BP 2011 Annual Report Download - page 85

BP Annual Report and Form 20-F 2011 83
Business review: BP in more depth
Business review
were in Russia (Orenburg, Slavneft, Verkhnechonskoye, Uvat, Talinskoye),
Venezuela (Petromonagas) and Argentina (Cerro Dragon).
Twelve per cent of our proved reserves are associated with PSAs.
The countries in which we operated under PSAs in 2011 were Algeria,
Angola, Azerbaijan, Egypt, India, Indonesia, Oman, Trinidad and Vietnam.
In addition, the technical service contract (TSC) under which we operate in
Iraq functions as a PSA.
Production
Our total hydrocarbon production during 2011 averaged 3,454 thousand
barrels of oil equivalent per day (mboe/d). This comprised 2,094mboe/d for
subsidiaries and 1,360mboe/d for equity-accounted entities, a decrease of
16% (decreases of 19% for liquids and 13% for gas) and an increase of
2% (increases of 2% for liquids and 5% for gas) respectively compared
with 2010. In aggregate, after adjusting for entitlement impacts in our PSAs
and the effect of acquisitions and disposals, production was 7% lower
than 2010. For subsidiaries, 37% of our production was in the US, 20% in
Trinidad and 8% in the UK.
The group and its equity-accounted entities have numerous long-
term sales commitments in their various business activities, all of which
are expected to be sourced from supplies available to the group that
are not subject to priorities, curtailments or other restrictions. No single
contract or group of related contracts is material to the group.
Acquisitions and disposals
During 2011, we undertook a number of acquisitions and disposals. In
total, disposal transactions generated $1.1 billion in proceeds during
2011 including repayment of the $3.5 billion disposal deposit relating to
Pan American Energy. See Financial statements – Note 5 on page 197.
With regards to proved reserves, 211mmboe were acquired in 2011
(approximately 94mmboe for subsidiaries and approximately 117mmboe
for equity-accounted entities), while 572mmboe were disposed of
(approximately 312mmboe for subsidiaries and approximately 260mmboe
for equity-accounted entities).
Acquisitions
• On 24 January 2011, BP exercised a preferential right to acquire Shell’s
working interest in the Marlin and Dorado producing fields in the Gulf
of Mexico for a total consideration of $257 million. This brought BP’s
working interest in both fields to 100%.
• On 12 May 2011, BP completed the purchase of 10 exploration
and production blocks in Brazil from Devon Energy, concluding the
agreement announced in 2010.
• On 30 August 2011, BP completed its acquisition from Reliance
Industries Limited (RIL) of a 30% stake in 21 oil and gas PSAs that
RIL operates in India for an aggregate consideration of $7.0 billion. In
November 2011, the two companies formed a 50:50 joint venture for the
sourcing and marketing of gas in India. See India for further information
on page 87.
Disposals
• On 24 January 2011, following the approval of the Colombian authorities,
BP completed the sale of its oil and gas exploration, production and
transportation business in Colombia to a consortium of Ecopetrol,
Colombia’s national oil company, and Talisman of Canada. The sale had
been announced in August 2010.
• On 22 February 2011, BP announced its intention to sell its interests in
a number of operated oil and gas fields in the UK including the Wytch
Farm onshore oilfield in Dorset and all of BP’s operated gas fields in the
southern North Sea, including associated pipeline infrastructure and the
Dimlington terminal. The sale of Wytch Farm to Perenco UK Limited
completed on 14 December 2011 for consideration of up to $610 million
in cash, which includes $55 million contingent on Perenco’s future
development of the Beacon field and on oil prices in 2011-2013. A sale
of the southern North Sea assets has yet to be concluded. The assets
do not yet meet the criteria to be reclassified as non-current assets held
for sale and it is not yet possible to estimate the financial effect of the
intended disposal of these assets.
• In April 2011, the Wattenberg Plant in Colorado was divested to
Anadarko for $575 million.
