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Businessreview
Business review
Licence expiry
Thegroupholdsnolicencesduetoexpirewithinthenextthreeyearsthat
wouldhaveasignicantimpactonBP’sreservesorproduction.
Resource progression
BPmanagesitshydrocarbonresourcesinthreemajorcategories:prospect
inventory,contingentresourcesandprovedreserves.Whenadiscoveryis
made,volumesusuallytransferfromtheprospectinventorytothe
contingentresourcescategory.Thecontingentresourcesmovethrough
varioussub-categoriesastheirtechnicalandcommercialmaturityincreases
throughappraisalactivity.
Atthepointofnalinvestmentdecision,mostprovedreserveswill
becategorizedasprovedundeveloped(PUD).Volumeswillsubsequently
berecategorizedfromPUDtoproveddeveloped(PD)asaconsequenceof
developmentactivity.Whenpartofawell’sprovedreservesdependsona
laterphaseofactivity,onlythatportionofprovedreservesassociatedwith
existing,availablefacilitiesandinfrastructuremovestoPD.TherstPD
bookingswilltypicallyoccuratthepointofrstoilorgasproduction.Major
developmentprojectstypicallytakeonetofouryearsfromthetimeofinitial
bookingofprovedreservestothestartofproduction.Changestoproved
reservesbookingsmaybemadeduetoanalysisofneworexistingdata
concerningproduction,reservoirperformance,commercialfactors,
acquisitionanddisposalactivityandadditionalreservoirdevelopment
activity.
Contingentresourcesinaeldwillonlyberecategorizedasproved
reserveswhenallthecriteriaforattributionofprovedstatushavebeenmet
andtheprovedreservesareincludedinthebusinessplanandscheduled
fordevelopment,typicallywithinveyears.Thegroupwillonlybookproved
reserveswheredevelopmentisscheduledtocommenceafterveyears,
iftheseprovedreservessatisfytheSEC’scriteriaforattributionofproved
status.Therearevolumesofprovedundevelopedreservesscheduledto
commenceafterveyearsinTrinidadandCanadathatarepartof
ongoingdevelopmentactivitiesforwhichBPhasahistoricaltrackrecord
ofcompletingcomparableprojects.Inallcases,thevolumesarebeing
progressedaspartofanadopteddevelopmentplan,whichcallsfor
drillingofwellsoveranextendedperiodoftimegiventhemagnitudeof
thedevelopment.
TotaldevelopmentexpenditureinExplorationandProduction,
excludingmidstreamactivities,was$12,044millionin2010($9,675million
forsubsidiariesand$2,369millionforequity-accountedentities).Themajor
areasconvertedin2010wereAzerbaijan,Indonesia,Russia,Trinidadand
theUS.
In2010,weconverted1,481mmboeofprovedundeveloped
reservestoproveddevelopedreservesthroughongoinginvestmentinour
upstreamdevelopmentactivities.Thetablebelowdescribesthechangesto
ourprovedundevelopedreservespositionthroughtheyear.
volumesinmmboe
Provedundevelopedreservesat1January2010 7,952
Revisionsofpreviousestimates (247)
Improvedrecovery 1,062
Discoveriesandextensions 689
Purchases 74
Sales (150)
Totalinyearprovedundevelopedreserveschanges 9,380
Progressedtoproveddevelopedreserves (1,481)
Provedundevelopedreservesat31December2010 7,899
BPbasesitsprovedreservesestimatesontherequirementofreasonable
certaintywithrigouroustechnicalandcommercialassessmentsbasedon
conventionalindustrypractice.BPonlyappliestechnologiesthathavebeen
eldtestedandhavebeendemonstratedtoprovidereasonablycertain
resultswithconsistencyandrepeatabilityintheformationbeingevaluated
orinananalogousformation.BPapplieshigh-resolutionseismicdatafor
theidenticationofreservoirextentanduidcontactsonlywherethereis
anoverwhelmingtrackrecordofsuccessinitslocalapplication.Incertain
deepwatereldsBPhasbookedprovedreservesbeforeproductionow
testsareconducted,inpartbecauseofthesignicantsafety,costand
environmentalimplicationsofconductingthesetests.Theindustryhas
madesubstantialtechnologicalimprovementsinunderstanding,measuring
anddelineatingreservoirpropertieswithouttheneedforowtests.To
determinereasonablecertaintyofcommercialrecovery,BPemploysa
generalmethodofreservesassessmentthatreliesontheintegrationof
threetypesofdata:(1)welldatausedtoassessthelocalcharacteristics
andconditionsofreservoirsanduids;(2)eldscaleseismicdatatoallow
theinterpolationandextrapolationofthesecharacteristicsoutsidethe
immediateareaofthelocalwellcontrol;and(3)datafromrelevant
analogouselds.Welldataincludesappraisalwellsorsidetrackholes,full
loggingsuites,coredataanduidsamples.BPconsiderstheintegrationof
thisdataincertaincasestobesuperiortoaowtestinproviding
understandingofoverallreservoirperformance.Thecollectionofdatafrom
logs,cores,wirelineformationtesters,pressuresanduidsamples
calibratedtoeachotherandtotheseismicdatacanallowreservoir
propertiestobedeterminedoveragreatervolumethanthelocalized
volumeofinvestigationassociatedwithashort-termowtest.Thereisa
strongtrackrecordofprovedreservesrecordedusingthesemethods,
validatedbyactualproductionlevels.
Governance
BP’scentrallycontrolledprocessforprovedreservesestimationapproval
formspartofaholisticandintegratedsystemofinternalcontrol.Itconsists
ofthefollowingelements:
• Accountabilitiesofcertainofcersofthegrouptoensurethatthereis
reviewandapprovalofprovedreservesbookingsindependentofthe
operatingbusinessandthatthereareeffectivecontrolsintheapproval
processandvericationthattheprovedreservesestimatesandthe
relatednancialimpactsarereportedinatimelymanner.
• Capitalallocationprocesses,wherebydelegatedauthorityisexercised
tocommittocapitalprojectsthatareconsistentwiththedeliveryofthe
group’sbusinessplan.Aformalreviewprocessexiststoensurethat
bothtechnicalandcommercialcriteriaaremetpriortothecommitment
ofcapitaltoprojects.
• InternalAudit,whoseroleistoconsiderwhethertheGroup’ssystemof
internalcontrolisadequatelydesignedandoperatingeffectivelyto
respondappropriatelytotherisksthataresignicanttoBP.
• Approvalhierarchy,wherebyprovedreserveschangesabovecertain
thresholdvolumesrequirecentralauthorizationandperiodicreviews.
Thefrequencyofreviewisdeterminedaccordingtoeldsizeand
ensuresthatmorethan80%oftheBPprovedreservesbase
undergoescentralrevieweverytwoyears,andmorethan90%is
reviewedcentrallyeveryfouryears.
BP’svicepresidentofsegmentreservesisthepetroleumengineer
primarilyresponsibleforoverseeingthepreparationofthereserves
estimate.Hehasover25yearsofdiversiedindustryexperiencewiththe
pasteightspentmanagingthegovernanceandcomplianceofBP’s
reservesestimation.HeisapastmemberoftheSocietyofPetroleum
EngineersOilandGasReservesCommittee,asittingmemberofthe
AmericanAssociationofPetroleumGeologistsCommitteeonResource
Evaluationandvice-chairofthebureauoftheUnitedNationsEconomic
CommissionforEuropeExpertGrouponResourceClassication.
BPAnnualReportandForm20-F2010 51