23rd November 2005

D Turner; BP North Sea Operations Manager

Subsea UK Breakfast Event :“The Importance of Being Subsea”

The Importance of Being Subsea

• CONTEXT – To paint the picture

− Supply/Demand and Planned Projections (UK)

− BP’s Subsea perspective N Sea and Global

• WHAT DOES THIS MEAN For SUBSEA

• THE BIG CHALLENGES

• THE OPPORTUNITIES

• PROGRESS WITHIN BP SO FAR

• SUMMARY

UK Energy Supply/Demand Profile

KEY POINTS

• Have been importing gas since 2003

• Large demand supply gap and getting bigger

GAS

UK Energy Supply/Demand Profile

KEY POINTS

• North Sea in decline

• Forecast demand exceeds supply 2009 onwards

OIL

Forecast

Three Ages of the North Sea

Sources: History – Wood Mackenzie; Future - BP Estimates

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Oil Gas

Giant Fields90’s Growth:

CRINE & Gas Market Liberalisation

Increasing Basin Maturity

*1985

*1990

*1995

Will the future really look like this

?

BP - The North Sea

But - by 2010 :

• subsea wellstock will increase by ~ 50%

• Between 2005 and 2010 subsea wells provide +1/3 of the reserve additions

• Build rate >10 subsea wells/year

• New Projects to provide 50% of 2010 NS production

• Subsea wells to provide 32% of new production

• Subsea Base % + new means that we expect to be a subsea production dominant region by 2010

…Subsea pretty important to BP’s North Sea…

• SafetySafety

• PeoplePeople

• Ops EfficiencyOps Efficiency

• HopperHopper

Production and Reserves

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2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

mb

oed

NP4PD

NP1-34.5 bn

4.2 bn Barrels

Cash Costs up to $1.5 bn p.a.Capex circa $1 bn p.a.

Sustain a Sustain a material, material,

high high quality quality

businessbusiness

The Subsea Business Now :• Mature subsea basin with little

historical standardisation

• Current infrastructure

− 128 Subsea Wells

− 3,000 Kms Pipelines + Umbilicals

• Mainly shallow-diveable, except West of Shetlands (DPU)

• 70% BP’s worldwide wellstock and + 50% subsea production

• Subsea wells currently provide ~20% BP’s North Sea NET production….

2010

& Subsea

SkarvHarding/DevenickNW HuttonSch CARPAlliginArundelNorth FarragonBruce Infill

2008SkarvHarding/DevenickValhall tie-inLoyal 5BFoin Panel 2Machar InfillSNS Infill

2009Skarv Phase 2SuilvenSch WARP

SkarvRhum InfillSch NWAD2Rhum 4th Well

Sch NWAD1Don DecommNW HuttonLoyal InfillFoin Panel 2Machar Infill

Sch NWAD1Tambar pipelineSch T20/T30Sch PumpingSch SECUFoinaven InfillYork tie-in

RhumMachar InfillFoinaven InfillSch T25FarragonMagnus Ext Proj

20112010200720062005SkarvHarding/DevenickNW HuttonSch CARPAlliginArundelNorth FarragonBruce Infill

2008SkarvHarding/DevenickValhall tie-inLoyal 5BFoin Panel 2Machar InfillSNS Infill

2009Skarv Phase 2SuilvenSch WARP

SkarvRhum InfillSch NWAD2Rhum 4th Well

Sch NWAD1Don DecommNW HuttonLoyal InfillFoin Panel 2Machar Infill

Sch NWAD1Tambar pipelineSch T20/T30Sch PumpingSch SECUFoinaven InfillYork tie-in

RhumMachar InfillFoinaven InfillSch T25FarragonMagnus Ext Proj

20112010200720062005

BP Subsea Projects For North Sea•A large complex technically challenging portfolio : Spend rate ave $350 m pa

•Large number of small projects•3x Major Projects

Farragon – today… Subsea Pumping – tomorrow..

Schiehallion SubseaSchiehallion SubseaPumping ProjectPumping Project

Manifold M1

FTA F2

Subsea Pumping Manifold (SPM)

Provisional Schedule

BP’s Global Perspective :Deepwater & Subsea 2004 - 2010

Angola

Trinidad

GoM

North Sea

Egypt

Caspian

Brazil Amazon

Black Sea

153 wells / 350mboed

5 Years

> 320 wells / 1,500mboed

Today

Production Growth: - ( >400metres)

•BP is opening out 4 new Subsea Provinces – GoM; Angola; Egypt and Azerbajahn

•We will double our subsea wellstock

•Majority of growth will come from DW; “Wet Tree” SUBSEA production systems tied back to surface will provide > 75%of that growth

•Subsea/Deepwater developments will represent ~ 35 % of BP’s production by 2010

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Wet: < 500 m Wet: 500 - 1500 m Wet: 1500 - 2500 m

Dry: 500 - 1500 m Dry: 1500 - 2500 m Dry: > 2500 m

BP Global Prod Growth in DW©2004 Quest Offshore Resources, Inc.

