ANNUAL REPORT The Draugen field that is operated by Norske Shell started production in 1991 and is operated from Kristiansund.

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1 ANNUAL REPORT 2008 BP Norge AS (BPN) is owned by BP Global Investments Ltd and Amoco Norway Oil Company. Both are part of the BP Group which itself is one of the largest integrated Oil & Gas Companies in the world. BPN carries out Exploration and Production of Oil and Gas on the Norwegian Continental Shelf and has been involved in Norway, through Norsk Brændselolje, since The Exploration and Production part of the business was established in 1965, through former Amoco Norway s application for blocks in the first licensing round on the Norwegian Continental Shelf. The Company's head office is in Stavanger. The Company participates in 13 licences and is the Operator of 10 of these. The currently producing fields that BPN operates; Valhall, Hod, Ula and Tambar. The Skarv field received development approval in 2007, and BPN is as Operator responsible for the development. In addition BPN holds an equity in the Draugen field operated by Norske Shell. The Valhall field started production in 1982 and is estimated to produce until The field has been developed with 5 centrally positioned platforms and 2 normally unmanned flank platforms positioned 6km to the north and south of the Central facilities. Due to seabed subsidence and the need to operate the field more efficiently it has been decided to redevelop the field and install an integrated processing and hotel platform which will receive power from shore through a power-cable from Lista. This will be the first field on the Norwegian shelf that will receive all power supplies from shore. The Hod field facilities consist of a normally unmanned platform located 13km south of Valhall and is being remotely operated from Valhall. The Ula field started production in 1986 and could produce to 2028 or beyond. After peak production in the early 1990 s and experiencing significant drop in production in the mid 1990 s the field has been revitalised through new technology and tie-in of production from other fields in the area. Tambar and Blane already process their hydrocarbons at Ula and it is expected that Oselvar will start to use Ula as the processing facility from The Tambar field facilities consist of a normally unmanned platform located 16km southwest of Ula and is being remotely operated from Ula. The Draugen field that is operated by Norske Shell started production in 1991 and is operated from Kristiansund. The Skarv field is being developed with a Floating, Production, Storage and Offloading (FPSO) ship. The FPSO contains the largest gas processing facilities on a ship in the world. The FPSO is being built in Korea and production from the field will start in 2 nd half of Page 1

2 Profit The petroleum revenues for 2008 totalled NOK 8,168 million. This is marginally lower than 2007 s NOK 8,217 million. The reduction is due to 22% lower total production in 2008, partially offset by higher prices (oil price up 28% on average). Other operating income was NOK 76 million. The operating profit amounted to NOK 5,563 million. Exclusive of other operating income, this was an increase of 37 million from Net financial items represent a loss of NOK 809 million, compared to a loss of NOK 71 million in The additional expenditure compared to 2007 is due to unrealised loss on currency positions in connection with major projects. The profit before tax is NOK 4,754 million, compared to NOK 5,456 million in The corresponding figures after tax are NOK 1,289 million and NOK 1,492 million. The balance sheet Assets increased from NOK 13,474 million in 2007 to NOK 15,501 million in This was due to significantly higher ongoing investment, not least on account of the Skarv development and the new field centre on Valhall. The investments were financed through loans from BP Group companies. The other balance sheet items show only minor changes due to normal operating conditions. At 2008 Year End equity was NOK 1,632 million, up from NOK 1,443 million one year earlier. Production In 2008, BPN had production from the following fields: Valhall (ownership interest 28.1%), Ula (ownership interest 80%), Hod (ownership interest 25%), Tambar (ownership interest 55%), Tambar East (ownership interest 46,2%) and Draugen (ownership interest 18.4%). BPN production share in 2008 was 46,200 barrels of oil equivalents a day (boed) compared to 55,600 in Production is declining on all the fields, but the main reductions are caused by shortfalls at Ula and Valhall. Compared to 2007, Ula production reduction is in excess of 30% (4,000 boed) down due to loss of pressure barriers in two key producers. Valhall is down 18% (3,700 boed) due to natural field decline and due to lack of pressure support (or separate gas lift) to lift the hydrocarbon column in high rate producers on the Valhall Flanks. Tambar, Draugen and Hod are all boed down from The Ula Drilling Platform refurbishment project will be complete in 1Q2009 and provide fully operational drilling facilities, fully compliant with the appropriate required standards. The plan is to return all 3 of Ula s Water Alternating Gas producers to production during 2009, making a significant contribution to Ula output. Investments BPN has invested NOK 4,193 million during This is the largest annual amount ever invested by BPN in Norway, and will increase further in The main Page 2

