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GoM:DecpwaterHorizonDrifllngRigGommiment'lr't Comml0nentFM reques$ The attachedLong Term Commercial ($365m'$585m to authorlry enter-ino a five yearrlg contract Deepwater for i.tf gO,n- iiggr neti with Transocean the portfolio ;;, their to have Horizon.Transocean a strongdesire tengthen excepta five yearcontract'The rigis and havenot offeredanything rate of day rare has ueen neiotiaieo t; a fixed, competitive to according be adiusted and Iil7ililday for the first nro years, will anagreedmarketrateformulaforyearsthreethroughftve. basis: ol is flwe Theproposed yearcontract supported th9 following rig o TheGulfof Uegco hassufficl.ni workIn the planto underpin where case' evenin the minimum a fiveye.r ,ingl" r,ringoperation

is explorationunsuccessful; of capable is the Horizon technically ;iltt;' l O,OOoft Wtth by p.iiotting allof thl aaivityrequired theGoMplan; to that n.r Eiperiencl shown lt is verydiffrcult beat61emad<et ls our rls. ctilnng ln a tlghtmarket sfiategy raieror 5s generauon tlrrgydrenhanced value rigs, hldr to access performlng creatlng on the by op.ruion1;fflcdt. neceniperformancethe Horlzon well exploradon and prognmme the stones drilllng batch Atlantls in to close Best Clas. been has

since RCMendoruement the gps commitment requires Thisdecision The ChiefExecutive' tfie EetP held the exceeds $25OmOelegaUon by andwe tight at present is Gulf of Mexicodrillingrii market extremely contact' of of a havenegotlated Aea-Oline | 46 April for execution the with the I of whichis ahead the next RCMmeeting. haveconsulted suppon' I of other memberc the RCM and they hlve offeredtheir of yourendorsement thisdecislon' request AGI 296 March2005

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DWD-FM-200+20

Confidential

Finance MemorandumLong TermCommercialCommitment BPExplorationProduction - Gulfof Mexico & lnc. Deepwater SpU Transocean Deepwater Horizon Contract Rig

Approvalis-soughtto enrer fiio E f'rveye#;ig conrract The :'ig's day rate has been negoriatedat a fixed, comperitive iate of |gl'lon for $275klday the first two years,and will be adjusted accc,rding an agreedmarket to rate formulafor yearsthreethroughfive. The totalgross BP tinancial comrnitment will rangefrom $365m- $585m,basedon the rangeol pcssible ratesfor the tastthree rig - 350klday, with a nrost likelyexposure $475m, assuming !e&rs betweenql^5_0_ of a 1longorfun rateof $250k/day. Strateoic Gontext The. Deepwater SPU Annual Plan assumes steady state explorationand appraisal drillingactivitythroughto 2010, and beyond. On average, SPU expectsto d;ill 34 the operatedexploration wells per year (excluding ILX),discover300 rnmboe net per year, appraiseand develop two thirds of these discoveries, and increaseproduciionto a sustained rate of about600 mboed. The GoM DW SPU mobilerig programme throughto 2010 is shown in Attachment 1, comprisingExploration(Corexand ILX), Follow-onSuccess,Appraisal,Development and Productionlnterventionoperations. The programmecan be consideredas firm throughto mid-2007andall those activitiesexceptfollowon successare in the Annual Plan. No rigsare currently contracted afterJuly 2008(whenthe Development 2, Driller drilling Atlantis development wells,comesoff contract). The most likelyGoM DW dernand Sth gen rigs in the 2OO8 2010 periodis at least for three, with two being viewed as a reasonable downside scenarioeven if there is no further exploration success. Our basecase is to use the Horizon rigs and Confidence to cover this base load of activity. The pace of exploration and appraisal driven by is license expiries in the 2005 - 2007 time period, includingthe Stones Southwest prospect in May 2006. Due to its ability to operate in 10,000 ft water depth, the Horizonis the only available capable drilling rig of this prospectpriorto leaseexpiry. Additionally, rig has 35,000 ft drillingdepth capabiliry, the which is requiredto drill prospectsin the currentinventory. certainexploration The marketfor 5thGeneration rigs is very tight globally, 1007outilization leastuntil at at late 200/, Our strategy is to access and reain high performancerigs which deliver capital productivityadvantagethrough operational efficienry. Extendingthe Horizon contract is consistent with this strategy. over the last two years, the rig has demonstrated steadyHSEimprovement, achieving 67 percentdecrease TRIRand a in no DAFWC's. During 2004, the rig delivered a 10 percent improvement in rig operationalperformance,the Atlantis batch-settingprogram within 10 percent of technicallimit targets,set a new "best in class" sidetrackbenchmark, and delivereda new "best" well at Atlantis. The rig most recentlydrilledthe Stonesexploration well 50 percentbelow the expecteddrillingtime and cost. Tranaastlon Dcscrlption The current Horizoncontract expires in Septemberof this year. Transocean have a strong desireto lengthentheir portfolioof contractsand haveyet to offer BP anything other than a five-yearcontract for the Horizon. ConsequentlyBP has negotiateda contract extension,with an initial two-year, fixed-rateterm, followed by a floating, market-rate period, basedthree-year
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Confidential

