BP 2011 Annual Report Download - page 88

86 BP Annual Report and Form 20-F 2011
Business review
Egypt
BP has a long-standing history in Egypt, successfully operating there
for close to 50 years. To date BP with its partners has produced almost
40% of Egypt’s entire oil production and supplies more than 35% of the
domestic gas demand. BP’s total assets in Egypt at 31 December 2011
were $8,784 million ($4,768 non-current and $4,016 current).
• The 25 January 2011 civil uprising resulted in the BP office in Cairo
closing for a period of 10 days, reopening on 7 February. Production and
operations were, and continue to be, unaffected. Parliamentary elections
started in late November 2011 and are expected to run until mid-March
2012. We continue to closely monitor the developing situation in the
country and its potential impact on the business and our people.
• In October 2011, BP announced the Salmon gas discovery in the North
El Burg (BP 50% and operator) offshore concession in the Nile Delta.
Salmon is the third discovery in the concession, following the Satis 1 and
Satis 3 gas discoveries. Further appraisal work to evaluate the resources
is under way.
Asia
Western Indonesia
BP has a joint interest in Virginia Indonesia Company LLC (VICO), the
operator of the Sanga-Sanga PSA (BP 38%) supplying gas to Indonesia’s
largest LNG export facility, the Bontang LNG plant in Kalimantan. BP also
participates in the Sanga-Sanga coalbed methane (CBM) PSA (BP 38%), a
brownfield, unconventional development overlaying the conventional PSA.
Sanga-Sanga CBM is the cornerstone of the BP Asia Pacific CBM growth
strategy.
• In March 2011, the first CBM long-term production test well was tied
into the system that supplies Bontang LNG plant.
• On 1 April 2011, BP signed four new CBM PSAs – Tanjung IV, Kapuas I,
II, and III in the Barito Basin of Central Kalimantan, covering a contiguous
area of approximately 4,800km2. BP holds a 44% interest in the
Pertamina-operated Tanjung IV PSA, and a 45% operating interest in
each of the Kapuas I, II, and III PSAs. Subsurface evaluation of the areas
covered by the new PSAs is under way.
China
BP’s upstream activities in the country include production from the China
National Offshore Oil Corporation (CNOOC) operated Yacheng offshore gas
field (BP 34.3%) as well as deepwater exploration in the South China Sea’s
Block 42/05 (BP 40.82%). Yacheng supplies gas to the Castle Peak Power
Company for up to 70% of Hong Kong’s gas-fired electricity generation.
Additional gas is sold to the Hainan Holdings Fuel & Chemical Corporation
Limited.
• On 10 January 2011, BP announced that it had signed a new agreement
with CNOOC for deepwater exploration in Block 43/11 in the South
China Sea and government approval was received on 30 January 2012.
Azerbaijan
BP is the largest foreign investor in the country. BP operates two PSAs,
Azeri-Chirag-Gunashli (ACG) and Shah Deniz, and also holds other
exploration leases.
• In June 1996, when the Shah Deniz PSA was awarded, Oil Industries
Engineering and Construction, an affiliate of the National Iranian Oil
Company and assignor to the current Iranian interest holder, Naftiran
Intertrade Co. Ltd (NICO), was selected as a Shah Deniz project
participant by the State of Azerbaijan, and has a 10% non-operating
interest under the Shah Deniz PSA. NICO also has a 10% or less, non-
operating, interest in both the Shah Deniz project gas marketing entity
and its gas transportation entity, both of which were incorporated in
2002 and derive from the award of the Shah Deniz PSA. Under article
30 of the new EU Regulations concerning restrictive measures against
Iran, any body, entity or holder of rights derived from an award of a
PSA before the entry into force of the EU Regulations by a sovereign
government other than Iran, shall not be considered an ‘Iranian person,
entity or body’ for the purposes of the main operative provisions of the
EU Regulations. As such, the restrictive measures do not apply to
NICO and Shah Deniz continues to operate in full compliance with EU
and US law.
