BP 2009 Annual Report Download - page 24

Exploration and Production
Our Exploration and Production segment includes upstream and
midstream activities in 30 countries, including Angola, Azerbaijan,
Canada, Egypt, Russia, Trinidad & Tobago (Trinidad), Norway, the UK, the
US and locations within Asia Pacific, Latin America, North Africa and the
Middle East, as well as gas marketing and trading activities, primarily in
Canada, Europe and the US. Upstream activities involve oil and natural
gas exploration and field development and production. Our exploration
programme is currently focused around Angola, Egypt, the deepwater
Gulf of Mexico, Libya, the North Sea, Oman and onshore US. Major
development areas include Algeria, Angola, Asia Pacific, Azerbaijan, Egypt
and the deepwater Gulf of Mexico. During 2009, production came from
21 countries. The principal areas of production are Angola, Asia Pacific,
Azerbaijan, Egypt, Latin America, the Middle East, Russia, Trinidad, the
UK and the US.
Midstream activities involve the ownership and management of
crude oil and natural gas pipelines, processing facilities and export
terminals, LNG processing facilities and transportation, and our NGL
extraction businesses in the US, the UK, Canada and Indonesia. Our
most significant midstream pipeline interests are the Trans-Alaska
Pipeline System in the US, the Forties Pipeline System and the Central
Area Transmission System pipeline, both in the UK sector of the North
Sea, the South Caucasus Pipeline (SCP), which takes gas from Azerbaijan
through Georgia to the Turkish border and the Baku-Tbilisi-Ceyhan
pipeline, running through Azerbaijan, Georgia and Turkey. Major LNG
activities are located in Trinidad, Indonesia and Australia. BP is also
investing in the LNG business in Angola.
Additionally, our activities include the marketing and trading of
natural gas, power and natural gas liquids. These activities provide routes
into liquid markets for BP’s gas and power, and generate margins and
fees associated with the provision of physical and financial products to
third parties and additional income from asset optimization and trading.
Our oil and natural gas production assets are located onshore and
offshore and include wells, gathering centres, in-field flow lines,
processing facilities, storage facilities, offshore platforms, export
systems (e.g. transit lines), pipelines and LNG plant facilities.
Upstream operations in Argentina, Bolivia, Chile, Abu Dhabi,
Kazakhstan, Venezuela and Russia, as well as some of our operations in
Angola, Canada and Indonesia, are conducted through equity-accounted
entities.
Our market
The market environment in which we operate was particularly challenging
during 2009, with crude oil and natural gas prices at lower levels than we
have experienced in recent history.
The annual average crude oil price declined in 2009 for the first
time since 2001, breaking an unprecedented string of seven consecutive
annual increases. Dated Brent for the year averaged $61.67 per barrel,
about 37% below 2008’s record average of $97.26 per barrel. Prices
were lowest at the beginning of the year as the world economy grappled
with the sharpest downturn in modern economic history.
In 2010, we expect oil market movements to continue to be
driven by developments in the world economy, by their resulting
implications for oil consumption, and by OPEC production decisions.
Natural gas prices weakened in 2009 and were volatile. The
average US Henry Hub First of Month Index fell to $3.99/mmBtu in 2009,
a 56% decrease from the record $9.04/mmBtu average seen in 2008.
Recession-induced demand declines and strong production caused prices
to drop from $6.16/mmBtu at the start of the year to $2.84/mmBtu in
September. However, over the course of the year, the impact was partly
offset as US regional gas price differentials narrowed, driven partly by the
Rockies Express Pipeline extension allowing the transportation of larger
quantities of gas out of the Rockies area. Reduced imports from Canada,
slowing US production growth and cooler temperatures allowed prices to
recover to $4.49/mmBtu by the end of the year. Prices at the UK National
Balancing Point similarly fell to an average of 30.85 pence per therm,
47% below the 2008 average price of 58.12 pence per therm.
In 2009, there was a switch of uncontracted LNG cargoes from
Asia to Europe, reflecting a shift in relative spot prices. LNG imports to
Europe have competed with pipeline imports, where the gas price is
often indexed to oil prices, as well as with marginal European gas
production. On an energy equivalent basis, gas prices were often at
or below parity with coal, which led to gas displacing coal in power
generation in Europe and the US.
In the event of any recovery in the economy in 2010, both the US
and UK gas markets are expected to benefit although the price upside is
likely to be constrained as a result of a record amount of LNG expected
to become available globally.
Our strategy
Our strategy is to invest to grow production safely, reliably and efficiently
by:
• Strengthening our portfolio of leadership positions in the world’s
most prolific hydrocarbon basins, enabled by the development and
application of technology and strong relationships based on mutual
advantage.
• Sustainably driving cost and capital efficiency in accessing, finding,
developing and producing resources, enabled by deep technical
capability and a culture of continuous improvement.
Our performance
In Exploration and Production, safety, both personal and process, remains
our highest priority. 2009 brought further improvements in personal
safety with our reported recordable injury frequency improving from 0.43
in 2008 to 0.39 in 2009. We also achieved improvements in the number
of reported process safety-related incidents and a significant reduction in
the number of reported spills.
BP’s operating management system (OMS) provides us with
a systematic framework for safe, reliable and efficient operations.
Throughout 2009, OMS helped us to deliver continuous improvement in
the way we manage our people, processes, plant and performance.
From onshore production facilities to offshore platforms, a total
of 47 exploration and production sites had completed their transition to
OMS by the end of 2009. The remaining seven sites are on track to
transition to OMS in 2010.
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BP Annual Report and Accounts 2009
Business review