BP (BP)

UNITED STATES

UNITED STATES

UNITED STATES

United States

        2004 liquids production at 666 thousand barrels per day (mb/d) decreased 8% from 2003, while natural gas production at 2,749 million cubic feet per day (mmcf/d) decreased 12% compared with 2003.

        On September 15, 2004, Hurricane Ivan passed directly over the eastern portion of the Gulf of Mexico requiring the shut-in of all BP's floating facilities in the area. These conditions resulted in damage to operated and non-operated assets in both our upstream and midstream activitites. Repairs have been completed.

        Crude oil production decreased 60 mb/d, with production from new projects being offset by the impact of Hurricane Ivan and natural reservoir decline. The decline in the NGLs component of liquids production (12 mb/d) was primarily caused by divestments. Gas production was lower (379 mmcf/d) because of Hurricane Ivan, divestments, natural reservoir decline and investment choices.

        Development expenditure in the USA (excluding midstream) during 2004 was $3,248 million, compared with $3,474 million in 2003 and $3,607 million in 2002. This reflects our continued focus on investing in the best opportunities and optimizing operating efficiency.

        Our activities within the United States take place in four main areas. Significant events during 2004 within each of these are indicated below.

Deepwater Gulf of Mexico

        Deepwater Gulf of Mexico is one of our new profit centres and our largest area of growth in the United States. In 2004, our deepwater Gulf of Mexico crude oil production was 182.3 mb/d and gas production was 489 mmcf/d. On November 28, the profit centre achieved a record production rate of 360 mboe/d.

        Significant events included:

—

Production from the Holstein field (BP 50% and operator) commenced in December. The Holstein development consists of a moored floating platform, equipped with facilities for simultaneous production and drilling operations.



—

Installation of the Mad Dog platform was completed in 2004. Production from the Mad Dog field (BP 60.5% and operator) commenced in January 2005. The platform is equipped with facilities for simultaneous production and drilling operations.



—

Na Kika's first oil was produced November 26, 2003 with the ramp up continuing into early 2004 and completed ahead of schedule.

        Development of two major projects continued in the Gulf of Mexico during 2004 — Thunder Horse (BP 75% and operator) is scheduled to commence production in 2005 with Atlantis (BP 56% and operator) following in 2006. Along with Holstein and Mad Dog, these projects will be the major contributor to the anticipated growth in production over the next several years.

        In 2004, BP divested its interest in the Swordfish Development and completed the sale of approximately one half of its interest in the Troika asset.

Gulf of Mexico Shelf

        The Shelf is a mature basin, with decline rates that average 40-50% per year. In accordance with our strategy, in the third quarter of 2004, we continued to increase the quality of our portfolio by completing the disposal of the Vermilion 14, Eugene Island 240, Main Pass 264 and South Pass 60 properties. These fields accounted for approximately 42 mmcf/d. Our gas production from Gulf of Mexico Shelf operations was 240 mmcf/d in 2004, down 36% compared to 2003. Liquids production was

33

24 mb/d, down 38% compared to 2003. The year-on-year drop in production was the result of the divestment programme, normal decline, the effects of Hurricane Ivan and reduced capital spending.

Lower 48 States

        In the Lower 48 States (Onshore), our 2004 natural gas production was 1,942 mmcf/d, which was down 8% compared to 2003. Liquids production was 142 mb/d, down 11% compared to 2003. The year-on-year decrease in production is attributed to normal decline. In 2004, we drilled approximately 400 wells as operator and continued to maintain a level programme of drilling activity throughout the year.

        Production is derived primarily from two main areas:

—

In the Western Basins (Colorado, New Mexico, and Wyoming) our assets produced 221 mboe/d in 2004.



—

In the Gulf Coast and Mid-Continental basins (Kansas, Louisiana, Oklahoma and Texas) our assets produced 190 mboe/d in 2004.

        Significant events included:

—

Acquisition of Kerr McGee's interests in the Arkoma Red Oak and Williburton fields in exchange for the Gulf of Mexico Deep Water Blindfaith prospect. The deal closed on February 1, 2005.



—

Wyoming Oil & Gas commission approval of our application for field-wide 10-acre spacing in the Jonah field, allowing for approximately 500 potential locations, and 80-acre spacing in the Wamsutter field, allowing for approximately 3,000 potential locations. The increased density of drilling locations allows an acceleration of production.

Alaska

        In Alaska, BP net crude oil production in 2004 was 295 mb/d, a decrease of 5% from 2003, due principally to mature field decline partially offset by increases in Northstar production and development of satellite fields around Prudhoe Bay and Kuparuk.