• On 6 May 2011, the Parliament of the Republic of Azerbaijan ratified the
new PSA between BP and the State Oil Company of Azerbaijan (SOCAR)
on joint exploration and development of the Shafag-Asiman structure
in the Azerbaijan sector of the Caspian Sea. The ratification follows the
signing of the PSA in Baku in October 2010. Under the PSA, which has
a 30-year term, BP will be the operator with 50% interest while SOCAR
will hold the remaining 50% interest.
• Following the Memorandum of Understanding signed in June 2010
between Turkey and Azerbaijan for gas sales and transportation of gas
from the new Shah Deniz full field development to be sold to consumers
in Turkey and across Europe, on 25 October 2011, Azerbaijan and Turkey
signed a number of key gas export related agreements to enable Turkey
to buy gas from Azerbaijan and to transit gas from Azerbaijan through
Turkey to Europe. The documents signed included an intergovernmental
agreement between the government of Azerbaijan and the government
of Turkey, gas sales agreements between SOCAR and BOTAS and
also between the Azerbaijan Gas Supply Company (AGSC) and BOTAS
International Limited (BIL), a gas transit agreement between SOCAR
and BIL and a framework agreement setting the general terms and
conditions for transit of gas sourced from Azerbaijan through the territory
of Turkey. The agreements provide a legal framework to regulate the
sale of Shah Deniz gas to Turkey and its transportation to European
markets through Turkey.
Russia
• In May 2011, BP announced that both the Rosnefta share swap
agreement and the Arctic Opportunity, originally announced on
14 January 2011, had terminated. This termination was a result
of the deadline for the satisfaction of conditions precedent having
expired following delays resulting from interim orders granted by the
English High Court and a UNCITRAL arbitration tribunal. This followed
applications brought by Alfa Petroleum Holdings Limited (Alfa) and OGIP
Ventures Limited (OGIP) against BP International Limited (BPIL) and BP
Russian Investments Limited (BPRIL) alleging breach of the TNK-BP
shareholders agreement (SHA). These interim orders did not address
the question of whether or not BP breached the SHA. The UNCITRAL
arbitration proceedings with Alfa, Access and Renova (AAR) which
are subject to strict confidentiality obligations are ongoing. See Legal
proceedings on page 166 for further information.
TNK-BP
TNK-BP, an associate owned by BP (50%) and AAR (50%), is an integrated
oil company operating in Brazil, Russia, Ukraine, Venezuela and Vietnam.
TNK-BP’s strategic goal is to become an international oil and gas company
with a leading position in the Russian oil and gas industry. BP’s investment
in TNK-BP is reported in the Exploration and Production segment. From
2012 onward TNK-BP will be reported as a separate operating segment,
as explained more fully on page 80. The TNK-BP group’s major assets
are held in OAO TNK-BP Holding. Other assets include OAO Slavneft,
an equity-accounted joint venture. The workforce is comprised of more
than 50,000 people. TNK-BP’s main board is currently comprised of four
BP, four AAR, and one independent director, with two vacancies for
independent directors. The boards of key TNK-BP subsidiaries have both
BP and AAR directors. In December 2011, two independent non-executive
directors of TNK-BP Limited, Gerhard Schroeder and James Leng,
announced that they would be stepping down from their positions on the
board at the end of 2011.
• Upstream, TNK-BP operates either directly, or through equity-accounted
joint ventures, a number of oil and gas fields in Russia, Vietnam and
Venezuela which produced approximately 1.99mboe/d in 2011.
• Downstream, TNK-BP has interests in six refineries in Russia and
Ukraine (including Ryazan and Lisichansk and Slavneft’s Yaroslavl
refinery), with throughput of approximately 711 thousand barrels per day
in 2011. TNK-BP has over 1,400 branded retail stations in Russia and
Ukraine.
a BP already holds a 1.3% investment in Rosneft Oil Company with a carrying value of $873 million.