.

Major projects 2010 milestones:
- Move the Chirag Oil Project (COP) into execute - 1Q
- Commission DWG East manifold - 1Q
- Install additional DWG water injection facilities on the North and South manifolds - 1Q-3Q

Through our construction contractors we currently employ over 800 people and more 95% per cent of these are Azerbaijani nationals.

Baku-Tbilisi-Ceyhan (BTC)
The BTC Co. shareholders are: BP (30.1%); AzBTC (25.00%); Chevron (8.90%); Statoil (8.71%); TPAO (6.53%); ENI (5.00%); Total (5.00%), Itochu (3.40%); INPEX (2.50%), ConocoPhillips (2.50%) and Hess (2.36%).

In 2009 we spent $92 million in capital expenditure. The 2010 plan for BTC capital expenditures is $69 million.

Following the start up of BTC export operations in 2006, the pipeline’s throughput capacity steadily increased reaching one million b/d of oil in mid-2008 and in March 2009 we completed the commissioning of the BTC expansion to 1.2 million b/d by using drag reducing agents (DRAs).

Another major BTC milestone achieved in 2009 was the loading of the 1000th tanker with oil transported from the Sangachal terminal near Baku across Azerbaijan, Georgia and Turkey to Ceyhan on the 18th of December.

Since June 4, 2006 up to today (February 20) 1065 tankers have been loaded at Ceyhan with a total of more than 837 million barrels (about 112 million tonnes) of crude oil transported via BTC and sent to world markets.

The total volume of oil exported via BTC in 2009 was 285 million barrels (around 38 million tonnes).

The BTC pipeline currently carries mainly ACG oil and Shah Deniz condensate from Azerbaijan. BTC also has ongoing agreements to carry oil from the Tengiz field in Kazakhstan.

Shah Deniz
Shah Deniz participating interests are: BP (operator – 25.5%), Statoil (25.5%), SOCAR (10%), LUKOIL (10%), NICO (10%), Total (10%), and TPAO (9%).

In 2009 we spent $ 192 million in operating expenditure and $289 million in capital expenditure on Shah Deniz activities.

In 2010 we are planning to spend $177.8 million in operating expenditure and $604.8 million in capital expenditure on Shah Deniz activities.

In 2009 the field continued to produce from four wells to off-take points in Azerbaijan, Georgia and the Turkish border. The gas from Shah Deniz Stage 1 continues to be sold to Azerbaijan, GOGC (Georgia), BOTAS and the BTC Company.

In 2009 the field produced 6.2 billion cubic meters (around 218 billion cubic feet) of gas and 1.7 million tonnes (around 13 million barrels) of condensate or 16.9 million cubic meters of gas per day (around 597 million standard cubic feet per day) and more than 35,800 barrels of condensate per day.

Our plan for 2010 is to produce 7.6 billion cubic meters (around 269 billion cubic feet) of gas and 2.01 million tonnes (around 16 million barrels) of condensate.

Since the start of Shah Deniz production in late 2006 till the end of 2009 about 35.08 million barrels (about 4.45 million tonnes) of Shah Deniz condensate was exported to world markets.

Production will increase as new platform-drilled wells are brought on stream over the next few years. Plateau production from Stage 1 is expected to be 8.6 billion cubic meters of gas per annum and approximately 50,000 b/d of condensate.

Since the beginning of 2009 we continued drilling activities on the first platform drilled well - SDA-05. It was successfully brought on production in March. We are planning to drill the sixth production well SDA-06 from the platform this year and will also go back to the existing wells to complete some well-work.

Shah Deniz Stage 2
Engineering studies and cost estimates will continue during this year to advance the Shah Deniz stage 2 and associated South Caucasus pipeline expansion projects.

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

In 2009 we spent $7 million in capital expenditures on SCP activities. In 2010 we expect to spend $12.7 million in SCP capital expenditure.

The pipeline has been operational since late 2006 transporting gas to Azerbaijan and Georgia, and starting July 2007 to Turkey from Shah Deniz Stage 1.

In 2009 SCP average throughput was about 15 million cubic meters (around 519 million cubic feet) of gas per day or more than 92,000 barrels of oil equivalent per day.

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.

On July 13 2009, BP and SOCAR signed a memorandum of understanding (MOU) to jointly explore and develop the Shafag and Asiman structures in the Azerbaijan sector of the Caspian Sea. These structures, located in a deepwater section of about 650-800 meters with reservoir depth of about 7,000 meters, cover an area of some 1100 square kilometers and have never been explored before. The MOU, grants BP the exclusive right to negotiate a production sharing agreement to explore and develop these two structures.

At the end 2009, BP Azerbaijan directly employed 1,992 Azerbaijani nationals. 84 per cent of BP’s permanent professionals in Azerbaijan are nationals and many of them are in very senior leadership positions.

In 2010 we will continue our staff nationalization programme with a focus on recruiting local technicians and developing national managers. To that end we will continue our extensive training programmes through CTTC and other existing training courses.

Major sustainable development initiatives
Success of our projects in the Caspian in part depends on our ability to create tangible benefits from our presence for the people of Azerbaijan. To achieve this, we continue to carry out major sustainable development initiatives which include educational programmes, building skills and capabilities in local communities, improving access to social infrastructure in communities, supporting local enterprises through provision of access to finance and training, as well as technical assistance to public institutions.

In 2009 BP and co-venturers spent around $3 million in Azerbaijan alone on such sustainable development projects.

BP and its co-venturers will continue their sustainable development initiatives to support local enterprise development and capacity building throughout Azerbaijan to assist the country in strengthening its economy. The most recent examples of such initiatives have been:

- Memorandum of understanding (MOU) signed between BP Azerbaijan and the Baku-based Qafqaz University to further support education in Azerbaijan. The MOU provides an opportunity for broadening the university’s scope to cover undergraduate education in chemical, petroleum, and mechanical engineering disciplines.

- BP and co-venturers’ award of a major grant in October to enhance economic opportunities and skills development in the Kurdamir, Ujar and Agdash communities along the BTC and SCP pipelines.

- BP and co-venturers’ award of a grant to enhance economic development through strengthening the agricultural sector in the Garadaghly community along the BTC and SCP pipelines.

- BP and co-venturers’ award of a grant to create economic and entrepreneurial opportunities for youth in 10 communities of the Shamkir, Samukh, Agstafa, Tovuz and Goranboy regions along the BTC and SCP pipelines.

- BP’s new Geosciences and Engineering Speaker Series (BPGESS) initiative which is designed to enhance commitment by future generations of engineers to promoting geosciences in Azerbaijan.

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