This document is private and confidential to BP andmust not be disclosed to any third party without priorwritten consent from the Group Director of Projects.All changes to this document are controlled by theGroup Director of Projects.

2005 © BP p.l.c.

These Principles encompass the whole life cycle of a project; provide guidance to all involved in projects and express the shared values and wisdom of our Project Leaders.

project principles lead by exampleproject principles

contents

2 Introduction

4 Our goal

4 The intention of the Principles

5 How the Principles fit into the whole picture

6 Leadership and distinctiveness

7 The Leadership Framework

9 The Principles

10 Opportunity Characterisation

12 Technology & Technical Definition

14 Project Execution Planning

16 Contracting & Supplier Management

18 Project Controls

20 Organisational Capability

22 Commissioning & Operational Readiness

24 Performance & Risk Management

26 Knowledge Management

This is an important document. It is about the principles which must guide theleadership of a project. When applied consistently, these principles will muchreduce the chances of things being out of alignment - a project with our strategy,a leader or team with standards, expectations with reality, those touched by ourbusiness with our intentions.

The future of BP is greatly affected by the quality of the projects we undertake.We work in a capital intensive business and we undertake projects of enormousscale and complexity. Because these projects extend over many years, the decisions we make in the selection process, and the skill with which we defineand execute these projects, affect the fundamental performance of the Groupover generations.

It is not only BP that is affected. The way we undertake projects profoundlyimpacts the larger world of contractors, communities and countries in which we work. Projects are often one of the more visible expressions of BP in manyparts of the world.

It is essential that we aspire to be best, in terms of project selection, projectdefinition and project execution, in a world in which projects are becoming evermore complex and ever more challenging.

To get to this aspiration requires great leadership and great discipline. That iswhy we are devoting great resources to the continued education of our projectleadership community - men and women who profoundly impact the future of the Group.

Our portfolio of projects has provided us with numerous opportunities to learnwhat it takes to make projects successful. The project leadership communityhas pooled its collective wisdom about what it takes to win, and the result isthis set of Project Principles. It is not an instruction manual or an introductionmanual - rather it is a code which must govern the way we think about projects.

I firmly believe that the use of these principles will create great success.

The Lord Browne of Madingley, FREng

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introduction

‘the skill with which we define and execute projects affects the fundamental performance of the Group over generations.’

Our goal

One of the key drivers for BP is to deliver sector leading shareholder value through bestin class capital productivity consistent with the Company Values set out in our Code of Conduct. We aspire to be distinctive, to be the leader and preferred operator in the creation and execution of world class projects. We will be a first-mover, an innovator anddisciplined in execution as guided by a set of clear principles.

The intention of the Principles

This document provides a set of Project Principles that apply across the Group. The intent is to align language, expectations, and decisions of executive management, project professionals, business and functional management in such a way that everyonecan contribute to continuous improvement in project delivery and sector leading capitalproductivity.

These Principles encompass the whole life cycle of a project, from the initial step ofopportunity identification, through to the operation of the asset. They provide guidanceto all involved in projects and project processes and underpin the development of segment expectations. This guidance supports the BP Management Framework andSegment Operating Instructions.

The Principles express the shared values and wisdom of Project Leaders and GroupLeadership and are a direct outcome of work at the Projects Academy. They provide abroad base upon which BP can build specific ways of working and for the expectationsthat Segments establish to ensure best in class project performance.

The Principles apply across our diverse portfolio of projects including resource based and market facing projects and digital business activities and includes all segments, disciplines and functions involved in projects.

How the Principles fit into the whole picture

The diagram below illustrates how the Principles fit in the context of the BPManagement Framework, Code of Conduct, Capital Value Process (CVP) and the Segment Common Processes.

BP Projects Framework

The BP Management Framework, which includes the Code of Conduct, Group Standards and gHSSEr (getting HSSE right) provides an overarching framework for the way we dobusiness in BP and how we interact with the world. The Project Principles are alwaysapplied within that Framework.

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Leadership and distinctiveness

For any project to succeed there must be mutual advantage to all the parties involved -companies, governments, local communities, and employees. This is particularly true in long term projects. Delivering a continuous series of long term projects requires thebuilding and maintenance of long term relationships to enable learning, continuousimprovement, alignment and innovation. That is why relationships need care and attention and continuous concern for the interests of others.

Good project leadership is about delivering for BP whilst ensuring that such mutualadvantage exists so that everyone stands to gain something and therefore has an incentive to help the project succeed.

We expect our projects to be consistently best in class. We want to create and executeprojects that others consider cannot be done; deliver value others cannot realise; andbring that value to all parties to enhance future opportunities and relationships.

