Azerbaijan Strategic Performance Unit

September 2009

Baku

Azerbaijan country context

Strengths:

• Promising future for the oil and gas sector • Strong adherence to PSAs• State Oil Fund accumulating oil revenues

• Area: 86,600 km2

• Population: 8.7 million (end 2008)

Oil history – famous Azerbaijan oil firsts:

• First oil well in the world was drilled (not dug by hand) in 1848 in Baku in Bibi Heybat oil field

• In 1900 Azerbaijan produced more than 50% of world’s oil = 11.4 million tons

• In 1897-1907 the 1st largest oil pipeline in the world was built from Baku to Batumi = 883 km x 200mm

• About 80% of oil production during World War II in the former USSR was made in Baku (peak production – 23.5 million tons in 1941)

• First offshore oil production in the world started in Azerbaijan (1924 – Bibi Heybat beach, 1947 – Oil Rocks - in the open sea)

Ceyhan

TURKEY

Ankara

Erzurum

Cyprus

Mediterranean Sea

Black Sea

Caspian SeaGEORGIA

AZERBAIJAN

Tbilisi

Baku

Russia

Ukraine

Armenia

Iran

Iraq

Syria

Lebanon

IsraelJordan

Greece

Bulgaria

Romania

Moldova Kazakhstan

Uzbekistan

TurkmenistanSangachal

Vale

BP Azerbaijan Interests

0 300 km200100

Caspian Sea

Turkey

Iran

IraqSyria

Russia

Georgia

Baku

Ceyhan

Erzurum

Kazakhstan

Black Sea

Tbilisi

Med.

Sea

Azerbaijan

Turkmenistan

ACG Oil Production & Development

Araz-Alov-Sharg Exploration

Shah Deniz Gas Production & Development

Sangachal TerminalSouth

Caucasus Pipeline Gas

WREP Pipeline Oil

BTC Pipeline Oil

Supsa

1998 - 2030 SD gross production

-50

100150200250300350400

1998 2002 2006 2010 2014 2018 2022 2026 2030

mb

oed

1998 - 2024 ACG Gross production

Chirag

Azeri

DWG

COP

0

400

800

1,200

1998 2001 2004 2007 2010 2013 2016 2019 2022

mbd

1998 - 2024 ACG Gross production

Chirag

Azeri

DWG

COP

0

400

800

1,200

1998 2001 2004 2007 2010 2013 2016 2019 2022

mbd

1998 - 2030 SD gross production

-50

100150200250300350400

1998 2002 2006 2010 2014 2018 2022 2026 2030

mb

oed

Stage 1

Stage 2

BP Operated Interests in Azerbaijan

Alov

SOCAR 40%

BP

15%

StatoilHydro

15%

ExxonMobil15%TPAO

10%

EnCana

5%

ACG

BP34.1%

Chevron

10.3%Inpex10.0%

SOCAR10.0%

StatoilHydro8.6%

ExxonMobil8.0%

TPAO6.7%

Devon Energy5.6%

Itochu3.9%

Hess2.7%

Shah Deniz

StatoilHydro

25.5%

BP

25.5%

SOCAR

10.0%

LUKOil

10.0%Total

10.0%

NICO

10.0%

TPAO

9.0%

BTC

30.1%

2.4%

25%

3.4%8.9%

2.5%

6.5%

5%

5%

2.5%

8.7%

BP

Chevron

SOCAR

StatoilHydro

TPAO

Itochu

Hess

Total

Inpex

Eni

ConocoPhillips

SCPC(technical operator)StatoilHydro

25.5%

BP

25.5%

SOCAR

10.0%

LUKOil

10.0%Total

10.0%

NICO

10.0%

TPAO

9.0%

Project Schedule

Appraise Select Define Execute PSA signed / Sanction CVP gate Operation

First Oil

First Oil WA

Ceyhan Lifting

First Oil C&WP Start-up

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

First Oil

ACG PSA

Early Oil Project

Central Azeri & C&WP

West & East Azeri

ACG Phase 3

BTC

Shah Deniz PSA

Shah Deniz St1

Shah Deniz St2

Chirag Oil Project

2009

First Oil EA

2010

First Gas to Turkey

2011 2012

Manpower

0

1 000

2 000

3 000

4 000

5 000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Agency

Expats

NationalsManpower

0

1,000

2,000

3,000

4,000

5,000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Agency

Expats

Nationals

Capex ($bn)

