BP 2010 Annual Report Download - page 45

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Businessreview
Business review
Fourteenpercentofourprovedreservesareassociatedwithproduction-
sharingagreements(PSAs).Themaincountriesinwhichweoperated
underPSAsin2010wereAlgeria,Angola,Azerbaijan,Egypt,Indonesia,
IraqandVietnam.
Production
Ourtotalhydrocarbonproductionduring2010averaged3,822thousand
barrelsofoilequivalentperday(mboe/d).Thiscomprised2,493mboe/dfor
subsidiariesand1,329mboe/dforequity-accountedentities,adecreaseof
7%(decreasesof12%forliquidsand2%forgas)andanincreaseof1%
(increasesof1%forliquidsand3%forgas)respectivelycomparedwith
2009.Inaggregate,afteradjustingforentitlementimpactsinourPSAsand
theeffectofacquisitionsanddisposals,productionwas2%lowerthan
2009.Forsubsidiaries,39%ofourproductionwasintheUS,18%in
Trinidadand9%intheUK.
Weexpectproductionin2011tobelowerthanin2010asaresult
ofdisposals,lowerproductionfromtheGulfofMexicoandtheincreased
turnaroundactivitytoimprovethelong-termreliabilityoftheassets.Asa
resultofthesefactors,reportedproductionin2011isexpectedtobe
around3,400mboe/d.Theactualoutcomewilldependontheexacttiming
ofdisposals,thepaceofgettingbacktoworkintheGulfofMexico,OPEC
quotasandtheimpactoftheoilpriceonourPSAs.IntheGulfofMexico,
thereisindustry-wideuncertaintyaroundthepaceatwhichnewdrilling
activitywillberestoredfollowingtheliftingofthedrillingmoratoriumin
October2010.Nonewpermitsforthedrillingofdeepwaterwells(except
forwaterinjectionandsidetrackwells)hadbeenissuedtoanycompany
untiltheendofFebruary2011.BPhasclearcriteriaforsafelyrestarting
drillingandcompletionsactivity,whichincludemeetingallnewregulatory
requirements,addressingeachoftherecommendationsofourinternal
investigation,compliancewithourownstandardsandensuringwehave
therightcapabilityinplace,alongwithappropriatecontractormanagement.
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2010,wecontinuedtogrowourportfolioofassetsthrough
acquisitionssuchasthetransactionwithDevonEnergy,whichsignicantly
enhancedourpositioninanumberofcorestrategicareasinBrazil,
AzerbaijananddeepwaterGulfofMexico,andtheincreaseinourequity
holdingintheValhallandHodelds,potentiallyverysignicanteldsinthe
NorthSeawithtechnologicalupsides.
Wealsoundertookanumberofdisposalsaspartofourpreviously
announcedportfoliohigh-gradingreview.Intotal,thesetransactions
generated$17billioninproceedsduring2010includingprepaymentsof
$6.2billionfordisposalsyettocomplete.SeeFinancialstatements–
Note4onpage163.Withregardstoprovedreserves,102mmboewere
acquiredin2010,allwithinoursubsidiarieswhile408mmboewere
disposedof(approximately404mmboeforsubsidiariesandapproximately
4mmboeforequity-accountedentities).
Acquisitions
• InMarch2010,BPannouncedabroad-rangingtransactionwithDevon
Energytoenhanceitspositionincorestrategicareas.BPagreedtopay
DevonEnergy$6.9billionincashforassetsinBrazil,Azerbaijanandthe
USdeepwaterGulfofMexico.
 Inaddition,BPsoldtoDevonEnergya50%stakeinBP’sKirbyoil
sandsinterestsinAlberta,Canada,for$500million.Thepartieshave
agreedtoforma50:50jointventure,operatedbyDevon,topursuethe
developmentoftheinterest.Devoncommittedtofundanadditional
$150millionofcapitalcostsonBP’sbehalf.
 InBrazil,subjecttogovernmentandregulatoryapprovals,the
transactionwillgiveBPadiverseandbroaddeepwaterexploration
acreagepositionoffshoreBrazilwithinterestsineightlicenceblocksin
theCamposandCamamu-Almadabasins,aswellastwoonshore
licencesintheParnaibabasin.TheCamposbasinblocksincludethree
discoveries–Xerelete,pre-saltWahooandItaipu–andtheproducing
Polvoeld.
