BP in Azerbaijan Baku September 2006 Cautionary statement
Forward looking statements: This presentation and the associated slides and discussion contain forward- looking statements, particularly those regarding oil and gas prices; expected start-up of Thunderhorse; the timing of other projects and their contribution to expected production, their estimated reserves and production capacity; production; the expected movement of non-proven resources to proved reserves; divestments and their effect; capital expenditure; and cash flow. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that will or may occur in the future. Actual results may differ from those expressed in such statements, depending on a variety of factors, including the timing of bringing new fields on stream; future levels of industry product supply; demand and pricing; operational problems; general economic conditions; political stability and economic growth in relevant areas of the world; changes in laws and governmental regulations; exchange rate fluctuations; development and use of new technology; changes in public expectations and other changes in business conditions; the actions of competitors; natural disasters and adverse weather conditions; wars and acts of terrorism or sabotage; and other factors discussed elsewhere in this presentation.
Cautionary Note to US Investors - The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation, such as “resources” and “non-proven reserves”, that the SEC’s guidelines strictly prohibit us from including in our filings with the SEC. U.S. investors are urged to consider closely the disclosures in our Form 20-F, SEC File No. 1-6262, available from us at 1 St. James’s Square, London SW1Y 4PD. You can also obtain this form from the SEC by calling 1-800-SEC-0330.
September 2006 Introduction
Fergus MacLeod Head of Investor Relations 1997 Baku Analyst Trip 1989 Access Agenda
E & W Siberia
Caspian Algeria GOM Vietnam Deepwater Nigeria Venezuela Yemen Venezuela Lombok
Angola 1997 Baku Analyst Trip Current Environment
Competition Increasing Challenge to BP
– Access competition – Keep ahead of pack – New players – Play to strengths – Terms erosion – Exploration track record – Deepwater technology – Relationship management – Deepen existing positions – Broaden into new positions 1997 Baku Analyst Trip Production Profile
mb/d 2500
2000
1500 Others
1000
500 BP 0 1995 2000 2005 2010 2015 2020 E&P Strategy Update
Tony Hayward Chief Executive, Exploration & Production BP Azerbaijan organisation
BP Azerbaijan President David Woodward / Bill Schrader*
Commercial Director Chief of Staff Phil Home Erich Krumanocker Executive Assistant Georgia General Manager Kamala Husseynli Hugh McDowell Turkey E&P Director Djan Suphi
Offshore Onshore Renewal VP Shah Deniz VP Major Projects VP Technical Director Operations VP Operations VP Paul Clyne Mike Skitmore Bruce Luberski Fereidoun Abbassian Neil McCleary Rashid Javanshir
HR Director Zarina Zeynalova
C&EA Director Clare Bebbington
HSSE Director Gunther Newcombe
Business Transformation Manager *David Woodward will be retiring from BP on 1 January 2007, Judith Luberski Bill Schrader will be effective in this role from 10 November 2006 Project start-ups
2005 2006 2007 2008 - 2009 2010 and beyond Valhall 9Cannonball Atlantis Thunder Horse Atlantis North Paz Flor 9Waterflood Temsah King Sub-sea Ursa Expansion Flank Egypt LNG T2 Kizomba C 9Mad Dog 9Redevelopment Pump Puma Browse Central Azeri BTC San Juan ACG Phase 3 Tubular Bells 9 9 Angel Io / Janz Clair In Amenas Coal Bed Methane Alaska Gas Australia LNG T5 Tangguh Phase 2 9 9 Greater Plutonio Kizomba B Wamsutter Tangguh Phase 1 Liberty Vietnam Phase 2 9 9 Kizomba A Ph 2 Trinidad LNG Dalia Saqqara Point Thomson Colombia Gas 9Train 4 Rosa East Azeri Dorado Western Regional Clair Ridge Rhum Red Mango Great White Development 9 Shah Deniz Skarv West Azeri North West Area Horn Mountain NW Angola LNG 9 Magnus Kovykta Export Mardi Gras Extension Development Mad Dog SW Ridge Block 18 West Mars South Rospan 9Pipeline Block 31 North Cashima North Rankin B Block 31 South Chacalaca Kizomba D Egypt LNG T1 Block 31 Central Shah Deniz Phase 2 Harding Gas Valhall Redevelopment Uvat (Demiansky Phase I) 9 on stream in development under appraisal Production to 2010