        Key activities in Alaska:

—

Maximizing productivity through active reservoir management of the fields we operate remains an essential part of the Alaska business. In 2004, BP operated drilling activity across the North Slope totalling 7.7 rig-years. Prudhoe Bay, and the associated satellite fields (BP 26.4% and operator) maintained an active infill and new well drilling programme with 91 wells in 2004, which generated net production of 6.8 mboe/d. At the Milne Point Unit, 20 wells were drilled with 19 miles of horizontal hole achieving 29% lower non-productive time than the previous year while increasing net production by 4 mboe/d. The Northstar Unit drilled three wells in 2004, including an Extended Reach Drilling well that achieved 20,207 feet, a North Slope record. The Endicott Unit drilled three Coiled Tubing sidetrack wells that generated net production of 0.6 mboe/d.



—

Developing viscous oil is a key piece of the Alaska strategy. Viscous production is being developed in large part through the application of horizontal multilateral wells. In 2004, BP completed the first ever quadri-lateral well in Alaska and launched the first penta-lateral well in Alaska, completing it in early 2005. In pursuance of our strategy we intend to review facility capacity and potential acceleration of development.



—

Negotiations on the Gas Pipeline fiscal contract with the State of Alaska are continuing. BP, along with partners ExxonMobil and ConocoPhillips, recently provided the State Administration with a comprehensive fiscal contract proposal that would establish a clear and predictable fiscal regime in Alaska.

34

—

The State of Alaska decided on January 12, 2005 to aggregate six of the satellite fields around Prudhoe Bay with the Prudhoe Bay field for the purposes of calculating production taxes. The State estimated that the impact for 2005 will be around $150 million in higher production taxes for the five owners (BP equity 26.4%). BP filed an appeal against this decision on March 11, 2005.



—

In 2003, the Alaska Oil and Gas Conservation Commission proposed an enforcement action and a penalty in excess of $2.5 million in regard to the August 2002 A-22 well explosion. BP contested the penalty and in 2004 the Commission reduced the penalty to $1.3 million and in addition allowed a credit for the $549,000 which BP Exploration Alaska (BPXA) had expended subsequent to the incident on a pilot programme to determine the feasibility of remote monitoring of outer annulus pressures. Thus, the net penalty will be approximately $717,000. Although we strongly believe no violation of law occurred, BPXA and its Prudhoe Bay Unit Working Interest Owners have agreed not to contest the adjusted penalty.

United States

        2004 liquids production at 666 thousand barrels per day (mb/d) decreased 8% from 2003, while natural gas production at 2,749 million cubic feet per day (mmcf/d) decreased 12% compared with 2003.

        On September 15, 2004, Hurricane Ivan passed directly over the eastern portion of the Gulf of Mexico requiring the shut-in of all BP's floating facilities in the area. These conditions resulted in damage to operated and non-operated assets in both our upstream and midstream activitites. Repairs have been completed.

        Crude oil production decreased 60 mb/d, with production from new projects being offset by the impact of Hurricane Ivan and natural reservoir decline. The decline in the NGLs component of liquids production (12 mb/d) was primarily caused by divestments. Gas production was lower (379 mmcf/d) because of Hurricane Ivan, divestments, natural reservoir decline and investment choices.

        Development expenditure in the USA (excluding midstream) during 2004 was $3,248 million, compared with $3,474 million in 2003 and $3,607 million in 2002. This reflects our continued focus on investing in the best opportunities and optimizing operating efficiency.

        Our activities within the United States take place in four main areas. Significant events during 2004 within each of these are indicated below.

Deepwater Gulf of Mexico

        Deepwater Gulf of Mexico is one of our new profit centres and our largest area of growth in the United States. In 2004, our deepwater Gulf of Mexico crude oil production was 182.3 mb/d and gas production was 489 mmcf/d. On November 28, the profit centre achieved a record production rate of 360 mboe/d.

        Significant events included:

—

Production from the Holstein field (BP 50% and operator) commenced in December. The Holstein development consists of a moored floating platform, equipped with facilities for simultaneous production and drilling operations.



—

Installation of the Mad Dog platform was completed in 2004. Production from the Mad Dog field (BP 60.5% and operator) commenced in January 2005. The platform is equipped with facilities for simultaneous production and drilling operations.



—

Na Kika's first oil was produced November 26, 2003 with the ramp up continuing into early 2004 and completed ahead of schedule.

        Development of two major projects continued in the Gulf of Mexico during 2004 — Thunder Horse (BP 75% and operator) is scheduled to commence production in 2005 with Atlantis (BP 56% and operator) following in 2006. Along with Holstein and Mad Dog, these projects will be the major contributor to the anticipated growth in production over the next several years.