Our distinctive ability in three areas allow us to do this:

Our ability to integrate all parties (both internal and external) to deliver world class projects. Alignment is the primary goal, achieved in a manner that engages all contributors and brings together the best ideas and concepts most effectively in order to retain first mover advantage.

Our adaptability, combining a deep understanding of the environment of the project, the options, experience and new technology available to us to secure maximum valueto BP and our partners. Establishing the correct balance of existing and new options,ensuring a manageable level of risk in the project is key to success.

Our ability to leverage our scale and experience, we use our scale to realise projectsunattainable to others. By rigorously reusing applicable experience and knowledge innew projects, we ensure that innovation is focussed in those areas needed in order tomeet new project, business and technology challenges.

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The Leadership Framework

Our distinctive ability to create best in class projects exists within a framework of leadership that:

l Delivers industry leading safety performance through a commitment that unambiguously, safety comes first.

l Ensures that BP’s Health, Safety, Security and Environmental expectations are met.

l Recognises that the quality and behaviour of leaders has a profound impact on the performance and behaviour of team members. It shapes the outcome of a project.

l Ensures that BP’s Capital Value Process (CVP) is followed rigorously.

l Recognises that building and maintaining a vibrant and integrated project community is essential to achieving sustainable high performance.

l Recognises that formal training in project leadership and management is necessary for best in class project performance, for which the Projects Academy and Project Management College provide us a unique strategic advantage.

l Ensures alignment of all internal and external stakeholders such as government, local authorities and communities, taking into account their views in an open and fact based communication, to achieve mutual trust and advantage enabling business sustainability beyond the current project.

l Recognises that project teams are ambassadors for BP, and must act in accordance with our Code of Conduct in order to maintain and enhance our reputation and to open the way for further opportunities.

l Recognises the importance of providing clear definition of roles, boundaries, lines of authority and accountabilities within the project team and appropriate support and coaching.

l Develops and delivers cost and schedule targets informed by internal capability, external benchmarks and full understanding of risks and uncertainty.

l Ensures adequate resources are available and appropriately deployed.

l Recognises the value of lessons learned and their feedback in a timely manner.

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The Principles

The management of projects isn’t just a matter ofdoing things in an orderly way, in line with a pre-determined plan. That is essential but the real skilllies in making judgments and providing leadership,often under pressure and with imperfect information.

Judgment has to be based on reality, informed byexperience and guided by a set of Principles.

Our Project Principles are detailed in the nine criticalareas that have the greatest influence on project outcome.

l Opportunity Characterisation

l Technology and Technical Definition

l Project Execution Planning

l Contracting & Supplier Management

l Project Controls

l Organisational Capability

l Commissioning & Operational Readiness

l Performance & Risk Management

l Knowledge Management

3photo Nerefco Windfarm: A passion for the environment 98

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l It is important that the businesses have a portfolio of opportunitiesthat is actively pursued. Good strategy inevitably involves choices. This enables quality through choice. Not all projects are expected to go ahead. Resources should be focused on finding the best opportunities, not on taking all opportunities to sanction.

l It is essential during Appraise and Select to have investigated the full set of options available for the opportunity, to have scanned the available technologies and innovations for their use.

l The informed choice of the best value option needs to be made and agreed by stakeholders before moving to Define, to avoid costly rework.

l The chosen option must integrate the interests of all stakeholders to create mutual trust and advantage.

l A full review of relevant experience should be carried out and incorporated as early as possible.

l Projects have a natural pace of development. Business decisions that alter this pace, particularly during front end work, must carefully consider the risk of added cost.

l After the beginning of Define, change is very costly, and should not be allowed other than on a ‘doesn’t work’ or ‘is not safe’ basis, unless it is an option planned prior to Sanction and is shownto provide significant incremental value.

l Our rule in Execute is that change to the Project only occurs if it is ‘not safe’ or ‘does not work’.

project principlesOpportunity Characterisation

photo BTC Pipeline: Connecting the Caspian to the Black Sea10

A thorough understanding of the business opportunityis essential to identifying a viable range of optionsfrom which to select the best development concept

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Achieving a balance between the use of standardsolutions and the planned introduction of new technology is important to maintaining competitiveadvantage

l Standardisation through the re-use or incremental development of previous designs can provide substantial cost, schedule and operabilitybenefits and must be considered for the base case.

l New concepts and technology must always be considered and be incorporated where needed to satisfy the technical challenge of the project, or where it significantly improves the base return.

l The introduction of new technology should be managed across the portfolio of projects to mitigate inherent risks whilst realising the benefits of technological progress.

