BP 2009 Annual Report Download - page 31

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BP Annual Report and Accounts 2009
Business review
Business review
Business review
The following narrative reviews operations in our Exploration and
Production business by continent and country, and lists associated
significant events that occurred in 2009. Where relevant, 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. The
percentages disclosed for certain agreements do not necessarily reflect
the percentage interests in reserves and 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:
Deepwater Gulf of Mexico is our largest area of growth in the US.
In addition, we are the largest producer and acreage holder in the region.
Significant events were:
• In May 2009, BP announced it had begun production from the Dorado
(BP 75% and operator) and King South (BP 100%) projects. Both
projects are subsea tiebacks to the existing BP Marlin Tension Leg
Platform (TLP) infrastructure. Dorado comprises three new subsea
wells located about two miles from the Marlin TLP. King South
comprises a single subsea well located 18 miles from the Marlin TLP.
Both projects leverage existing subsea and topsides infrastructure
and the latest subsea and drilling technology to enable the efficient
development of the fields. Dorado utilizes dual completion technology
enabling production from five Miocene zones and King South is
produced through the existing King subsea pump.
• In June 2009, the Atlantis Phase 2 (BP 56%) project achieved first oil
ahead of schedule, signalling the official start-up.
• In July 2009, BP announced the drilling of a successful appraisal well
in a previously untested southern segment of the Mad Dog field (BP
60.5% and operator). The 826-5 well is located in the Green Canyon
block 826, approximately 100 miles south of Grand Isle, Louisiana,
in about 5,100 feet of water. The results from this well continue the
successful phased development of the Mad Dog field and build upon
the success from 2008.
• In September 2009, BP announced the Tiber discovery in the
deepwater Gulf of Mexico (BP 62% and operator). The discovery well,
located in Keathley Canyon block 102, approximately 250 miles south-
east of Houston, is in 4,132 feet of water. It was drilled to a total
depth of approximately 35,055 feet making it the deepest oil and gas
discovery well ever drilled. The well found oil in multiple Lower
Tertiary reservoirs. Appraisal will be required to determine the size
and commerciality of the discovery.
Lower 48 states:
Our North America Gas business operates onshore in the Lower 48
states producing natural gas, natural gas liquids and coalbed methane
across 14 states. In 2009, we drilled almost 300 wells as operator and
continued to maintain a stable programme of drilling activity throughout
the year. Shale gas assets are becoming an increasingly important part of
our North America Gas business:
Significant events were:
• In the fourth quarter of 2009, BP further expanded its shale gas
portfolio by securing new access in the Eagle Ford Shale in South
Texas. Combined with our 2008 acquisitions of interests in
Chesapeake Energy Corporation’s Woodford and Fayetteville Shale
assets in the Arkoma Basin and our incumbent position in the
Haynesville Shale in East Texas, BP now has a material shale gas
position in the Lower 48 states.
• Since taking over operations of the Woodford shale properties,
BP gross operated production has increased from 60mmcf/d in
November 2008 to over 100mmcf/d by the end of 2009, a 67%
increase. BP delivered 23 wells by the end of the year with an
average 30-day rate of 4.6mmcf/d per well, approximately 50% higher
than initial expectations.
• In 2009, BP net production from the Fayetteville shale properties has
grown from approximately 55mmcf/d to 87mmcf/d at the end of the
year, an increase of approximately 60%. Individual well performance
continues to exceed expectations by approximately 25%.
• In 2009, BP drilled four wells appraising the Haynesville Shale asset
and plans to increase horizontal well drilling in 2010. BP’s position in
the Haynesville Shale in North Louisiana and East Texas covers an
area of approximately 150,000 net acres.
• The business has made good progress in restructuring its activity and
driving down costs to a level that is consistent with the economic
environment.
Alaska:
BP operates 15 North Slope oil fields (including Prudhoe Bay, Endicott,
Northstar, and Milne Point) and four North Slope pipelines, and owns a
significant interest in six other producing fields.
Two key aspects of BP’s business strategy in Alaska are
commercializing the large undeveloped natural gas resource within our
26.4% interest in Prudhoe Bay and unlocking the large undeveloped
heavy oil resources within existing North Slope fields through the
application of advanced technology.
Significant events were:
• In 2009, we progressed the previously announced development
activities for the Liberty oilfield, which is located on federal leases
about six miles offshore in the Beaufort Sea, and east of the Prudhoe
Bay oilfield. The planned development includes up to six ultra-
extended reach wells, including four producers and two injectors, to
be drilled from existing infrastructure in the BP-operated Endicott field
to minimize the onshore and offshore environmental footprint. These
wells are expected to be the longest horizontal wells ever drilled and
completed in the industry, extending two miles deep and as far as
eight miles horizontally. A specialized rig for drilling in the Arctic has
been built for the project, and it is the world’s largest and most
powerful onshore drilling rig. Key project milestones achieved during
2009 include expansion of the BP-operated Endicott field satellite
drilling island (SDI) in April; and sealift delivery of the ultra-extended
reach drilling rig to the Endicott SDI in August. Drilling is expected to
start in 2010, with first oil expected in 2011. BP drilled the Liberty
discovery well in 1997, and is the operator and sole owner of the field.
• On 27 January 2009, the Commissioner of the State of Alaska
Department of Natural Resources (DNR) issued a ‘Conditional Interim
Decision’ in connection with the appeal of the Point Thomson area
lease terminations. The Point Thomson Unit (PTU) was terminated by
administrative decision of the DNR in November 2006 (BP 32%). In
February 2007, the DNR notified the PTU owners of its decision to
terminate the Point Thomson area leases as well. ExxonMobil,
operator, and the other unit owners including BP, are pursuing an
appeal of the unit termination in the Alaska Superior Court; and the
lease terminations are under administrative appeal with the DNR. The
27 January 2009 Conditional Interim Decision permitted ExxonMobil
to conduct drilling operations on two of the 31 terminated leases
comprising the former PTU. The DNR’s interim decision provided that
the two leases would be reinstated if certain conditions were met.
On 11 January 2010, the Alaska Superior Court reversed the DNR
Commissioner’s administrative decision to terminate the PTU. The
parties have been ordered to provide the Court further briefing
regarding whether the Court should again remand the matter for an
administrative proceeding with DNR, or retain jurisdiction with the
Alaska Superior Court and conduct a de novo proceeding.