BP 2014 Annual Report Download - page 217

Upstream analysis by region
Our upstream operations are listed by geographical area, with associated
significant events for 2014. BP’s percentage working interest in oil and
gas assets is shown in parenthesis. 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.
In addition to exploration, development and production activities, our
Upstream business also includes midstream and LNG activities.
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 natural gas liquids (NGLs)
extraction business.
Our LNG supply activities are located in Abu Dhabi, Angola, Australia,
Indonesia and Trinidad. We market around 20% of our LNG production
using BP LNG shipping and contractual rights to access import terminal
capacity in the liquid markets of the US (via Cove Point), the UK (via the
Isle of Grain), Spain (in Bilbao) and Italy (in Rovigo), with the remainder
marketed directly to customers. LNG is supplied to customers in multiple
markets including Japan, South Korea, China, the Dominican Republic,
Argentina, Brazil and Mexico. In September, BP and Tokyo Electric Power
Company (TEPCO) signed an agreement for TEPCO to purchase up to
1.2 million tonnes of LNG per year from BP for 17 years starting in 2017.
Europe
BP is active in the North Sea and the Norwegian Sea. Our activities focus
on maximizing recovery from existing producing fields and selected new
field developments. BP’s production is generated from three key areas;
the Shetland Area comprising Magnus, Clair, Foinaven and Schiehallion
fields; the Central Area comprising Bruce, Andrew and ETAP fields; and
Norway, comprising Valhall, Ula and Skarv fields.
• In March 2013 BP and its partners, ConocoPhillips, Chevron and Shell,
announced the decision to proceed with a two-year appraisal programme
to evaluate a potential third phase of the Clair field (BP 28.6%), west of
the Shetland Islands. By the end of 2014, five of the planned six appraisal
wells had been completed, with drilling started on the sixth well.
• Activity continued on the major redevelopment of the Schiehallion and
Loyal fields to the west of Shetland during 2014. Following work to
preserve the existing wells and subsea infrastructure, the risers and
moorings were disconnected, allowing the Schiehallion floating
production storage and offloading unit (FPSO) to be towed off-station in
May. Construction continues on the replacement FPSO, the Glen Lyon.
• Operations at the Rhum gas field recommenced in October under a
temporary management scheme announced by the UK government in
2013. Production had been suspended since November 2010 following
the imposition of EU sanctions on Iran. The field is owned by BP
(50%) and the Iranian Oil Company (IOC) under a joint operating
agreement. See International trade sanctions on page 238.
• BP announced the Vorlich discovery in the central North Sea in
October. It spans the GDF SUEZ E&P UK Ltd-operated block 30/1f and
the BP-operated (BP 50%) block 30/1c.
• Production started up from the Kinnoull field (BP 77.06%) in the central
North Sea in December. The Kinnoull reservoir, developed as part of a
wider rejuvenation of the Andrew field area, is tied back to BP’s
Andrew platform and will enable production there to be extended. BP
has been granted three licences in the UK government’s 28th licensing
round. The licences are located in three of our core areas: to the north
of our Magnus field in the northern North Sea; next to our recent
Vorlich discovery; and west of our Kinnoull development. The
government is still to award some licences in this round as they are
undergoing environmental assessment.
• In December, a number of North Sea fields were subject to impairment
charges, primarily as a result of reductions in proved reserves,
decreases in short-term oil and gas price assumptions and increases in
expected decommissioning cost estimates. The total impairment
charge for 2014 was $4,774 million, of which $1,964 million related to
the Valhall asset, $660 million related to the Andrew area assets, and
$515 million related to the ETAP asset. There were a number of other
impairment charges that were not individually significant.
In the UK sector of the North Sea, BP operates the Forties Pipeline
System (FPS) (BP 100%), an integrated oil and NGLs transportation and
processing system that handles production from around 80 fields in the
central North Sea. The system has a capacity of more than 675mboe/d,
with average throughput in 2014 of 363mboe/d. BP also operates and
has a 36% interest in the Central Area Transmission System (CATS), a
400-kilometre natural gas pipeline system in the central UK sector of the
North Sea providing transport and processing services. The pipeline has a
transportation capacity of 293mboe/d to a natural gas terminal at
Teesside in north-east England. Average throughput in 2014 was
134mboe/d. BP also operates the Sullom Voe oil and gas terminal in
Shetland. In December, BP announced the intent to sell our equity in the
CATS business.
North America
Our upstream activities in North America take place in four main areas:
deepwater Gulf of Mexico, Lower 48 states, Alaska and Canada. For
further information on BP’s activities in connection with its
responsibilities following the Deepwater Horizon oil spill, see page 36.
BP has around 600 lease blocks in the deepwater Gulf of Mexico, more
than any other company, and operates four production hubs.
• BP had 10 rigs in the Gulf of Mexico at the end of 2014.
• The BP-operated Na Kika Phase 3 project (BP 50%) and the Shell-
operated Mars B major project (BP 28.5%) started up in February. A
second Na Kika Phase 3 well started up in April.
• The Atlantis North expansion Phase 2 major project (BP 56%) started
up in April.
• BP announced an oil discovery at the Guadalupe prospect (BP 42.5%)
in the deepwater Gulf of Mexico in October. Project operator Chevron
drilled the discovery well on Keathley Canyon block 10 on behalf of the
Guadalupe co-owners. The well encountered significant economically
producible hydrocarbons in Paleogene age Wilcox Sands.
• In January 2015 BP announced it had formed a new ownership and
operating model with Chevron and ConocoPhillips to focus on moving
two significant BP Paleogene discoveries closer to development and
provide expanded exploration access in the deepwater Gulf of Mexico.
BP sold approximately half of its current equity interests in the Gila
field to Chevron in December and sold approximately half of its equity
interest in the Tiber field in January 2015. BP, Chevron and
ConocoPhillips also have agreed to joint ownership interests in
exploration blocks east of Gila known as Gibson, where they plan to
drill in 2015. As a result of the agreements, BP, Chevron and
ConocoPhillips will have the same working interests across Gila and
Gibson and any future centralized production facility. Chevron will hold
equity interest of 36%, BP 34% and ConocoPhillips 30%. In Tiber, BP
and Chevron will each hold equity interest of 31%, Petrobras 20% and
ConocoPhillips 18%. Chevron will operate Tiber, Gila and Gibson.
Operatorship is expected to be transferred after BP finishes drilling
appraisal wells at Gila and Tiber. BP believes combining the technical
strengths and financial resources of these three companies will provide
greater efficiency through scale, reduce subsurface risk and increase
the likelihood of achieving a future commercial development.
• BP was the apparent high bidder in 27 out of 32 blocks in the Gulf of
Mexico western lease sales in August, all of which have been
awarded. This is in addition to 24 blocks awarded in the Gulf of Mexico
in March lease sales. See also Significant estimate or judgement: oil
and natural gas accounting on page 102 for further information on
leases.
The US Lower 48 onshore business has significant activities producing
natural gas, NGLs and condensate across seven states, including
production from unconventional gas, coalbed methane (CBM) and shale
gas assets.
BP has an extensive resource base across 3.0 million net (5.5 million
gross) developed acres and over 22,815 gross wells, with daily
production around 300mboe/d. We believe there is potential to unlock
significant value from this resource base and we have decades of
experience in the necessary technologies.
Starting in 2015 our US Lower 48 onshore business began operating as a
separate business, with its own governance, processes and systems.
This is designed to promote faster decision making and adoption of
innovation so that BP can be more competitive in the US onshore
market. David Lawler was named chief executive officer in August.
Additional disclosures
BP Annual Report and Form 20-F 2014 213