        In 2004, BP divested its interest in the Swordfish Development and completed the sale of approximately one half of its interest in the Troika asset.

Gulf of Mexico Shelf

        The Shelf is a mature basin, with decline rates that average 40-50% per year. In accordance with our strategy, in the third quarter of 2004, we continued to increase the quality of our portfolio by completing the disposal of the Vermilion 14, Eugene Island 240, Main Pass 264 and South Pass 60 properties. These fields accounted for approximately 42 mmcf/d. Our gas production from Gulf of Mexico Shelf operations was 240 mmcf/d in 2004, down 36% compared to 2003. Liquids production was

32

24 mb/d, down 38% compared to 2003. The year-on-year drop in production was the result of the divestment programme, normal decline, the effects of Hurricane Ivan and reduced capital spending.

Lower 48 States

        In the Lower 48 States (Onshore), our 2004 natural gas production was 1,942 mmcf/d, which was down 8% compared to 2003. Liquids production was 142 mb/d, down 11% compared to 2003. The year-on-year decrease in production is attributed to normal decline. In 2004, we drilled approximately 400 wells as operator and continued to maintain a level programme of drilling activity throughout the year.

        Production is derived primarily from two main areas:

—

In the Western Basins (Colorado, New Mexico, and Wyoming) our assets produced 221 mboe/d in 2004.



—

In the Gulf Coast and Mid-Continental basins (Kansas, Louisiana, Oklahoma and Texas) our assets produced 190 mboe/d in 2004.

        Significant events included:

—

Acquisition of Kerr McGee's interests in the Arkoma Red Oak and Williburton fields in exchange for the Gulf of Mexico Deep Water Blindfaith prospect. The deal closed on February 1, 2005.



—

Wyoming Oil & Gas commission approval of our application for field-wide 10-acre spacing in the Jonah field, allowing for approximately 500 potential locations, and 80-acre spacing in the Wamsutter field, allowing for approximately 3,000 potential locations. The increased density of drilling locations allows an acceleration of production.

Alaska

        In Alaska, BP net crude oil production in 2004 was 295 mb/d, a decrease of 5% from 2003, due principally to mature field decline partially offset by increases in Northstar production and development of satellite fields around Prudhoe Bay and Kuparuk.

        Key activities in Alaska:

—

Maximizing productivity through active reservoir management of the fields we operate remains an essential part of the Alaska business. In 2004, BP operated drilling activity across the North Slope totalling 7.7 rig-years. Prudhoe Bay, and the associated satellite fields (BP 26.4% and operator) maintained an active infill and new well drilling programme with 91 wells in 2004, which generated net production of 6.8 mboe/d. At the Milne Point Unit, 20 wells were drilled with 19 miles of horizontal hole achieving 29% lower non-productive time than the previous year while increasing net production by 4 mboe/d. The Northstar Unit drilled three wells in 2004, including an Extended Reach Drilling well that achieved 20,207 feet, a North Slope record. The Endicott Unit drilled three Coiled Tubing sidetrack wells that generated net production of 0.6 mboe/d.



—

Developing viscous oil is a key piece of the Alaska strategy. Viscous production is being developed in large part through the application of horizontal multilateral wells. In 2004, BP completed the first ever quadri-lateral well in Alaska and launched the first penta-lateral well in Alaska, completing it in early 2005. In pursuance of our strategy we intend to review facility capacity and potential acceleration of development.



—

Negotiations on the Gas Pipeline fiscal contract with the State of Alaska are continuing. BP, along with partners ExxonMobil and ConocoPhillips, recently provided the State Administration with a comprehensive fiscal contract proposal that would establish a clear and predictable fiscal regime in Alaska.

33

—

The State of Alaska decided on January 12, 2005 to aggregate six of the satellite fields around Prudhoe Bay with the Prudhoe Bay field for the purposes of calculating production taxes. The State estimated that the impact for 2005 will be around $150 million in higher production taxes for the five owners (BP equity 26.4%). BP filed an appeal against this decision on March 11, 2005.



—

In 2003, the Alaska Oil and Gas Conservation Commission proposed an enforcement action and a penalty in excess of $2.5 million in regard to the August 2002 A-22 well explosion. BP contested the penalty and in 2004 the Commission reduced the penalty to $1.3 million and in addition allowed a credit for the $549,000 which BP Exploration Alaska (BPXA) had expended subsequent to the incident on a pilot programme to determine the feasibility of remote monitoring of outer annulus pressures. Thus, the net penalty will be approximately $717,000. Although we strongly believe no violation of law occurred, BPXA and its Prudhoe Bay Unit Working Interest Owners have agreed not to contest the adjusted penalty.