mmboe/d 5 Divestments closed in 4 2006
3 TNK-BP
2 New profit centres 1 Existing profit centres 0 2001 2002 2003 2004 2005 2010 Actual prices and Production portfolio at $40
BP projection for ‘06-’10 updated to reflect closed ’06 divestments Strategy – building profit centres
AlaskaAlaska
NorthNorth SeaSea RussiaRussia NorthNorth AmericaAmerica GasGas AzerbaijanAzerbaijan DeepwaterDeepwater EgyptEgypt GulfGulf ofof MexicoMexico NorthNorth TrinidadTrinidad AfricaAfrica AsiaAsia && TobagoTobago MiddleMiddle PacificPacific EastEast LatinLatin AmericaAmerica AngolaAngola
Russia / Kazakhstan New Profit Centres
Existing Profit Centres Resource growth & progression 2001- 2005 New Further discoveries appraisal, revisions 8.0 7.8
Start ‘01 End ‘05 Purchased Sold resources resources
25.9 12.5 Non-proved 4.4 40.7 9.1
15.2 2.7 Proved 1.9 18.3
41.1 59.0 6.7 Produced
Totals in billion boe Proved UK SORP, non-proved BP data End 2005 resource by type
Non-Proved
Proved Conventional Oil Deepwater Oil Water Flood Viscous 41 bn boe 18 bn boe and Heavy Oil Conventional Gas LNG Gas Tight Gas Coal Bed Methane
Between 2005 and 2010 11 bn boe of non-proved resources are expected to be
Totals in billion boe moved to proved reserves Proved UK SORP, non-proved BP data The ultimate prize
200 bn boe oil bn boe and gas initially Produced in place 38 Proved
Non-Proved 18
Currently unrecoverable hydrocarbon
41
Does not include exploration potential Summary
• New Profit Centres have arrived
− Major Projects underpin production growth through the end of the decade and beyond
• Power of incumbent positions
− Technology to unlock the resource base Building a New Profit Centre: Azerbaijan Andy Inglis Deputy Chief Executive, Exploration & Production Building a new profit centre: Azerbaijan
• Resource base
• Technology
• Project delivery
• Statecraft and diplomacy
• Sustainability through mutuality Resource base: Azerbaijan
ACG and Shah bn boe 0.4 Deniz Gross Produced Resource 6.1 Sanctioned
Non-Proved
Currently unrecoverable hydrocarbon
7.6
Source: BP data Technology
Reserves pull-through
Maximising revenue
Capital efficiency Project delivery
Azerbaijan Central Azeri - 2004 West Azeri - 2005 East Azeri – 2006 ACG3 - 2008 Angola G. Plutonio - 2007 Bk31 North – 2010+ Bk31 Central – 2010+ Bk31 South – 2010+ Bk18 West – 2010+ Trinidad Cannonball – 2006 Red Mango – 2007 Cashima – 2008 Chachalaca -2009 Egypt
Train 1 Supply 2008 Train 2 Supply – Ph1 2010+ Train 2 Supply – Ph2 2010+ GoM Dorado 2008 Horn Mountain Mad Dog SW Ridge Atlantis North Flank NW 2008 2009 2010+ Statecraft and diplomacy Sustainability through mutuality
Workforce capability
Local content
Capacity building Overview of Azerbaijan and BP’s presence Rashid Javanshir Vice President, Onshore Operations Geography
UKRAINE KAZAKHSTAN M O L DO V A RUSSIA Odessa
Constanta Black Sea Novorossiysk BULGARIA Caspian Sea us or ph Supsa os T B GEORGIA U
R
K Istanbul Baku ME
A N
R I
M S E N T
IA AZERBAIJAN A
N TURKEY
Ceyhan IRAN
IRAQ
Mediterranean Sea SYRIA 150 years of oil production
Further Developments 1400 ACG 2010 (1200 mmb/d)
1200 Phase 3 online 2008
1000 Today D WG
800
Azeri online 2005 600 Historical peak 1941 (475 mmstb/d) Chirag online 1997 Oil rate (mbd)
400 Azeri
200 Chirag Future decline for other fields assumed 3% annual 0 1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Azerbaijan’s oil history
Oil wells in the vicinity of Baku pumping oil into reservoir lakes in 1880s. The Nobel Brothers' oil wells in Photo: Azerbaijan National Archives. Balakhani, a suburb of Baku.
