Iran Sanction Bill Exempts BP Project

By BENOIT FAUCON, ALESSANDRO TORELLO and ALEXIS FLYNN

British and European Union officials have convinced some U.S. lawmakers to ensure that any new sanctions against Iran exempt a BP PLC-led natural-gas project, as Western governments try to isolate Tehran without harming their own energy security.

The $20 billion project in the Caspian Sea off Azerbaijan is seen as key to alleviating Europe's dependence on Russia as its largest supplier of natural gas.

"There is broad-based consensus in the House and Senate that our sanctions policy should impose maximum economic pain on the Iranians without allowing Russia to hold Eastern Europe hostage for energy supplies," said a congressional aide familiar with the European lobbying effort.

Officials from the British Foreign Office, the EU and BP say they asked Capitol Hill lawmakers in December to ensure that new sanctions don't block the project, known as Shah Deniz II, because Iranian state-owned oil company Naftiran Intertrade Co. holds a 10% stake.

Naftiran is a Swiss-based subsidiary of state-owned National Iranian Oil Co. A Naftiran official declined to comment.

BP is operating the project. BP and Norway's Statoil ASA each hold a 25.5% stake, while the State Oil Co. of Azerbaijan, France's Total SA and Russia's Lukoil Holdings hold 10% stakes and Turkish Petroleum owns the remaining 9%.

The lobbying underscores a dilemma at the heart of the Western push to sanction Iran over its nuclear program: how to pressure with maximum efficiency without putting Europe's economy at risk.

The Shah Deniz II project could have been hit by a bill by Rep. Ileana Ros-Lehtinen (R., Fla.) that would ban any company doing business with Iran's oil and gas sector from operating in the U.S. But the current version of the legislation includes language that says it won't affect efforts "to bring gas from Azerbaijan to Europe and Turkey," or to achieve "energy security and independence from Russia."

The Ros-Lehtinen bill is now with the Senate's committee on foreign affairs. Ms. Ros-Lehtinen's foreign-affairs spokesman didn't respond to requests for comment.

EU and U.K. officials say they are closely monitoring other congressional proposals that could hit Shah Deniz II in 2012, a U.S. election year in which targeting Iran could score political points.

"It's a continuous story," said an EU official. The fact that there is now a proposed exemption "doesn't mean that [the issue] won't come back further down," he explained. "You never know—it's not a short-term matter."

Payment disputes in recent years between Moscow and Ukraine—a transit country for energy supplies to Western Europe—have highlighted the EU's exposure to Russia.

Shah Deniz II is intended to become the main supplier for a proposed pipeline to bring Central Asian natural gas to Europe, as the EU seeks alternatives to its dependence on Russia.

The EU and the U.S. are adopting new measures to isolate Iran and starve it of oil revenue, including a proposed European oil embargo and U.S. sanctions on Iran's central bank, which manages oil revenue.

The U.K. supports a policy that "balances the desire to put pressure on Iran over its nuclear program and makes sure it does not have an adverse impact on European economies," said a British Foreign Office spokesman, who confirmed the lobbying on behalf of BP.

The spokesman said it wasn't a contradiction to want an exemption for Shah Deniz II and seek stringent sanctions at the same time.

A BP spokesman said recent discussions on Shah Deniz II were part of the U.K.-based company's "routine engagement" with U.S. lawmakers. The company is in full compliance with applicable sanctions, including EU regulations and U.S. law, the spokesman said.

The U.K. lobbying push to protect Shah Deniz II came as Britain in November became the first major nation to cut all ties with Iranian banks.

The EU, while agreeing in principle to a ban on Iranian oil, is still debating how much time to give refiners to switch to other oil suppliers. Some countries fear higher prices could result from the embargo, putting additional pressure on their economies.

"It is very important that the European Union take into account the impact of the sanctions on various European economies," said Gregory Delavekouras, a spokesman for the Greek Foreign Ministry, which has been the most vocal advocate for a slower time frame to implement the embargo.

Agbami project Nigeria

Drilling and Completions

Drilling used to be hit or miss. Operators hammered cable tools into the earth, hoping to find oil or gas. But development of more sophisticated tools has enabled drillers to probe greater depths with more success in less time. Since the remaining hydrocarbons are more difficult to access, the search for oil and gas is constantly leading us into deeper waters and more remote terrain. Developing and using the most advanced technologies is critical for success.

Building the Giant Agbami Vessel

We built the world's largest floating production, storage and offloading vessel for use at the Agbami Field offshore Nigeria.