 IntheUSdeepwaterGulfofMexico,BPgainedahigh-qualityportfolio
withinterestsinsome240leases,withaparticularfocusonthe
emergingPaleogeneplayintheultra-deepwater.Theadditionof
Devon’s30%interestinthemajorPaleogenediscovery,Kaskida,gave
BPa100%interestintheproject.Theassetsalsoincludedinterestsin
fourproducingoilelds:Magnolia,Merganser,Nansen,andZia,andone
non-producingasset.
 InAzerbaijan,acquisitionofDevon’s3.29%(afterpre-emption
exercisedbysomeofthepartners)stakeintheBP-operatedAzeri-
Chirag-GunashlidevelopmentincreasedBP’sinterestto37.43%.
 TheundevelopedKirbyoilsandsleasesareinthesouth-eastofthe
AthabascaregionofAlberta,closetotheDevon-operatedJacksh
development,whichstartedproductionin2007.BPandDevonhave
agreedaninitialappraisalprogrammetoassessthesignicantpotential
oftheKirbyacreageandtoestablishalong-termdevelopmentplan.In
additiontoformingthejointventure,BPandDevonhaveagreedto
enterintoalong-termheavycrudeoff-takeagreementforproduction
fromtheKirbydevelopmentaswellasaportionoftheproductionfrom
someofDevon’sotheroilsandsassets.
• AlsoinMarch2010,BPannouncedthatithadenteredintoapartnership
inCanadawithValueCreationInc.(VCI)todeveloptheTerredeGrace
(TDG)oilsandslease,oneofVCI’slargeoilsandsleases,inthe
Athabascaregion.BPisnowtheoperatorandmajoritypartnerforthe
partnership,withVCIandBPtogetherprovidingstrategicdirectionand
guidance.TDGisalarge,contiguous185,000acresofhigh-qualityoil
sandslandwithsubstantialdelineationoftheEastGracelandareaand
furtherpotentialintheless-delineatedremainderoftheleases.In2010,
capitalexpenditureinrelationtotheformationofthispartnershipwas
$900million.
• O n1September2010,BPincreaseditsequityholdinginthesignicant
NorwegianValhallandHodeldsbyacquiring7.9%interestinthe
Valhalleldand12.5%intheHodeldfromTotal.Thetransaction
increasedtheequityholdinginValhallto35.95%andHodto37.5%.
Thenalpurchaseconsiderationwas$492million.Theacquisitionis
expectedtostrengthenBP’sexistingbusinessinNorwayandthe
NorthSea.
• InSeptember2010,BPannouncedanagreementwithDevonEnergyin
whichBPacquired40.82%ofDevon’sexistingshareinBlock42/05in
theSouthChinaSea.Theremaining59.18%ofDevon’ssharewas
purchasedbyChevron,whowillbetheoperatorintheexploration
phaseundertheamendmentagreementstotheproduction-sharing
contractwithCNOOC.Allpre-developmentspendingwillbeincurred
byBPandChevron.Duringthedevelopmentphase,CNOOChasthe
righttoback-intoa51%shareintheprojectthusleavingworking
interestsharesasfollows:BP20%,CNOOC51%,Chevron29%.
• On24January2011,BPexercisedapreferentialrighttoacquireShell’s
workinginterestintheMarlinandDoradoproducingeldsforatotal
considerationof$257million.ThisbringsBP’sworkinginterestinboth
eldsto100%.
• On21February2011,RelianceIndustriesLimitedandBPannounced
thattheyintendtoformanupstreamjointventureinwhichBPwilltake
a30%stakein23oilandgasproduction-sharingcontractsthat
RelianceoperatesinIndia,includingtheproducingKGD6block,and
forma50:50jointventureforthesourcingandmarketingofgasinIndia.
BPwillpayRelianceIndustriesLimitedanaggregateconsiderationof
$7.2billion,andcompletionadjustments,fortheintereststobe
acquiredinthe23production-sharingcontracts.Futureperformance
paymentsofupto$1.8billioncouldbepaidbasedonexploration
successthatresultsindevelopmentofcommercialdiscoveries.
Reliancewillcontinuetobetheoperatorundertheproduction-sharing
contracts.CompletionofthetransactionsissubjecttoIndianregulatory
approvalsandothercustomaryconditions.
BPAnnualReportandForm20-F2010 43