View of Oil Rocks c. 1950s 2006 Central Azeri platforms BP Azerbaijan assets
Novorossiysk Russia Kazakhstan
Black Sea NREPNREP PipelinePipeline
Caspian Sea Georgia WREP Tbilisi WREP PipelinePipeline Supsa SangachalSangachal Turkmenistan TerminalTerminal ACG BTCBTC ACG OilOil ProductionProduction PipelinePipeline OilOil South South Baku && DevelopmentDevelopment CaucasusCaucasus PipelinePipeline GasGas Azerbaijan Erzurum Turkey InamInam ShahShah DenizDeniz ExplorationExploration GasGas DevelopmentDevelopment
Ceyhan AlovAlov . Exploration ed Exploration M a Se Syria 0 100 200 300 km Iraq Iran BP Azerbaijan assets
• Total gross investment of $25bn, with over $21bn spend to date • Peak production of over 1 million barrels per day and 840 mmcfd (8.7 bcma) gas from existing projects • Sangachal - the largest terminal outside of the Middle East (3 million barrels of storage) • BTC – One of the world’s longest pipelines at 1768km • Combined design capacity of Central, West and East Azeri platforms: − 1.1 million barrels / day oil − 1.2 billion cubic feet / day gas Resources and Renewal
Paul Clyne Vice President, Renewal Resource base: Azerbaijan
Gross oil / gas resource potential 9 8
7 3.1 Non-proved 6 5 Sanctioned (incl. produced)
4 Exploration (risked) 4.5 3 5.4 2 2.2
Resource potential Bn boe Resource potential 1 1.1 0 ACG SD Exploration
Source: BP data (based on existing PSCs only) BP Azerbaijan net resource progression 2001 - 2005 Additions Current PSC appraisal and exploration 1.9 Start ‘01 End ‘05 resources resources
1.3 Non-proved 2.0 1.2
0.2 Proved 1.3
1.5 3.3 0.1 Produced
*Totals in bn boe End ‘05 position based on UK SORP, non-proved BP data Future potential
1,800 Potential gross oil + condensate production 1,600 1,400 1,200 1,000 800 PSC base 600 production 400 Oil & condensate production (mbd) 200 0 Further 2006 2009 2012 2015 2018 2021 2024 2027 2030 develop existing PSCs 9 Potential gross gas production 8 Further 7 exploration 6 & access 5 4 3 2
Gas production (bcfd) 1 0 2006 2009 2012 2015 2018 2021 2024 2027 2030 Forward projections: BP data Major Projects Delivery (Offshore)
Bruce Luberski, Vice President, Major Projects Mike Skitmore, Vice President, Shah Deniz ACG field
ACG sanctioned resource 5.4 bn bbl Peak production gross 1.2 mmbd Capital cost gross $17 bn BP working interest 34.1%
ACG gross production 1400
1200
1000
800 mbd 600 Deepwater Gunashli Azeri 400
200 Chirag 0 2005 2008 2011 2014 2017 2020 2023 Forward projections: BP data BP Azerbaijan vision
End 2004 End 2006 The Future Sangachal Sangachal Sangachal East Azeri
Chirag West East Azeri Azeri Central 2006 ACG Phase 3 Chirag l 2008 Chirag Azeri & West Central C&WP Azeri Azeri Shah Deniz 1 Shah Deniz 2
Shah Deniz 1 GROWTH Capital GROWTH Capital Spend 2004: Spend 2006: Inam Alov $12m/ day $13m/day
Offshore: Chirag Chirag, CA/CWP, WA, SD,EA 8+ operating platforms + Projects People: 4000 BP staff + agency >2000 BP staff 3000 BP staff + agency Infrastructure: • 4 export pipelines • 4 export pipelines • 2 export pipelines • Expanded Sangachal Terminal • One of the biggest terminals in • Sangachal EOP Terminal the world Production: • 500 mbd • 1 mmbd in 2009 130 mbd • Shah Deniz ramping up • 840 mmcfd in 2009 Project schedule