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Until the 1970s, rotary drilling was sufficient. Experts in the energy industry realized that the practice of drilling vertical wells was not tapping into the full potential of reservoirs. So horizontal drilling was developed, allowing access into areas of reservoirs that were previously unreachable, thereby increasing production. More recently, the same concept has been pushed further with great results: Directional and extended-reach drilling have allowed operators to access reservoirs far from the drilling location.

Completions technology also has evolved, securing wells in less time and with greater protection. Cased-hole completion is a practice that involves making small holes in the well casing and formation so that oil or gas can flow effectively into production tubing. Employing open-hole completions is another option: Sand screens and gravel packs are inserted into the reservoir to stabilize the hole and maintain the flow of oil from the reservoir into the well bore. This process controls the migration of sand to avoid washouts and other problems.

Next, acids and fracturing fluids can be pumped into the well under high pressure to fracture, clean and stimulate the rock to produce oil or gas. Finally, production tubing is added to provide an efficient path to the surface.

What Chevron Is Doing

Chevron's long-term exploration strategy—which blends disciplined, data-driven decision making with superior technical competency—is paying off. Since 2002, we have added an average of 1 billion oil-equivalent barrels per year to our resource base through our exploration program.

• Angola – The Benguela Belize–Lobito Tomboco production platform stands 1,680 feet (500 m) high and is one of the tallest structures in the world. It is the first compliant tower installed outside the Gulf of Mexico. The platform's state-of-the-art rig can drill wells in excess of 30,000 feet (9,144 m).
• Kazakhstan – Tengizchevroil's Sour Gas Injection/Second Generation Plant uses a unique combination of conventional and newly developed sour-gas injection technology to process crude with a very high sour gas–to-oil ratio. Sour gas is natural gas that contains chemical impurities, notably hydrogen sulfide. This project may pave the way to applying the technology more broadly within the Tengiz reservoir, with the potential to increase recoverable reserves.
• Nigeria – The Agbami deepwater project uses a floating production, storage and offloading vessel to produce oil in 4,800 feet (1,463 m) of water. The project's subsea wells, completed using intelligent well technology, are some of the most complex projects in the world.
• United States, Gulf of Mexico – The Perdido Development began production in March 2010. Tethered in nearly 8,000 feet (2,438 m) of water, Perdido is the world's deepest offshore oil and gas drilling and production spar and is 60 miles (97 km) beyond any existing developments in the Gulf.

Investing in New Finds

As of 2010, Chevron was one of the world's more active offshore operators. Key exploration areas are the Gulf of Mexico, the deep waters off western Africa and offshore northwestAustralia. Drilling and seismic activities occurred or are being planned in several test areas, including the North Atlantic Margin offshore the United Kingdom, the east coast of Canada and deepwater Brazil.

Our technology and expertise enable us to drill successfully, especially in deep water, and create significant savings through reduced drilling time.

Setting a New Standard for Drilling

Chevron has set a new standard for directional drilling with the AutoTrak® steerable rotary system. The system is controlled remotely by an aboveground operator who steers it by computer. The operator sends commands that direct the drilling operation and receives real-time log data about the oil-bearing rocks. This enables the drilling tool to be steered in even the most complex drilling environments.

Case in point: When the Captain Field was discovered in 1977, it was estimated to contain more than 200 million barrels of heavy crude oil. But despite its rich reserves, this U.K. North Sea field was deemed uneconomical to develop.

Fast-forward 20 years to 1997. With advancements in technology that made drilling long-reach horizontal wells an option, the first of three development phases for the Captain Field was launched. The initial production phase began that year.

Now in its third phase, the field's reservoirs have seen some notable "firsts" over the course of their development. Among these was a previously untested well design—a high dogleg directional well that turns and twists through a spaghetti junction of horizontal wells to reach its target: the previously inaccessible crude directly below the drilling platform.

In the summer of 2004, AutoTrak was used to drill and complete the first semihelical well—in and around 15 existing wells. The project demonstrated the tool's ability to precisely steer in a complex drilling environment with very little margin for error.

AutoTrak is just one example of how we are continuing to push our technology forward to safely find and produce oil and gas in remote, geologically complex areas.

Improving Operations

Even as we find and start to produce from new wells, we still work to find ways to improve production efficiency. In addition to preparing new oil and gas wells for production, drilling teams also revitalize existing wells. This process involves repairing or stimulating the well—such as replacing the tubing or deepening the well—to restore or enhance its production of oil or gas.

Updated: July 2011