Technical definition is a key component of Front EndLoading (FEL) and basic technical design and engineering must be completed before proceedingwith project execution

l The technical definition must take account of whole life economics of the project. A balance between capital, operating, and future opportunity cost must be established for the project.

l Project safety, reliability and integrity standards, consistent with Group standards, must be established and incorporated in the design, and assured in the Project Execution Plan. The project Engineering Authority must be engaged in the team early in Select to ensure this occurs.

l Value Improving Practices can significantly improve the project return through optimisation of design definition and should be utilised during Select and Define.

l New technology can provide substantial value to a project and bring real competitive value. However, it should only be applied after thorough and complete testing.

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project principlesTechnology & Technical Definition

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Project Execution Planning is a critical component of FEL and fundamental to successful projects

l An outline Project Execution Plan (PEP) and HSSE Plan must be established during the Select stage and developed to full detail by the end of Define.

l The CVP must be rigorously followed; the deliverables and decision criteria for advancing from one stage to the next through a gate will be tested by objective peer review, and formally approved by the Gatekeeper (the individual with formal delegation of authority).

l A formal Management of Change process must be established at the Appraise stage and maintained throughout the project. In Define and Select, Value Improvement Practices drive change. In Execute, our approach is absolutely no change unless it ‘doesn’t work’ or is ‘not safe’.

l Pace is an important criteria of projects and the cost of adjusting pace to manage cash-flow for business purposes must be recognised and forecast.

project principlesProject Execution Planning

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The success of any project and BP’s long-term interests depend on healthy supplier and contractormarkets and sound contractual relationships

l The project strategy must allow contractors and suppliers to achieve reasonable profit margins in return for good performance.

l Good integration and relationships are essential to the success of anycontract. Relationships must be based on mutual trust and respect. Parties should behave fairly and communicate openly. For all Major Projects BP and the contractor should each have an executive sponsor outside the project team who regularly reviews the relationship, and who leads a forum for the project to review progress.

l The BP Team composition will depend on contracting strategy but must always be strong enough to provide the leadership of the project, which must not be delegated to contractors. In projects where BP is not the operator, the team must be strong enough to protect BP’s investment, and to ensure BP experience and knowledgeis fully deployed to maximise value for the firm.

l The Contracting and Procurement Strategy should be established during the Select stage and in the context of the Project Execution and HSSE Plan. A deep understanding of the capabilities of the suppliers and contractors and the resource uncertainties in the supply chain is essential. Procurement & Supply Chain Management(PSCM) must be fully involved in this stage to ensure the procurement strategy and strength of the firm is brought to bear.

l The form of contract should be chosen to align the interests of BP and the contractor/supplier and to allocate risk to the party best able to manage that risk. Contracts must include provisions which allow full access to essential data, including cost and schedule items.

l Clearly articulated interfaces with and among contractors and suppliers are essential.

l Disputes should be addressed when they arise. Unresolved disputesdamage relationships and lead to further problems.

l Contractor selection must be made in the best interests of the project but must also take into account the broader interests of BP.

project principlesContracting and Supplier Management

16 photo BP Connect: Great partnerships are created when values and goals are aligned

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Close monitoring of project performance against realistic targets (informed by benchmarking) is essential to ensure project objectives are achieved

l The cost and schedule estimates for the project are a key deliverableof the FEL activities during Appraise and Select. They form the basis for the commitment to management. Experienced BP engineers must be in control of the work.

l Peer Reviews should occur before each stage gate, incorporating input from within the BU and relevant independent functional assessment in order to ensure high quality in the project deliverables.

l Cost estimates used to support sanction commitments must be based on an appropriate level of technical definition together with firmbids and product-specific market data only. Ranges including project specific contingencies must be defined at P10 and P90 values.

l The basis for cost and schedule estimates must be clearly articulatedand terms such as target, promise and commitment must be clearly defined with associated probabilities.

l Key performance indicators must be established for the project covering at a minimum, HSSE, cost, schedule and Net Present Value (NPV). Regular zero-based updating and publication of the indicators is necessary to monitor progress and allow effective mitigation of deviations to plan.

l Project schedule and cost control during Execution are key to successful implementation. Experienced BP engineers must be in control of this work.

l Benchmarking must be used wherever possible to validate the competitiveness of the proposed project.

project principlesProject Controls

18 photo LNG Trinidad: Delivering gas to markets in North America.