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
ACG PSC First Oil Early Oil Project First Oil C&WP Start-up Central Azeri & C&WP First Oil WA First Oil EA West & East Azeri First Oil WA First Oil ACG Phase 3 (DWG) Ceyhan Lifting BTC
Shah Deniz PSC First Gas to Turkey Shah Deniz 1
Appraise Select Define Execute PSC signed / Sanction Operation ACG early oil project (Chirag)
Chirag platform Sanctioned 1994
First oil Nov 1997
Sangachal EOP terminal
2005 production – exported 140 mbd gross
2005 Lifting and transportation cost ~$1.60/bbl
Total investment ~$2.2bn ACG full field development
Sangachal Terminal
Deepwater Chirag West Azeri Central East Azeri Gunashli EOP Phase 2 Azeri Phase 3 Phase 1 Phase 2 2008 Nov 1997 Dec 2005 Mar 2005 4Q 2006
• 90,000 te topsides • One of world’s largest terminals • 80% of man-hours in Azerbaijan • 90,000 te jackets • 7 years of execute • 20% across another 10 countries • 1000 km offshore pipelines • 100 million man-hours to date • New Workforce - 8000 Azerbaijani • Over 3 million man-hours/month Sangachal history
2000
Early Oil Project Sangachal history
2005
Early Oil Project
Shah Deniz Projects production line
Production facilities engineering costs Build duration
CA 30 (41) WA 29 (32) 28
C EA 27 CWP lo CA ne (15) Months (21) 26 WA 25 Direct manhours/te Direct EA Shah Deniz Stage 1 development Shah Deniz Stage 1 development
Sanctioned resource (Stage 1) 6.5 tcf (185 bcm) of gas 300 mmbbl of condensate Stage 1 peak production 840 mmcfd (8.7 bcma) Capex (upstream & midstream) $4bn Working interest 25.5%
Shah Deniz Stage 1 gross gas sales 900
800
700
600
500 Turkey SPA Stage 1 Decline Sales 400 mmcfd BTC SPA 300
200 Georgia SPA 100 Azerbaijan SPA 0 2006 2009 2012 2015 2018 2021 2024 2027 2030
Forward projections: BP data Shah Deniz
Offshore pipeline – beach pull TPG500 installation
Sangachal Terminal on track Progress on SDX-04 appraisal Statecraft and Diplomacy: The Story of BTC Michael Townshend Former Vice President, Onshore Operations & Projects Regional context
M Ukraine Kazakhstan o ldo v a Russia Odessa
Constanta Black Sea Novorossiysk Bulgaria Caspian Sea s ru pho Supsa Ge s or Tur ` Bo gia
k
m Istanbul A r e m Baku n e i n Azerbaijan st i a a
Turkey n
Ceyhan Iran Iraq Mediterranean Sea Syria The politics of welding
Golden Weld Azerbaijan /Georgia – Oct 04 1st Oil Azerbaijan – May 05
1st Oil Georgia – Oct 05 Golden Weld Azerbaijan /Georgia – Oct 04 Social Environmental Project financing and NGO scrutiny
Why external financing: • Ensured pipeline built to international standards • Provided political risk cover
Impacts of external financing: • Higher levels of NGO scrutiny • Significant media coverage • High standards set and audited by lenders Scope and scale of BTC and SCP
BTC SCP Security and Integrity Unexploded ordinance on right of way Mud volcano ridge Digging for the pipe & block valve station Going down deep River crossing Ridgeline construction – Turkey (and China) Rock removal Trench breakers and broken bones Steep slope Moving down Nearly there… The end in sight The end in sight Value through Technology
Fereidoun Abbassian Technical Director Technology in support of business delivery