3 investments are linked to activity associated with the new field centre on Valhall, drilling on Valhall, development of Skarv and major modifications including rig upgrade at the Ula facilities. The Skarv project is progressing in line with agreed plans and was 41% complete by end of The main engineering is being done in Trondheim, Oslo and Monaco while construction is being carried out at several locations with Korea (Hull and Topsides) and Singapore (Turret) being the most significant. Rock dumping for pipeline route was carried out with rock from Sandnessjøen. Development of the new field centre on Valhall is progressing well and was 56% complete by end 2008 with engineering, based in Houston and Stavanger, almost being complete. Across many locations, major construction is underway with Topsides (Holland), Living Quarters (England) and Jacket (Norway) progressing well. A major milestone was reached at the Valhall Field in the summer of 2008 when the 5 out of the 9 new bridges were installed. The Power From Shore facilities at Lista where almost complete at the end of Due to the increased offshore preparation activity making the old facilities ready to interface with new, the hock up and commissioning of the new production and hotel platform, a floating accommodation unit was taken on charter in December The work has continued to develop a concept with a reduced scope to enhance the recovery from the flank platforms on Valhall. A decision whether to sanction this project, or not, will be made in Drilling operations on the water injection platform continued during 2008 and 3 wells were completed. The drilling efficiency improved significantly and the 3 wells were completed for approximately the cost of the original 2 that was planned. On Ula one started the work at upgrading the drilling rig and utilities at the drilling platform. This work has progressed very well and was slightly ahead of plan at end year. On the Ula and Tambar fields the hock-up and commissioning of the Tambar multiphase pump and Ula s new gas processing module were completed by end year. The Ula Gas Upgrade module is now in operation and works satisfactory while the reliability and efficiency of the Multiphase pump is still to be improved. The external environment BPN s environmental management is certified according to ISO BPN continue to receive good feedback on our environmental management in connection with the annual review but have also identified some activities to strengthen it even more. Discharges to sea Produced water is re-injected on Ula as well as Valhall. BPN has struggled somewhat with the injection capacity on Valhall and will need additional injection wells to be able to re-inject more of the produced water. Ula has suffered from poor water treatment performance in 2008 but is forecast to improve as more wells become available and allows for more normal operating and production conditions. As a result of the problems, the produced water quality on Ula did not meet the regulatory Page 3

4 requirements (avg. 30 mg/litre) in August and October The yearly average was 6.6 and 14 mg/litre for Valhall and Ula, respectively. Regarding use of chemicals, BP Norge continues to work systematically to reduce the use of harmful chemicals to a minimum and to replace these with other products. Between Valhall and Ula, 5 red chemicals were phased out in the course of 2008 and now only 7 such chemicals are left. Tambar and Hod, which are produced from Ula and Valhall respectively, have been included in the environmental figures for these fields. As regards accidental discharges, BPN had no discharge to sea in 2008 above the 1 barrel hurdle. However 5 discharges in the range 10-75l occurred and BPN has prepared a campaign to reduce such discharges in Emissions to air Emission of the greenhouse gases CO2 and methane remain relatively flat compared to 2007 and came in at 206 tonnes, below the target of 236 tonnes. There has been no accidental hydrocarbon emission greater than 0.1 kg/s to air in Safety As for 2007, BPN had a very good year with no incidents with a high potential for serious personal injury in BPN attribute these positive results to our continued focus on avoiding major accidents through the implementation of BP s Integrity Management (IM) and Control of Work standards. During 2008 the negative trend on minor injuries that BPN operations experienced in 2007 has been turn around. In 2008 BPN had no serious personnel injuries and the total number of minor injuries was reduced from 18 in 2007 to 5 in This represents a total recordable injury frequency (TRIF) of 3.1 accidents pr million offshore man hours, significantly below the industry average of around 8 as reported by OLF. Continued focus on HSE training, collaboration with main contractors and active use of safety tools, including the new Safety Observation Conversation (SOC) tool for leaders, are judged to be key success factors for this low injury frequency. Health and working environment In 2008, absence due to illness was 1.9% for the whole of BPN. The corresponding figure for 2007 was 2.1%. The company has had low sick-leave figures for a number of years, also compared to companies with similar activities. The company continued its dedicated work to improve the employee's health in 2008 and this year BPN offered lifestyle surveys to all our employees. BPN find these surveys very useful in picking up staff that are at risk from a health/lifestyle point of view as they allow early intervention and this reduces the chance for illnesses later on. BP in the Community The main focus areas for BPN in the community are education and competence development. For many years BPN has cooperated with the University in Oslo on Page 4