• In April 2011, an exchange agreement was signed with Bluestone
Natural Resources, LLC for the divestment of a mature gas field in South
Texas in exchange for acreage in a non-operated property in Eagle Ford.
• In June 2011, BP completed the sale of its upstream businesses in
Venezuela to TNK-BP.
• On 5 July 2011, BP sold half of the 3.29% interest in the Azeri-Chirag-
Gunashli development in the Caspian Sea which had been acquired from
Devon Energy in 2010 to Azerbaijan (ACG) Limited, an affiliate wholly
owned and controlled by the State Oil Company of the Republic of
Azerbaijan (SOCAR) for $485 million.
• On 16 September 2011, the sale of BP’s upstream assets in Pakistan
to United Energy Group (UEG) was completed. UEG has now assumed
control of the upstream assets. The sale, for $775 million, had been
announced at the end of 2010.
• In October 2011, BP completed the sale of Tuscaloosa assets in
Louisiana to Hilcorp Energy I LLC for $110 million.
• Also in October 2011, BP completed the sale of its 35% interest in the
Lan Tay and Lan Do gas fields in Vietnam to TNK-BP. The sale of BP’s
interests in the associated pipeline completed in November 2011. The
sale of BP’s interest in the Phu My 3 power generation plant is expected
to complete in 2012. As at 31 December 2011, this was classified as
assets held for sale.
• On 5 November 2011, BP received a notice from Bridas Corporation of
termination of the agreement for their purchase of BP’s 60% interest
in PAE. As a result of their decision and action, the share purchase
agreement governing this transaction, originally agreed on 28 November
2010, has been terminated. BP has repaid the deposit for the transaction
of $3.5 billion received at the end of 2010. For details of payments in
respect of the termination of restrictive covenants see page 85.
• On 1 December 2011, BP announced the sale of its Canadian Natural
Gas Liquid (NGL) business to Plains All American Pipeline L.P. for
$1.67 billion subject to closing adjustments. BP’s Canadian NGL
business owns, operates and has contractual rights to assets involved
in the extraction, gathering, fractionation, storage, distribution and
wholesale marketing of NGLs across Canada and in the Midwest US.
As at 31 December 2011 these assets were held as assets held for
sale, awaiting completion of the sale.
• On 28 December 2011, BP completed the sale of its interests in the
Pompano and Mica fields in the deepwater Gulf of Mexico to Stone
Energy Corporation for $204 million. The sale includes BP’s 75%
operated working interest in the Pompano field and assets and
50% non-operated working interest in the Mica field, together with
a 51% operated working interest in Mississippi Canyon block 29 and
interests in certain leases located in the vicinity of the Pompano field.
• On 28 February 2012, BP announced it had agreed terms with LINN
Energy to sell BP’s Hugoton basin assets (including the Jayhawk
NGL Plant). Under the agreement, LINN Energy has agreed to pay BP
$1.2 billion in cash. Completion of the agreement is subject to closing
conditions including the receipt of all necessary governmental and
regulatory approvals. The sale is currently expected to complete on
30 March 2012.
The following discussion reviews operations in our Exploration and
Production business by continent and country, and lists associated
significant events that occurred in 2011. BP’s percentage working
interest in oil and gas assets is shown in brackets. Working interest is the
cost-bearing ownership share of an oil or gas lease. Consequently, the
percentages disclosed for certain agreements do not necessarily reflect the
percentage interests in reserves and production.
Europe
United Kingdom
BP is the largest producer of hydrocarbons in the UK. Key aspects of our
activities in the North Sea include a focus on in-field drilling and selected
new field developments.
• On 16 November 2010, production from the Rhum gas field in the
central North Sea was suspended in relation to certain aspects of the
EU sanctions. This action was taken to comply with the notification
requirements in the relevant EU Regulation. Rhum is owned by BP
(50%) and the Iranian Oil Company (50%) under a joint operating