BP 2008 Annual Report Download - page 29

BP Annual Report and Accounts 2008
Performance review
in a single day of as much seismic data as previously obtained in
a week. The invention of DS3 along with some other innovations
allowed an efficient and cost effective survey of the Block to be
completed within a six-month period. The first appraisal well was
spudded in September 2008.
• In Pakistan, BP’s net oil production in 2008 was 8.2mboe/d, an
increase of 30% from 2007, and BP’s net gas production was
28.2mboe/d, an increase of 34% from 2007 as a result of the full-year
impact of BP increasing its equity in the onshore Badin asset in 2007
to 84%.
• In Pakistan, BP received an 18-month extension until January 2010
in Phase 1 of the initial term of Exploration Licences in respect of
the offshore Indus PSA.
• On 30 December 2008, BP signed completion documents with
Orient Petroleum International Inc., to acquire a 51.3% working
interest, along with operatorship, in two joint venture blocks,
Mirpurkhas and Khipro, located in the southern Sindh province
of Pakistan.
• On 22 December 2008, BP signed a production-sharing contract
with the Indian government for a deepwater exploration block in
the Krishna-Godavari Basin, offshore eastern India, which was
awarded under the New Exploration Licensing Policy Seventh
round. BP is the designated operator with a 30% working interest
in the block. Reliance Industries Limited holds the remaining
70% working interest.
Midstream activities
Oil and natural gas transportation
The group has direct or indirect interests in certain crude oil
transportation systems, the principal ones being the Trans-Alaska Pipeline
System (TAPS) in the US, the Forties Pipelines System (FPS) in the UK
sector of the North Sea and the Baku-Tbilisi-Ceyhan (BTC) oil pipeline.
In addition to these, we also operate the Central Area
Transmission System (CATS) for natural gas in the UK sector of the North
Sea, the Western Export Route Pipeline between Azerbaijan and the
Black Sea coast of Georgia (as operator of AIOC), and, as technical
operator, the South Caucasus Pipeline (SCP) (BP 25.5%), which takes
gas from Azerbaijan through Georgia to the Turkish border.
BP’s onshore US crude oil and product pipelines and related
transportation assets are included under Refining and Marketing (see
page 31).
Assets and activity during 2008 included:
Alaska
• BP owns a 46.9% interest in TAPS, with the balance owned by four
other companies. Production transported by TAPS from Alaska North
Slope fields averaged 700mb/d during 2008.
• Work on the strategic reconfiguration project to upgrade and
automate four TAPS pump stations continued to progress in 2008.
This project is installing electrically-driven pumps at four critical pump
stations, along with increased automation and upgraded control
systems. Two of the reconfigured pump stations came online during
2007. The remaining two reconfigured pump stations are expected to
come online sequentially, one in 2009 and one in 2010.
• On 8 April 2008, BP and ConocoPhillips announced the formation
of a joint venture company called Denali – The Alaska Gas Pipeline.
The joint venture has begun work on an Alaska gas pipeline project
consisting of a gas treatment plant on Alaska’s North Slope, a large-
diameter pipeline that is intended to pass through Alaska into Canada,
and should it be required, a large-diameter pipeline from Alberta to
the Lower 48 United States. When completed, the pipeline is
expected to move approximately 4 billion cubic feet of natural gas per
day to market. The joint venture plans to spend up to $600 million
prior to reaching the first major project milestone, an ’open season’,
before the end of 2010. An open season is a process during which
the joint venture seeks customers to make firm, long-term
transportation commitments to the project. Should the open season
be successful, the joint venture will seek certification from the
Federal Energy Regulatory Commission (FERC) of the US and the
National Energy Board (NEB) of Canada to move forward with project
construction. The new joint venture company will manage the project,
and will own and operate the pipeline when completed. BP and
ConocoPhillips may consider other equity partners, including pipeline
companies, who can add value to the project and help manage the
risks involved. On 22 May 2008, the office of the Governor of Alaska
announced that it would be supporting an alternative gas pipeline
project proposed by TransCanada Alaska Company in response to the
State of Alaska’s request for bids under the Alaska Gas Inducement
Act (AGIA) in 2007. BP’s commitment to move forward with the
Denali project is independent of any decisions made or inducement
offered by the State under the AGIA process and BP believes that the
Denali project offers the best opportunity for a successful Alaska gas
pipeline project.
• Alaska state courts issued two noteworthy rulings in 2008, related to
challenges filed by in-state refiners against BP and the other TAPS
carriers, regarding intrastate tariffs charged for shipping oil through
TAPS during the period from 1997 through 2003. These rulings are
related to long-standing challenges that were originally filed with the
Regulatory Commission of Alaska (RCA). In 2002, the RCA issued
Order 151, which determined that TAPS transportation rates charged
from the beginning of 1997 were excessive, and that refunds should
be paid. BP and the other TAPS carriers appealed the RCA’s 2002
ruling in the State of Alaska court system. In the interim, the RCA
issued Order 34, which imposed intrastate tariff rates consistent with
Order 151, effective from 1 July 2003 forward. On 15 February 2008,
the Alaska Supreme Court affirmed the determination in RCA’s Order
151, and on 26 February 2008, the Alaska Superior Court affirmed the
RCA’s Order 34, and imposed the application of Order 151 to
intrastate tariff rates charged from 2001 forward. BP and the other
TAPS carriers decided not to appeal these matters any further in the
courts, and on 25 March 2008, BP Pipelines Alaska paid refunds to
intrastate shippers totalling $71 million covering the period 1997
through 2000. During the third quarter of 2008, BP Pipelines Alaska
paid out an additional $75 million to intrastate shippers covering the
period from 2001 through 30 June 2003. In 2008, intrastate transport
made up approximately 13.7% of total TAPS throughput.
• Tariffs for interstate transportation of oil through TAPS are calculated
using the TAPS Tariff Settlement Methodology (TSM), which is
defined in an agreement entered into with the State of Alaska in
1985. The TSM was also accepted at that time by the Regulatory
Commission of Alaska (RCA) and the Federal Energy Regulatory
Commission (FERC). Since then, Anadarko, Tesoro, and the State of
Alaska have challenged the interstate tariffs charged by BP and the
other TAPS carriers in the years 2005, 2006 and 2007 with the FERC.
Anadarko and the State of Alaska have also challenged the 2008
tariffs. In 2006, the FERC consolidated the proceedings related to the
years 2005-2006, and determined that the challenges pertaining to
2007 tariff rates would be held in abeyance until a decision was
issued in the proceedings on 2005 and 2006 tariff rates. The FERC’s
hearings on the consolidated proceedings commenced in October
2006 and concluded in January 2007. On 17 May 2007, a FERC
Administrative Law Judge (ALJ) issued an initial decision on 2005 and
2006 tariff rates that was adverse to BP and the other TAPS carriers,
and established a floor of $3.01/bbl for the 2005-2006 period, as this
was the last uncontested tariff rate. On 20 June 2008, the FERC
issued a ruling on the 2005-2006 period, which substantially affirmed
the initial ruling by the ALJ, and ordered the TAPS carriers to pay
refunds to shippers. On 20 November 2008, the FERC affirmed its
20 June 2008 ruling in response to applications for rehearing filed by
BP and the other TAPS carriers. Accordingly, in December 2008 BP as
28