Thefirsttwo years be at a fixedrateof $275klday, years will and threethrough will five floatat an average the Transocean Generation of MexicoDP rig contracts, of 5m Gulf on whichbasis ratewill be demonstrably the competitive. A five-year contract of valueto bothTransocean BP. A long-term is and commitment will enable bothparties focuson rig performance operational to and Sirnilar efficiency. specification for which longerterm contracts rigs, havebeen recently agreed, have costin the $250- ZTQkldaV range.lndications that rates stillincreasing that are are and short-term hireswill soon exceed$300Vday. a recentRFP,Transocean less In bid capable to BP for GoM DW appraisal $300k/day it is reasonable expect rigs at and to thata two yearcontract with Transocean the Horizon. suchan outcome for if couldbe achieved, wouldresultin an evenhigher rate. Rigks& Mltigationr The Horizon technically is capable performing of the likely work in the DW of all rig GoM duringthe proposed year contract. 5 This includes exploration, appraisal and development drilling well as subsea as well intervention. These activities currently are planned be spread to overa number rigs, of with contracts expiring between 2006 1O and20 2008(see Attachment Risks the 5yrHorizon 1). profile mitigated to demand are by evaluating forwardprogram eachrig contract the as comesup for renewal, and prioritizing work to the Horizon the eventof uncertainty the futureprogram. in in The pointwill be at the extension the OceanConfidence first decision of contract laterin 2005.ln the unlikely eventthat the GoM DW SPUcannot support continuous a 5h generation program rig between 200&2010, following the options available: are . Use the Horizon work which would normally for requirea lower spec'd rig, potentially increasing costof thatwork; the . Farmout the Horizon other operators the competitive to day-rate contract wouldmake Horizon the attractive others; to r Mobilize rigoutside region drillelsewhere the global deepwater the the to in BP portfolio. Verifrcation Assurance this FM has been obtained for from the Technology Mce-President for Drilling wellasfromFinance, Legal, Control. as Tax, and AoorovelSouqht Authority requested contract the Transocean is for to Deepwater Horizon April15. by The most likelygrossBP financial is commitment $475mover a five year period commencing September 2005. 18,

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Proposed DGP by: Evton Business Leader, Unit GoMDW Developments

Date:

Flecommdrded AG lnglis, Vvl It",l.Dgputy EVP",tr. D.eputy Chi6fE."<ecutive, Seoment &rbt E.xec.utive. Segmenr E&P E&P
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Confirmation RCMEndorsement; of RCMSecretary

Date:

Approvedby: KW Lang Officer,BPAmerica, Inc.

Date:

16 Mar{S

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