Lloyds List: Early oil flows from Russia's largest upstream projects in Sakhalin: Ian Craig, chief executive of Sakhalin Energy Investment, explained why the budget increased to $20bn.: Tuesday December 06, 2005

ExxonMobil sees production under way at Chayvo field and Shell tackles phase-two challenges, writes Martyn Wingrove

RUSSIA's largest upstream projects in Sakhalin Island are making progress with early oil flowing from both this quarter.

Oil majors ExxonMobil and Royal Dutch Shell are heavily investing in two large oil and gas projects offshore eastern Russia, in harsh climates and remote environments.

ExxonMobil is a leading partner in Sakhalin I, where early production from the Chayvo oil and gas field is under way through the beach-based Yestreb (Hawk) drilling rig and a leased processing system from Expro International.

Work on the first phase of developing three offshore fields in the Sakhalin I production sharing agreement area is 70% complete with output of up to 50,000 barrels per day coming from the first key installation.

Work will continue into 2006 on construction of the main onshore processing centre, near the Chayvo beach site, the 226 km export oil and gas pipelines and the DeKastri export terminal on the Russian mainland.

'We have started limited production at Chayvo with a 50,000 barrel per day leased production facility and are selling crude and gas to domestic customers,' said Exxon Neftegas president Stephen Terni.

'Completion of the oil export system is expected mid-2006, with full field production of 250,000 bpd expected by the end of next year.'

Exxon Neftegas anticipates producing from the southern part of Chayvo next year using the Orlan offshore platform, which started drilling into the field last week.

Orlan was upgraded from an Alaskan drilling platform and is a gravity-based structure designed to operate in ice conditions.

Up to 20 extended reach wells could be drilled from Orlan into Chayvo, while some of the wells drilled from Yastreb are the longest in the world.

'Extended reach drilling technology is cost-efficient and environmentally sound. It reduced the capital and operating costs and reduced the environmental impact,' Mr Terni told IBC Energy's Sakhalin Oil ' Gas Conference.

'All our project facilities are designed for severe sub-Arctic climate and seismic conditions.

'The design codes were approved by the Russian regulatory agencies, which made it possible to blend international technology with Russian standards.'

Exxon Neftegas operates the Sakhalin I project with a 30% interest. Its partners are Russia state firm Rosneft, Oil ' Natural Gas Corp of India and Sodeco of Japan.

The whole project includes developing 5bn barrels of oil and gas resources from the Chayvo field, Arkutun-Dagi to the east and Odoptu to the north.

The complete project would have been a massive undertaking even for the oil majors and other investors, so they progressed with Chayvo first.

'Because of the technical execution of the project in a challenging environment we decided to go for a phased development to mitigate the risk and use the lessons learnt on later phases,' said Mr Terni. 'We expect Odoptu to follow Chayvo and Arkutun-Dagi to be developed later to maintain plateau production.'

Shell is a leading participant in Sakhalin Energy Investment, which has produced oil from the Sakhalin II project since 1999 through the Vityaz production complex.

This includes the Molikpaq production platform and Okha floating storage and offloading vessel.

Work continues on the second phase of development within the Sakhalin II production sharing agreement area with two platforms under construction for the Piltun-Astokhskoye and Lunskoye fields.

Shell and its partners Mitsui and Mitsubishi have been forced to double the budget on this project to $20bn due to a number of influences. Installation problems with the onshore and offshore pipelines is a major part of the reason for the year delay and cost overruns.

Ian Craig, chief executive of Sakhalin Energy Investment, explained why the budget increased to $20bn.

'The challenging frontier, lengthening construction schedule, design adjustments, some recommended from the Russian authorities, and oilfield inflation of equipment and services made us increase the budget for work to 2014.'

Sakhalin II is now more than 60% completed, with the first milestones and challenges overcome this year.

'The offshore concrete gravity base structures for the two platforms Piltun B and Lunskoye A were installed as per the original schedule,' said Mr Craig.

'Work continues on the topsides in South Korea, with the Lunskoye topsides to be loaded out next year and the Piltun structure in 2007.'

These platform topsides will be floated over the concrete bases and ballasted in position in 2006 and 2007. They will be the largest structures in the world by weight installed this way.

'Around 900 km of pipeline has been welded, so 60% of this has been completed,' Mr Craig said.

'Construction of the liquefied natural gas terminal is ahead of schedule and dredging of the channels are completed.'

Sakhalin Energy Investment expects all-year-round production from the project in 2008 and has already secured commitments for 75% of the LNG from the two trains being built. It is looking into building another LNG train to export more of the gas to Asian markets and US west coast. This is probably also part of the $20bn budget.

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