Reserves pull-through
Maximising revenue
Capital efficiency Technology in support of business delivery
Reservoir Wells
Inte grated
Onshore terminal & m Offshore production Syste export facilities Technology delivery track record
Open hole gravel pack 3D seismic Drilling simulator
Central Azeri Extended reach drilling 2000 -6000m West Azeri Platform Platform
Chirag 1 Platform ~ Well Profiles
0 Well Trajectories
500 Conventional Well ERD Well 3500m
1,000 Conventional Well (Drilled)
1,500 Conventional Well (Planned)
ERD Well (Drilled) 2,000 ERD Well (Planned) ( m ) 2,500 BRT 3,000 Azeri reservoir structure TVD 3,500
A09 4,000 A06y A11 A09z A16 T3 A06 A14z A19 (plan) 0 500A03 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 A02 A10 A18 A05 A07 A08 A15z A12 A13 A20 (plan) 200-600 m
A04 A12x
A17 T2
Equivalent Departure (m) ACG early visualisation Project production Line Remote condition No drilling surprises monitoring
1995 1998 2000 2002 2004 2006 Strategic technologies
Advanced seismic Intelligent completions
Water ’’
Technology drivers
Pereriv A • Reservoir management Pereriv B Pereriv C
Pereriv D • New well delivery Pereriv E
Zonal flow monitoring Field of the Future™ • D&C performance
• Operating efficiency ACE
Zone ‘A’ Flow
Zone ‘B’ Flow
Zone ‘C’ Flow Advanced seismic
Aim Ocean bottom cable 4D seismic • Monitor fluid movements in the reservoir
BP’s position • Technology leadership area • Industry leader in 4-D life-of-field monitoring Azeri reservoir management
CARSP: Phase 1 Gas Cap Depletion simulation for the Central Azeri
Deep Water Oil Gunashli Water Gas Water Oil
Chirag Azeri Intelligent completions
Down hole flow control valve Water Aim ’’ • Increased production with fewer wells
BP’s position • Azerbaijan is leading BP
and the Industry Expandable screen Pereriv A
Pereriv B
Pereriv C
Pereriv D
Pereriv E Increased production on Azeri
Water Oil 60,000 30,000 barrels per barrels per day production of oil day injection of water Gas Expandable Sand Screen
Oil
BP's Top 10 Oil Producers 50,000 (ACG shown in red)
40,000 Water 30,000
20,000 Rate (bopd) Rate
10,000
0 Kapok Kapok Kapok KA08B01 KA04B03 KA10B01 Azeri B09 Azeri B06 Azeri B10 Azeri B11 Azeri B07 Chirag A19 Azeri B05st1 Zonal flow monitoring
Real-time temperature data Fibre-optic sensor Aim from Central Azeri well B04 technology Time • Real time monitoring of reservoir flow
BP’s position Zone ‘A’ flow
D
e
p
t • World leader in h development and Zone ‘B’ flow implementation of
technology Zone ‘C’ flow
Temp erature Field of the Future TM
Wells Offshore production facilities
Cross Monitoring discipline real time collaboration data Advanced Collaboration Environment Integration
Reservoirs Onshore terminals & Decision Analysis/ exports making/people modeling BP’s Distinctive Caspian Presence
Rashid Javanshir Vice President, Onshore Operations Workforce capability
Professional Roles 2500
2000
1500
1000
500
0 2006 2007 2008 2009 2010 National Expats
Forward projections: BP data Local content
Local content development $m 2000 1800 1600 1400 1200 1000 800 600 400 200 0 2003 2004 2005 2006 2007 2008 2009 2010 Local sustainable spend Other spend