5 raising the awareness and interest in science subjects in particular mathematics. This work continues and through the one has developed one of the leading websites in Norway for children and teenagers between the ages of 6 and 18, their parents and teachers. BPN is giving financial support to employees social commitment, including support to our employees and retirees in activities beneficial to the local community. BPN also supports some fund raising campaigns with a matching amount to the gift of the employees; the annual fundraising campaign on TV is one such example. The social engagement was strengthened during 2008 in the Nordland County, through a variety of initiatives: Running several competence building seminars for local industry covering business, supply chain and safety issues. Over 3000 students in Helgeland have attended BPN educational briefings. Contracted The High North Center and Bodø Graduate School of Business to perform impact assessment of Skarv development in the Helgeland region Agreed to support two doctor scholarships one at Bodø Graduate School of Business and one at Narvik University College commencing spring 2009, Many computers given to local schools in Sandnessjøen region BPN opened office with permanent BP representative in Sandnessjøen BPN is the main sponsor of First Lego League in Sandnessjøen Signed Agreement of Cooperation between BPN and Nordland Fylkeskommune to enhance the impact of Skarv development in Nordland. Personnel and organisation The organisation grew during the year from 877 to 903 employees (includes BP expatriates stationed in Norway), primarily due to the continued build-up of the project organisations for Skarv and VRD. This also includes hired consultants. The labour market has been very tight for most of our position categories. An attractive labour market contributed to 27 of our employees deciding to leave the company during Four employees retired. BPN recruited a total of 29 new people in 2008, ten of whom were women. We also recruited 25 people from other BP destinations. We had a total of 96 employees stationed at our operations abroad, including 14 women. About half of our 676 employees have higher education, and we continue to spend significant sums each year on maintaining and further developing competence in the organisation. During the past year, we also made good progress in establishing a competence management system for critical activities offshore; the system will become fully operational during Diversity The company has an active personnel policy as regards diversity and an inclusive working environment (IA). BPN is an IA workplace, and BPN have derived great Page 5

6 benefit from our cooperation with NAV in recent years. The Company have flexible working hours arrangements that are utilized by many of our employees. The percentage of women remains unchanged from last year at 17%. The Company want to increase this percentage and are making special efforts to achieve this in our recruiting of Challengers and apprentices, as well as in our ordinary recruitment activities. 38% of the participants in the Challenge program are women, and we have an increasing number of women in management positions. Salary levels for women and men are identical. Twelve people work part-time, including four men. The company's future development BPN is continuing facing an extremely active and exciting period with the implementation of two major developments. The projects on Skarv and Valhall have a total cost ceiling of NOK 50 billion and will ensure a significant production increase over the next 20 to 40 years. BPN is also actively looking for ways to increase the recovery factor from all existing fields. The good results in the areas of HSE and operational regularity ensure that further developments will be based on a sound operational environment. The accounts BPN knows of no material or significant matters that could affect the assessment of the either profit for 2008 or the company's overall position as per 31 December 2008, beyond the situation described above or in the accounts in general. The annual accounts have been prepared on the basis of the going concern assumption. Allocation of the profit for the year The profits for BP Norge AS are allocated as follows: NOK Profit 1,289,048,000 Dividend 1,100,000,000 Transferred to other equity 189,048,000 On the Board of BP Norge AS Stavanger, 11 March 2009 G.G. Kielland (Chairman) T.W.Garlick C. I. Minos K. Ekroll O. Fjellså I. Haugeberg T.M. Ege O. Henriksen Page 6