BP 2011 Annual Report Download - page 86

84 BP Annual Report and Form 20-F 2011
Business review
agreement dating back to the early 1970s. Rhum remains shut-in. The
restart and safe operation of Rhum remains contingent on the availability
of third parties to provide services to Rhum. Such services are not as yet
all available and it is presently unclear when resumption of production
may be possible.
• On 13 July 2011, BP and its co-venturers announced an agreement to
progress a major redevelopment of the Schiehallion and Loyal oilfields
to the west of the Shetland Islands. The investment of circa $5 billion
in the redevelopment of the fields is expected to extend the field
life to 2035. The project involves replacing the existing Schiehallion
Floating, Production, Storage and Offloading (FPSO) vessel with a
new FPSO which is scheduled to be installed in 2015. BP will have a
36.3% ownership interest in the new FPSO. There will also be a major
investment in the upgrading and replacement of the subsea facilities
to enable full development of the reserves. Production is scheduled to
commence from the new facilities in 2016.
• On 6 September 2011, BP and its co-venturers announced an agreement
to invest up to $1.2 billion to progress a project to develop the Kinnoull
reservoir in the central UK North Sea (BP 77.06%). The reservoir will
be connected to BP’s Andrew platform, enabling production from the
Andrew area to extend to 2021.
• On 13 October 2011, BP announced that a major milestone had been
reached on the Devenick gas project (BP 88.7%) with the installation of
a 600-tonne module to receive gas and condensate from the Devenick
reservoir. Production from the field is due to commence in 2012.
• On 13 October 2011, BP announced the successful completion of a
well drilled to establish a southwest extension of the Clair field, west of
Shetland in the UK North Sea. This well confirmed recoverable oil from
a new portion of the field, and also discovered oil in a new, shallower
reservoir horizon. During 2012, a further seismic survey of the field is
planned, to understand the reservoir structure in more detail.
• Also on 13 October 2011, BP announced that the UK government had
granted BP and its partners Shell, ConocoPhillips and Chevron, approval
to proceed with the $7.6 billion Clair Ridge project (BP 28.6%), the
second phase of development of the Clair field.
Rest of Europe
Our activities in the Rest of Europe are in Norway.
• In 2011, the Valhall redevelopment project continued, with production
switch-over to the new facility scheduled for 2012. The redevelopment
consists of a new processing platform required as a result of the existing
platform suffering subsidence from extraction of hydrocarbons and
includes a ‘power from shore system’ eliminating all gas-fired equipment
offshore.
• On 14 August 2011, the FPSO vessel for the Skarv field arrived on
location in the Norwegian Sea. Hook up of risers and commissioning work
is ongoing and production is due to commence at the Skarv field in 2012.
• On 6 October 2011, the Ula field on the Norwegian Continental Shelf
celebrated 25 years of production.
North America
United States
Our activities within the US take place in three main areas: deepwater Gulf
of Mexico, Lower 48 states and Alaska.
Deepwater Gulf of Mexico
For further information on the activities of BP’s Gulf Coast Restoration
Organization established following the Deepwater Horizon oil spill, see
pages 76-79.
BP is the largest producer of hydrocarbons and the largest acreage
holder in the deepwater Gulf of Mexico, operating seven production hubs.
• Following BP’s success in lease sale 213 in March 2010, seven of the
leases awarded in 2010 were executed in 2011 and a further five leases
from the sale were awarded and executed in 2011.
• During 2011, preparations for safely restarting drilling operations in
the Gulf of Mexico were progressed. In July 2011, BP announced
the implementation of a new set of voluntary drilling standards for its
operations in the Gulf of Mexico. The standards go beyond existing
regulatory obligations and have been developed through lessons learned
following the Deepwater Horizon oil spill in 2010. By the end of 2011
there were five BP-operated deepwater rigs engaged in abandonment
and appraisal activities in the Gulf of Mexico. A permit to drill an appraisal
well at Kaskida was approved and drilling operations commenced in
October. Looking forward to 2012, plans include the drilling of exploration,
appraisal and development wells and the start-up of additional three rigs,
subject to receiving approvals from the US regulators.
• On 7 September 2011, BP announced the drilling of a successful
appraisal well in a previously untested northern segment of the Mad Dog
field in the Gulf of Mexico. The well, located on Green Canyon Block
738, approximately 140 miles south of Grand Isle, Louisiana, confirms
a significant resource extension for the Mad Dog field complex, which
includes the existing field, in production since 2005, and appraisal drilling
of the Mad Dog South field in 2008 and 2009. Due to the materiality
of the Mad Dog South finds, BP has been advancing development
options to increase production from Mad Dog and has now sanctioned
the final investment decision on Mad Dog Phase 2. This will be the first
BP-operated, standalone facility in a decade and will develop significant
additional resources through the addition of subsea water injection and
installation of a new production host.
• On 14 December 2011, the Bureau of Ocean Energy Management held
its first western Gulf of Mexico lease sale since August 2009. BP bid on
leases for 15 blocks and expects to be awarded leases for 11 blocks in
early 2012.
Lower 48 states
The North America Gas business operates onshore in the Lower 48 states
producing natural gas, natural gas liquids and coalbed methane across nine
states. In 2011, BP drilled 148 wells as operator across the US, including
the Wyoming, San Juan, Anadarko, Arkoma and East Texas basins. BP also
continues to participate in Eagle Ford, Fayetteville and other non-operated
positions. For further information on the use of fracking in our shale gas
assets see page 71.
Alaska
BP operates 15 North Slope oilfields (including Prudhoe Bay, Endicott,
Northstar, and Milne Point) and four North Slope pipelines, and owns a
significant interest in six other producing fields.
• The Point Thomson Unit (PTU) was terminated by administrative
decision of the State of Alaska Department of Natural Resources (DNR)
in November 2006 (BP 32%). ExxonMobil, the operator, and the other
unit owners, including BP, appealed the unit termination in the Alaska
Superior Court. On 11 January 2010, the Alaska Superior Court reversed
the DNR’s administrative decision to terminate the unit, and in the
second quarter of 2010, the State of Alaska Supreme Court granted
the DNR’s petition for a limited review. Briefs have been submitted to
the Alaska Supreme Court, and a decision is expected in 2012. In the
meantime, ExxonMobil and the State of Alaska have also informed the
other unit owners, including BP, that they have reached a preliminary
settlement agreement. BP and the other owners asked to participate
in the settlement discussions but were precluded. We are currently
analysing the agreement.
• In light of the closure of the Denali operations (see page 88 for further
details) BP continues to explore ways to commercialize its North Slope
gas resources.
• On 29 November 2007, BP Exploration (Alaska) Inc. (BPXA) pled guilty
to a misdemeanour violation under the US Water Pollution Control Act
to settle the criminal allegations by the state and federal government
related to leaks in 2006 from oil transit lines in the Prudhoe Bay unit.
The penalty included payment of $20 million with three years’ probation
that was due to expire on 29 November 2010. On 29 November 2009,
a spill of approximately 360 barrels of crude oil and produced water was
discovered beneath a ruptured frozen three-phase flow line running from
a well pad to the Lisburne Processing Center. On 17 November 2010,
the US Probation Officer filed a petition in federal district court to revoke
BPXA’s probation based on an allegation that the Lisburne spill was a
criminal violation of state or federal law. In November 2011, a hearing
was held in federal court in Anchorage. On 27 December 2011, the
court issued a final decision denying the government’s petition and
releasing BPXA from probation. See page 165 in Legal proceedings for
further details.