BP 2008 Annual Report Download - page 28

BP Annual Report and Accounts 2008
Performance review
Russia
TNK-BP
• TNK-BP, a joint venture between BP (50%) and Alfa Group and
Access-Renova (AAR) (50%), is an integrated oil company operating
in Russia and the Ukraine. The TNK-BP group’s major assets are held
in OAO TNK-BP Holding. Other assets include the BP-branded retail
sites in Moscow and the Moscow region and interests in OAO Rusia
Petroleum and the OAO Slavneft group. The workforce comprises
more than 60,000 people.
• BP’s investment in TNK-BP is held by the Exploration and Production
segment and the results of TNK-BP are accounted for under the
equity method in this segment.
• TNK-BP has proved reserves of 7.1 billion barrels of oil equivalent
(including its 49.9% equity share of Slavneft), of which 5 billion are
developed. In 2008, TNK-BP’s average liquids production was
1.65mmb/d, a decrease of just under 1% compared with 2007. The
production base is largely centred in West Siberia (Samotlor, Nyagan
and Megion), which contributes about 1.2mmboe/d, together with
Volga Urals (Orenburg) contributing some 0.4mmboe/d. About 40%
of total oil production is currently exported as crude oil and 20% as
refined product.
• Downstream, TNK-BP has interests in six refineries in Russia and the
Ukraine (including Ryazan and Lisichansk and Slavneft’s Yaroslavl
refinery), with throughput of approximately 34 million tonnes per
year. During 2008, TNK-BP purchased additional retail and other
downstream assets in Russia and the Ukraine from a number of
small companies. TNK-BP supplies approximately 1,400 branded
filling stations in Russia and the Ukraine and, with the additional sites,
is expected to have more than 20% market share of the Moscow
retail market.
• On 9 January 2009, BP reached final agreement on amendments to
the shareholder agreement with its Russian partners in TNK-BP. The
revised agreement is aimed at improving the balance of interests
between the company's 50:50 owners, BP and Alfa Access-Renova
(AAR), and focusing the business more explicitly on value growth.
• The former evenly-balanced main board structure has been replaced
by one with four representatives each from BP and AAR, plus three
independent directors. Unanimous board support is required for
certain matters including substantial acquisitions, divestments and
contracts, and projects outside the business plan, together with
approval of key changes to the TNK-BP group’s financial framework
and of related party transactions. A number of other matters will be
decided by approval of a majority of the board, so that the
independent directors will have the ability to decide in the event of
disagreement between the shareholder representatives on the board.
BP will continue to nominate the chief executive, subject to main
board approval, and AAR will continue to appoint the chairman. The
three independent directors appointed to the restructured main board
are Gerhard Schroeder, former chancellor of the Federal Republic
of Germany, James Leng, former chairman of Corus Steel and
Alexander Shokhin, president of the Russian Union of Industrialists
and Entrepreneurs. In addition, significant TNK-BP subsidiaries will
have directors appointed by BP and AAR on their boards. Our
investment in TNK-BP will be reclassified from a jointly controlled
entity to an associate with effect from 9 January 2009.
• The parties have confirmed their agreement to a potential future sale
of up to 20% of a subsidiary of TNK-BP through an initial public
offering (IPO) at an appropriate future point, subject to certain
conditions and the consent of the Russian authorities.
• In 2007, BP and TNK-BP signed heads of terms to create strategic
business alliances with OAO Gazprom. Under the terms of this
agreement, TNK-BP agreed to sell to Gazprom its stake in OAO Rusia
Petroleum, the company that owns the licence for the Kovykta gas
condensate field in East Siberia and its interest in East Siberia Gas
Company. Discussions to conclude this disposal continue.
Sakhalin
• BP and its Russian partner Rosneft agreed two Shareholder and
Operating Agreements (SOAs) on 28 April 2008, recognizing BP as
a 49% equity interest holder with Rosneft holding the remaining
51% interest in the two newly formed joint venture companies,
Vostok Shmidt Neftegaz and Zapad Shmidt Neftegaz. BP also
continues to hold a 49% equity interest in its third joint venture
company at Sakhalin, Elvary Neftegaz, with Rosneft holding the
remaining 51%. During the year, each of the three joint ventures
held Geological and Geophysical Studies licences with the Russian
Ministry of Natural Resources (MNR) to perform exploration seismic
and drilling operations in these licence areas off the east coast of
Russia. To date, 3D seismic data has been acquired in relation to all
three licences. In the Elvary Neftegaz licence additional commitment
2D seismic data was acquired during 2008 in preparation for future
drilling commitments. Exploration wells have been drilled in the
Zapad-Shmidt Neftegaz and Elvary Neftegaz licences. In 2008, it was
agreed by both shareholders to allow the Zapad-Shmidt Neftegaz
licence to lapse at the end of its normal term.
Other
Azerbaijan
• In Azerbaijan, BP’s net production in 2008 was 130mboe/d, a net
decrease of 40% from 2007. The primary elements of this were the
effects of significantly higher prices resulting in a change in profit oil
entitlement in line with the terms of the PSA and reduced cost oil
entitlement, partially offset by an increase following the start-up of
the Deepwater Gunashli (DWG) platform, the ramping up of three
Azeri oil-producing platforms and the Shah Deniz condensate gas
platform commencing production in 2007.
• The DWG platform complex successfully started oil production
on schedule on 20 April 2008. DWG completes the third phase of
development of the Azeri-Chirag-Gunashli (ACG) field (BP 34.1%
and operator) in the Azerbaijan sector of the Caspian Sea. The DWG
complex is located in a water depth of 175 metres on the east side of
the Gunashli field. The complex comprises two platforms – a drilling
and production platform linked by a bridge to a water injection and
gas compression platform.
• On 17 September 2008, a subsurface gas release occurred below the
Central Azeri platform. As a precautionary measure, all personnel on
the platform were safely transferred onshore. The Central Azeri
platform was shut down until 19 December 2008, when following
comprehensive investigation and recovery work, BP began to resume
oil and gas production. Central Azeri processes oil and gas from West
Azeri, and West Azeri was also temporarily shut down and then
restored to normal operations on 9 October 2008. Operations of the
Compressor and Water Injection Platform (CWP), which is linked
by a bridge to Central Azeri, and the provision of power and injection
water across three Azeri field platforms were re-established on
12 October 2008.
Middle East and South Asia
• Production in the Middle East consists principally of the production
entitlement of associates in Abu Dhabi, where we have equity
interests of 9.5% and 14.7% in onshore and offshore concessions
respectively. In 2008, BP’s share of production in Abu Dhabi was
210mb/d, up 9% from 2007 as a result of higher overall OPEC
demand despite cuts implemented in the fourth quarter of 2008.
• In July 2008, BP Sharjah signed a farm-out agreement with RAK
Petroleum for the East Sajaa concession. Drilling of the first
exploration well is expected in 2009.
• In Block 61 in Oman, the challenges posed by the world’s largest
onshore azimuth 3D seismic survey led the BP Oman team to use
a ground-breaking new technique known as Distance Separated
Simultaneous Sweeping (DS3). This technique allows the acquisition
Performance review
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