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Lloyds List: Exxon and Shell Sakhalin projects nearly half way to production: Two integrated oil and gas projects run by two consortia of oil companies in Sakhalin, eastern Russia, are more than 40% completed and first production is due in mid-2005, writes Martyn Wingrove ( 23 Nov 04


Nov 23, 2004


EXXONMOBIL and Royal Dutch/Shell are making progress on their two Sakhalin integrated oil and gas projects off eastern Russia and have together spent well over $7bn so far.


Both oil majors are working in separate consortia with other oil companies from Russia, Japan and India to develop three oil and gas fields in the ice-bound Sea of Okhotsk.


Exxon Neftegas is working with Sodeco, a consortium of Japanese companies, plus Russia's Rosneft and Oil ' Natural Gas Co Videsh of India on the Sakhalin I project to firstly develop the oil and gas resources of the Chayvo offshore field.


The development plan involves a beach-based drilling rig and an offshore drilling platform to access Chayvo oil resources. Crude oil and gas will be processed at a nearby onshore processing facility and then piped to the DeKastri oil terminal through a pipeline across the Tartar Strait.


Exxon Neftegas president Stephen Terni told delegates at T'F Informa's IBC Sakhalin Oil ' Gas Conference that the project was over 40% complete to date and first production was expected in the third quarter of next year.


'Over $4.5bn has been committed to the project and $2.6bn spent to date,' said Mr Terni.


'Our development plan sees Chayvo's first production target for the third quarter of 2005 and full production of 250,000 barrels per day by the end of 2006.'


Progress is being made on the onshore sites of Sakhalin I with well drilling well under way from Parker Drilling's Yastreb rig on Chayvo beach and most of the ground work completed on the other sites.


'Yastreb has drilled two extended reach wells to total depths of 9,375 m and 10,083 m, making them seventh and fourth longest in the world,' said Mr Terni.


The rig is drilling four more wells and will begin a well test programme this year.


Exxon Neftegas is also developing Chayvo with an offshore platform, converted from an Alaskan drilling rig.


The gravity-based structure Orlan was refurbished by Amur Shipbuilding and is in Hyundai's yard in South Korea for installation of the drilling rig. It is also being equipped with a test separation unit and a 120-man accommodation quarters.


'Orlan will be installed on Chayvo in July 2005. Up to 20 wells will be drilled from the platform. Extended reach wells will be 6,000 m to 8,000 m long,' said Mr Terni.


Much of the ground work has been completed on the onshore processing facility and installation of modules is under way.


Once up and running by mid-2005, the facility will have the capacity to process 250,000 barrels of oil and 800m cu ft of gas per day.


'The rig wellsite, Chayvo Bay Bridge, camps and beach erosion protection are completed. Processing site work is well under way,' said Mr Terni.


Construction of the 400 km pipeline between Chayvo and DeKastri started this month and 85% of the line pipe has been manufactured.


The line should be completed by the end of 2005, which means the early production from Chayvo will only sell gas to local Sakhalin markets and oil exports will not start until 2006.


Site construction work is completed on the DeKastri terminal site. Storage tanks are being built and large modules are due to be installed in this summer's weather window.


With Russian content part of the production sharing contracts, 80% of the terminal work is being done by Russian companies. Around $2bn of the $3bn in contracts awarded to date on Sakhalin I has gone to Russian contractors, said Mr Terni.


Once the DeKastri terminal is ready to roll, offshore loading to ice-class aframax tankers can begin in 2006.


On the second large oil and gas project in the region, Shell is leading the Sakhalin Energy Investment consortium, involving Mitsui and Mitsubishi, to develop two offshore fields and build a liquefied natural gas terminal.


The second phase of the Sakhalin II project involves more than $12bn of investment in an offshore platform for the Piltun Astokhskoye oil field and another for Lunskoye gas-condensate field. These two platforms will join the Molikpaq, which has been producing oil in the summer months since 1999.


'By the end of November we will have produced 60m barrels of oil and shipped it to Japan and Korea,' Ian Craig, chief executive of Sakhalin Energy, told the IBC conference.


Oil and gas will be processed at two onshore sites, then piped along two 850 km pipelines to an LNG plant and oil terminal at Aniva Bay, on the southern part of the island.


Like Sakhalin I, this project is also more than 40% completed, but first production is not expected until the end of 2006.


Progress on the offshore platforms is on schedule, with the two concrete platform columns completed and due to be towed to the two fields next summer, said Mr Craig.


Much of the platform topsides equipment has been delivered and fabrication work is under way. These topsides are due to be installed next summer.


Once up and running the two platforms will export their oil, gas and condensate to an onshore processing facility.


'All of the foundation work was completed in the Spring and construction is underway. Much of the equipment was delivered this summer and more will come next summer,' said Mr Craig.


At the oil terminal and LNG plant, comprising two trains each of 4.8m tonnes per year, ground preparation work is completed and the storage tanks are being built.


'The oil pipeline has been laid and on the gas line welding started this month,' said Mr Craig.


'The project is over 40% complete, but we are not satisfied with progress in all areas. But we are confident of having first LNG cargoes late in 2007.'


One of the areas of slow progress is the laying of offshore pipelines at Piltun. Progress has been held up because of the proximity to the indigenous whale population. The offshore line is to be re-routed and laid this summer.


Capital expenditure estimates on Sakhalin II have risen to $12bn because of steel costs and other higher cost items.


'To the end of 2004 we will have spent around $5bn on the second phase,' said Mr Craig.


'On the marketing side we have sold the capacity of the first train and are well on the way to selling the second train, discussing with clients in China for the rest.'


LNG from Sakhalin II will be heading to Japan and Mexico from 2007.


With the LNG marketing success so far, the consortium has thought about increasing production capacity with a third train. There are no firm plans yet formulated, but design work could begin soon.

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