Global Subsea Forecast (US Dollars) Subsea Hardware Global Subsea Forecast (US Dollars) Subsea Hardware Subsea Hardware Supply (Subsea Hardware Supply (Trees, Manifolds, Controls & Wellheads)Trees, Manifolds, Controls & Wellheads)

Total 2004Total 2004--2009e = $13.9 Billion2009e = $13.9 Billion

$-

$500,000,000

$1,000,000,000

$1,500,000,000

$2,000,000,000

$2,500,000,000

$3,000,000,000

$3,500,000,000

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

TOTAL NORMALIZED

TOTAL BASE CASE

Global Industry Spend

Context : SummaryGLOBAL

− Large Demand increase (China/India) : IEA predicts that by 2015 Oil +15-20% & Gas +40%

− Supply & Demand precariously balanced – little/no spare capacity

− Price expected to stay high for medium term

UK

− Gas Importer already – increasing deficit; Oil Importer; 2009 onwards

− UKOOA/DTI by 2020 = 500 mboed BUT 1.5-2.0 possible - given the right conditions & response

− Produced 34 Bn BOE / Potential 20-28 Bn BOE’s remaining in UKCS – large % to go !

− UKCS Brownfields Challenge (PILOT) :

1. To implement actions which will increase the current rate at which reserves are developed over the next 10 years and beyond to help

realise the PILOT vision of 3mmboed by 2010

2. A vital UKCS is maintained as the UK is universally recognised as a world centre for the global business"

So what does this add up to for Subsea ?

Oil & Gas already has an existing high dependency + Dramatic demand Increase Expected :

− North Sea : 2004 – 38% of production from subsea wells

− Mature Basins : eg The North Sea is in graceful decline BUT read that as expansion for Subsea (Hungry Hubs : West of Shetland analogy)

− New Provinces : RoW is now opening up Deepwater Basins where Subsea is often the only means

• In Summary - A lot is expected of the Subsea business for the future…

There’s a lot to play for

AND “close to home” it sits at the centre of the N Sea Brownfield Challenge

Why can’t the subsea business parallel the PILOT (Brownfields) Challenge and be recognised from the UK as the

Subsea Centre of Expertise – globally.?

The Big Challenges on the Subsea BusinessBUT – there are some serious structural issues to urgently fix : :

1. People : Chronic Skills shortages

− A real risk to DELIVERY.

− Industry has to fix how to bring in a new supply of Subsea Engineers..

− How do we make subsea industry look to be more attractive ???

2. Effective long range forecasting of demand to get the longer lead decisions onto a more strategic footing :

3. Greater levels of Industry Collaboration – particularly x-Operators

4. Technology into delivery faster – Project sanction windows too short

5. Reliability a large untapped prize in the subsea world

6. How to lift the awareness of the importance of Subsea….

There has been a steady HIDDEN increase of dependency within O&G

And Operations and Maintenance still remains the “Blind Spot” on demand

A Question and an Observation

Is Subsea uniquely different to any other part of the O&G business ?

or is it more that these Challenges are the growing pains of a maturing part of the industry ?

For the 100% subsea suppliers – probably a surprise question

• For Oil & Gas operators – subsea now firmly connects to the bottom line – or soon will..!

− Management structures & processes still being developed : significance only just becoming recognised

The root cause of many of the industry difficulties

The Opportunities Ahead for Subsea

• Create a Centre of Excellence in Subsea based here in the North Sea

− A quality place, world’s largest subsea infrastructure, great track record of delivery

− Provided 3 decades of solutions to problems

− Politically stable and it’s on our back-door

− Big Infrastructure to test new Technology developments at minimal risk

− Recruitment of People much easier than RoW

− Safety – pushing boundaries further

• We now an have access points to the whole Subsea supply chain via Subsea UK. It is the key, to more strategic leadership, with increased levels of support. We must use it effectively. We are not at present.

Progress in BP

• Concluded an internal review of the status of Subsea within the wider E&P Segment business (SURF)

• Have created a global Function with the role of Head of Subsea

• Considering a package of measures to strengthen the subsea resource base

• Re-structured the North Sea organisation – to give greater strategic capability

• Are actively working the creation of a Centre of Excellence based on the North Sea business AND capable of giving direction and support to new developing regions

SUMMARY – The Importance of Being Subsea

This will be…the future for new

developments..The question is

how quickly can we get there ??

“Deepwater and Subsea Excellence

is a Journey and we are about to enter the most Challenging

Phase.!”

• Subsea is critical to our future - there’s probably never been a better time to be in Subsea

• There is a compelling business opportunity for each subsea member

• There are some challenges to fix but in the N Sea O&G there exists an enabling strategic leadership role via Subsea UK

• Need more help from other Operators to build and Shape the future, particularly the larger number of smaller operators

• Subsea has a unique opportunity to change the paradygm within Oil &Gas

• There is no reason why we can’t build a “Silicon Glen” in the Subsea world right here on our doorstep

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