(excluding projects) Capacity building Commercial Structure & Financial Performance Phil Home Commercial Director PSC terms – General principles
Duration Accounting & Fiscal • Exploration phase normally three years • Accounting is in US Dollars with 2-3 well commitment • Azerbaijan profits tax rate is fixed for • 25 year development phase with a five duration of PSCs year negotiable extension • No customs duty & VAT paid by FOCs Costs and contractors • FOCs (Foreign Oil Companies) pay all • PSCs contain Economic Stability clauses costs, recovered as “cost oil” Standards • Financing cost charged on unrecovered • PSCs apply international standards Capex & Opex balances carried forward • Environmental and Social Impact (e.g. @ LIBOR+4% in ACG PSC) Assessments required for all projects Production • “Profit oil” is shared between FOCs and Azerbaijan State according to profit sharing mechanism [based on either RROR (Real rate of return) or R-factor] • Unutilised associated gas is delivered at no cost to the State Example: ACG PSC mechanism
Profit Oil Shares Total Production X Net Back Contractor's RROR Government Contractor Price Share (%) Share (%) RROR < 16.75 % 30 70 16.75 % ≤ RROR < 22.75 % 55 45 RROR ≥ 22.75 % 80 20 OPEX Recovery 100%
Profit Oil Capex Recovery (up to 50%)
@ LIBOR+4% Profit Oil Sharing Mechanism
Contractor Profit Oil
Az. State Profit Oil
Azerbaijan Government share of revenue 10% SOCAR Equity Share Contractor share of & 25% Profits Tax revenue Indicative price sensitivity: ACG
Gross production @ $25/bbl Gross production @ $60/bbl
FOC Profit Oil Share FOC Profit Oil Share 1400 80% 1400 80%
70% 70% 1200 1200
60% 60% 1000 1000
50% 50% 800 800
40% 40% mbd mbd Az Govt Az Govt 600 Profit Oil 600 Profit Oil 30% 30%
400 FOC Profit Oil 400 20% 20% FOC Profit Oil FOC Profit Oil 200 200 Cost Oil 10% Cost Oil 10% FOC Profit Oil Cost Oil Cost Oil 0 0% 0 0% 1998 2001 2004 2007 2010 2013 2016 2019 2022 1998 2001 2004 2007 2010 2013 2016 2019 2022
Source: BP data – indicative data based on current assumptions (currently sanctioned projects only) ACG PSC: Impact of higher oil prices Lower production and reserve entitlement but much higher returns and NPV
BP net ACG reserves and BP net ACG NPV and IRR entitlement factor 1400 90
1200 80
1000 70
800 60 IRR
600 50 NPV (indexed) Entitlement Factor (%) Factor Entitlement Reserves (mmbbl)
400 40
200 30
0 20 $25/bbl $40/bbl $60/bbl $75/bbl $25/bbl $40/bbl $60/bbl $75/bbl Oil Price (Dated Brent) Oil Price (Dated Brent) Reserves Entitlement Factor Net Present Value Internal Rate of Return
Source: BP data – indicative data based on current assumptions for life of field; currently sanctioned projects only BP Azerbaijan net production
BP net production 500
400
300
mboed 200
100
0
2005 2006 2007 2008 2009 2010
@ $40/bbl @ $60/bbl
Production profiles include sanctioned developments only: Chirag, Central Azeri, West Azeri, East Azeri, Deep-Water Gunashli (DWG) and DWG East manifold in ACG, and Shah Deniz Stage 1
Forward projections: BP data BP Azerbaijan high margin barrels
2006 Barrel @ $70/bbl dated Brent (BP net basis)
Average Realisation $65.9/boe
Net income $35.1
Cash costs Tax $13.7 $1.0 Lifting costs Non-cash costs M&T costs $9.5 $4.9 Cash costs Other cash $7.6 $1.7 costs