0

1

2

3

4

5

6

7

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

ACG

• Potential ultimate recovery > 5bn bbl gross

• Peak production ~1 mmbd gross

• Total capital cost >$20bn gross

• Latest 2009 production forecast 819 mbd

• Project start-up dates:– EOP

Nov 1997

– Central Azeri Feb 2005

– West Azeri Dec 2005

– Gas injection May 2006

– East Azeri Oct 2006

– Phase 3 (DWG) Apr 2008

– COP 3Q’2013

Deepwater Gunashli Phase 3

Chirag

EOP

Chirag

COP

West Azeri

Phase 2

Central Azeri

Phase 1

East Azeri

Phase 2

Sangachal Terminal

BTC, WREP, Rail

1998 - 2024 ACG Gross production

Chirag

Azeri

DWG

COP

0

400

800

1,200

1998 2001 2004 2007 2010 2013 2016 2019 2022

mbd

1998 - 2024 ACG Gross production

Chirag

Azeri

DWG

COP

0

400

800

1,200

1998 2001 2004 2007 2010 2013 2016 2019 2022

mbd

1998 - 2024 ACG Gross production

Chirag

Azeri

DWG

COP

0

400

800

1,200

1998 2001 2004 2007 2010 2013 2016 2019 2022

mbd

Shah Deniz

• Recoverable volumes (total)

~180 bcm of gas

~600 mmbbls of condensate• Stage 1 plateau gas production

8.6 bcma• Total capital cost

>$4bn• Latest 2009 gas production forecast

680 mmscfd• Latest 2009 condensate production forecast 41 mbd • Project start-up dates:

− TPG 500 platform installed

Apr 2006− First gas

Dec 2006− First gas to Georgia

Jan 2007− First gas to Turkey

Jul 2007

Georgia SPA

Azerbaijan SPA

Shah Deniz Stage 1 Gas Sales

0

1

2

3

4

5

6

7

8

9

2005 2010 2015 2020 2025 2030

bcma

BOTAS

Stage 1

Decline SalesBTC SPA

Georgia SPA

Azerbaijan SPA

BTC and SCP

BAKU

TBILISI

CEYHAN

Sangachal

Erzurum

TURKEY

GEORGIA

AZERBAIJAN

BLACK SEA

CASPIAN SEA

MEDITERRANEAN SEA

BAKU

TBILISI

CEYHAN

Sangachal

Erzurum

TURKEY

GEORGIA

AZERBAIJAN

BLACKSEA

CASPIANSEA

MEDITERRANEANSEA

South Caucasus Pipeline (SCP)Full capacity 20 bcma Length 690 km Diameter 42” Gross Capex $1.1bn First gas Jan 2007

Baku-Tbilisi-Ceyhan Pipeline (BTC)Full capacity (March, 2009) 1.2 mmbdLength 1768 kmDiameter 46/42/34” Gross Capex $3.9bnFirst tanker departed June 2006

3000m

2000m

1000m

Sea Level

1700 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 0

BTC Pipeline Route Profile (Distance in km)

AzerbaijanGeorgiaTurkey

Sangachal Terminal 1992Sangachal Terminal 2000Sangachal Terminal 2001Sangachal Terminal 2002Sangachal Terminal 2003Sangachal Terminal 2004

Sangachal Terminal - history

Sangachal Terminal 2005Sangachal Terminal 2007

Sangachal Terminal – present

• One of the largest terminals in the world

• Area 542 hectares

• Processing capacity

• oil 1.2 million bpd

• gas 1.25 bcf/day

• Storage capacity 3 million barrels

• Hosts the largest energy museum in the region – Caspian Energy Centre

ST - a strategic hub for the Caspian

BP Azerbaijan Overview

Baseline: 2004

The FuturePresent: 2009

People: 3000 BP staff +

agency

Infrastructure: • 2 export pipelines• Sangachal EOP

Terminal

Production:

130 mbd

4000 BP staff + agency

• 3 export pipelines and rail• Expanded Sangachal

terminal

• Over 900 mboed

>2000 BP staff

• 3 export pipelines and rail• One of the biggest terminals in the

world

• Oil and condensate peak ~1 mmbd• Gas peak > 2.3 bscf/day

GROWTH Capital Spend 2004: $12m/

day

GROWTH Capital Spend 2004: $12m/

day

GROWTH Capital Spend 2009: $6m/day

GROWTH Capital Spend 2009: $6m/day

Sangachal

Chirag

NREP, WREP

Shah Deniz Stage 1

Sangachal

Chirag

Central Azeri/CWP

BTC, SCP, WREP, Rail

EastAzer

i

West

Azeri

ACG Phase 3

GROWTH Capital Spend Future: $19m/day

GROWTH Capital Spend Future: $19m/day

ChiragCOP

Sangachal

ACG Phase

3

Central Azeri/CWP

EastAzer

i

West

Azeri

SD Stage

1SD

Stage 2

BTC, SCP WREP, Rail

ACG

Central Azeri & C&WPCentral Azeri & C&WP

Sangachal TerminalSangachal TerminalChiragChirag

DWG DUQ and PCWU sail away and installation

DWG, DUQ &PCWUDWG, DUQ &PCWU

Shah Deniz

TPG500 TPG500

Progress on SDX-05Progress on SDX-05 Sangachal Terminal – First GasSangachal Terminal – First Gas

SCPSCP

BTC

RoW ReinstatementRoW Reinstatement

The British Hawthorn tanker with first BTC cargo departing Ceyhan on 04 June 2006The British Hawthorn tanker with first BTC cargo departing Ceyhan on 04 June 2006

The official inauguration of BTCThe official inauguration of BTC

Georgia Pump StationGeorgia Pump Station

BP – a responsible operator

•Security and human rights

•Environmental responsibility

•Professional development of local staff

•Our role in society

•Revenue impact and management

•External stakeholder engagement

Optional slide

Security & human rights

• Working with communities

• Interacting with public security

• Grievance resolution

• External monitoring

Optional slide

Environmental responsibility

During ConstructionAfter

Optional slide

Professional development of local staff

• Caspian Technical Training Centre (CTTC)

• Educational assistance

• Special entrance and development program

• Career planning

83% of BP’s professionals in the Caspian are nationals

Azerbaijan Strategic Performance Unit has been led by national President since September 2009

Optional slide

• Community Investment Programme

• Environmental Investment Programme

• Educational initiatives

• Revenue transparency

• Local content

• Regional Development Initiative

Our role in societyOptional slide

Revenue impact and management

Capacity building

Reporting

Macro-econometric model and capacity building to SOFAZ (2006-2007)

Macroeconomic advisory and institution reform assistance to MoED (2008-2010)

Business environment enabling project with IFC (2009-2010)

EITI reporting continues

Azerbaijan Sustainability Report www.bp.com/caspian/2008sr

Procurement and Supply Chain Management

Communication and outreach

Sustainable Development Initiative • Provision of transparent sources of

finance • Provision of hands on training and

development for local companies (EDTP)

Local content strategyMaximize local content by:

• increasing the number of companies participating in contracts

• raising the value of locally-awarded contracts

• Enterprise Center (2002-2009)• Web portal• Best of Business Award• Link between SME and oil

companies

• In 2008 local, operations-only, single-year spend in Azerbaijan was over $1 billion • Focus on localizing specific sectors through PSCM• Formation of the Local Content Group

Optional slide

External stakeholder engagement

• Governments

• NGOs

• Communities

• Media

• Other interested parties

Optional slide

Azerbaijan Strategic Performance Unit