BP 2013 Annual Report Download - page 243

Upstream analysis by region
The following discussion reviews operations in our upstream business by
geographical area, and lists associated significant events for 2013. BP’s
percentage working interest in oil and gas assets is shown in
parentheses. 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 25% 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.
Europe
In Europe, BP is active in the UK North Sea and the Norwegian Sea. Our
activities in the North Sea include a focus on maximizing recovery from
existing producing fields and selected new field developments.
• In January production from the new facilities at the Valhall field in the
southern part of the Norwegian North Sea commenced and has now
ramped up to 70 mboe/d. Production from Skarv, which started up in
December 2012, has now ramped up to 160 mboe/d.
• In March 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, west of
the Shetland Islands. By the end of 2013, two appraisal wells had been
completed and we are currently drilling a third.
• In April we completed the sale of our interest in the Sean (BP 50%)
field in the North Sea to SSE plc for $288 million.
• In June we completed the sales of our interests in the Harding (BP
70%), Maclure (BP 37.04%), Braes (BP 27.7%), Braemar (BP 52%) and
Devenick (BP 88.7%) fields in the North Sea to TAQA Bratani Ltd for
$1,058 million plus future payments which, depending on oil price and
production, are currently expected to exceed $180 million after tax.
• In June BP announced that it had been awarded two licences in the
Barents Sea as part of Norway’s 22nd offshore licensing round.
• In August the Clair Ridge platform jackets (the steel support structure)
were installed, a major milestone in the project.
• In September BP announced that more than $1.5 billion in contracts
had been awarded to UK-based companies to provide services and
equipment for the major redevelopment of the Schiehallion and Loyal
oil fields to the west of Shetland. The project to redevelop the fields,
which are operated by BP on behalf of its partners, involves two main
elements: a new floating production, storage and offloading vessel
(FPSO) and a major upgrade of the subsea infrastructure that will lie on
the seabed.
• In October the UK government announced a temporary management
scheme to allow the restart of production from the Rhum gas field in
the central North Sea, which has 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 dating back to the early 1970s. BP intends to
recommence operations at Rhum in the future in accordance with the
temporary management scheme, under which the UK government will
assume control of the IOC’s share of Rhum for a period of up to five
years. Revenue from the IOC’s share will be placed in a blocked
account. See Further note on certain activities on page 267 for further
information.
• In December BP was awarded 14 licences in the 27th UK Offshore Oil
and Gas Licensing Round, subject to final government approval.
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 more than 80 fields in
the central North Sea. The system has a capacity of more than
675mboe/d, with average throughput in 2013 of 421mboe/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. The pipeline has a transportation capacity of
293mboe/d to a natural gas terminal at Teesside in north-east England.
Average throughput in 2013 was 52mboe/d. CATS offers natural gas
transportation and processing services. In addition, BP operates the
Sullom Voe oil and gas terminal in Shetland.
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 38.
BP has around 620 lease blocks in the deepwater Gulf of Mexico, more
than any other company, and operates four production hubs.
• In 2013 BP started up an additional three rigs in the Gulf of Mexico,
and by the end of the year had ten rigs in operation.
• In April the Atlantis North expansion Phase 1 major project (BP 56%)
started up.
• In April we completed the sale of our interest in the Freedom (BP
31.5%) field in the Gulf of Mexico to Ecopetrol America.
• In April the decision was taken not to move forward with the existing
plan for the Mad Dog Phase 2 project in the deepwater Gulf of Mexico
as market conditions and industry cost inflation made the project less
attractive than previously modelled. This decision resulted in an
impairment of $159 million. BP and its partners reviewed alternative
development concepts and the current concept being considered is a
single production host designed for future flexibility to capture
additional potential resource.
• In December BP announced it had made a significant oil discovery at
its Gila prospect (BP 80%), which it co-owns with ConocoPhillips, in
the deepwater Gulf of Mexico.
• In February 2014 the Shell-operated Mars B major project (BP 28.5%)
and the BP-operated Na Kika Phase 3 project (BP 50%) started up.
For information on the temporary suspension and mandatory debarment
notices issued by the US Environmental Protection Agency (EPA) in
November 2012 and February 2013 and related proceedings, see Legal
proceedings on page 257.
The US onshore business operates in the Lower 48 states producing
natural gas, NGLs and condensate across nine states, including
production from tight gas, coalbed methane (CBM) and shale gas assets.
During 2013 BP participated in the drilling of several hundred wells as a
non-operating partner in the Eagle Ford shale, Anadarko basin and
Fayetteville shale. In the Eagle Ford shale BP, together with the operating
partner, continued to expand its position, with around 450,000 gross
acres at the end of 2013 and nine rigs operating. Production from the
liquids-rich Anadarko basin is from over 1,000,000 gross acres, with
around 12 rigs operating, and at Fayetteville there is an average of eight
rigs running over the 145,000 gross acreage position.
In March 2014 we announced plans to establish a separate BP business
to manage our onshore oil and gas assets in the US lower 48, with the
goal of building a stronger, more competitive and sustainable business.
We expect the separate organization to be operational in early 2015.
For further information on the use of hydraulic fracturing in our shale gas
assets see page 45. BP’s onshore US crude oil and product pipelines and
related transportation assets are included in the Downstream segment
(see page 31).
In Alaska, we operate 13 North Slope oilfields (including Prudhoe Bay,
Endicott, Northstar and Milne Point) and four North Slope pipelines, and
own significant interests in six other producing fields.
• Development of the Point Thomson initial production facility project
continued throughout 2013. Engineering design is substantially
complete, construction of field infrastructure is in progress and
fabrication of the four main process modules has commenced. Overall,
the project is on track. BP holds a 32% working interest in the Point
Thomson field, and ExxonMobil is the operator.
Additional disclosures
BP Annual Report and Form 20-F 2013 239