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People are our key resource and their competency,training, development and deployment are fundamental to project success

l BP staff should fill key leadership positions for the project. This includes the management of key activities such as engineering, integrity management, procurement, construction, commissioning and operations, project controls and HSSE. Distinctive performance can only be achieved through strong BP leadership. Where this principle must be modified to allow involvement, alignment and expertise of partner representatives in the team, the strength of the team must not be compromised.

l The Project Leader should be appointed during Select and the full BP leadership team identified by the end of the Select phase. Delegations of authority must be established as the team is formed.

l The key activities of FEL must be controlled by BP engineers, to ensure that the cost and schedule estimates properly reflect the opportunities and risks inherent in the project.

l Project team members must be fully integrated within the Strategic Performance Unit (SPU), which is accountable for developing the potential of all members of the project team. The SPU in conjunction with functional management is responsible for the team’s effective re-deployment at the end of the assignment. The plan for re-deployment must be developed and maintained in parallel with the execution plan. When determining staffing levels for the project, development positions for inexperienced staff, and the time needed to accommodate annual training must be considered.

l The strength of the project team should be assessed regularly using team integration and readiness reviews at each CVP stage gate.

project principlesOrganisational Capability

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Project performance is measured by safety performance;long term business value from successful start-upand operations (not just project cost & schedule)

l Input from senior and experienced Operations personnel throughout the Project ensures efficient start-up, good operability, safety and integrity of the asset. Input should begin at the Appraise stage.

l The Operating Philosophy addressing level of automation, reliability, maintenance and integrity management should be developed early in the Select stage and maintained through project design and implementation.

l A detailed Commissioning Plan and Handover Philosophy describing accountabilities and procedures for completion of construction, pre-commissioning, commissioning, and start-up should be developed during the Define stage.

l The Operations team is responsible for establishing appropriate plant start up and operating efficiency targets and should be assigned to the project during the Select phase in order to carry those responsibilitiesthrough to operation.

project principlesCommissioning and Operational Readiness

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The identification, assessment and systematicmanagement of risks, uncertainties and opportunities isessential for effective project control and performance

l Opportunity and risk must be actively managed throughout project life. Upside opportunity must be addressed as aggressively as downside risk, and should be expressed in financial terms wherever possible.

l Assessments should be holistic, fully investigating impact and likelihood of occurrence.

l Action plans to take advantage of opportunities and mitigate risks should be established in Appraise and reviewed and updated throughout the life of the project. This should include the carry-forward, in some cases beyond sanction, of continuing uncertainty in reserves or market understanding, maintaining viable contingency plans.

Achievable but challenging targets can inspire greaterperformance, but inappropriate targets may drivepoor outcomes and destroy value

l Base Case economics must reflect expected outcomes and be illuminated in the context of Industry Average performance and the current track record of delivery.

l A project target is a single point value and must be clearly defined in the context of the range of outcomes, its associated probability, and its attendant risks. Targets must be informed by knowledge of IndustryLeading performance and the current view on Technical Limits.

l Distinctive performance against established Industry Average benchmarks is dependent on both a challenging target and a clear set of actions to deliver.

project principlesPerformance & Risk Management

24 photo Central Azeri: Harnessing local expertise in the birth place of the industry

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Application of knowledge (collective know-how) is a source of competitive advantage and a means bywhich material risk can be mitigated. It must beactively managed and safeguarded

l Every Project Leader, Group Leader, and their teams have an obligation to seek out and use prior knowledge and contribute to thecollective know how of the organisation. This includes both operated and non-operated ventures. The project team must establish the knowledge content that is of business value, manage it throughout the life of the project and integrate it back into the business.

l Ideally, knowledge should be exchanged freely among BP employeeswith access to the BP network, but must be subject to the legal/ commercial restrictions applicable to the project. With respect to contractors, joint venture partners and third parties, relevant agreements covering the knowledge to be shared must be established and any special restrictions applied. It is important that BP’s and third party proprietary information is recognised and treated as intellectual property and protected accordingly.

l Segment or Business Processes must provide context and set expectations for execution of Knowledge Management (KM) for project delivery. This must include requirements for KM plans to address technical integrity and operability requirements, including deliverables to construction, start up and operations. There must be a clear audit trail of decisions through each CVP stage gate.

l Knowledge must be managed rigorously and consistently though the adoption of a common framework for KM such that resources (people, processes, and technology) are applied efficiently and effectively. The KM Framework must provide direction, clarity of rolesand accountabilities and common tools, training and process guidance.

project principlesKnowledge Management

26 photo HIVE: Integrating peoples’ knowledge with advanced technology

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For further details visit the Project Principles website at http://projectprinciples.bpweb.bp.com

‘There’s an uncertain elementin almost every project.

Make sure it’s not you.’project principles lead by example