ExxonMobil to start drilling in Sakhalin-I

ExxonMobil subsidiary Exxon Neftegas -- operator of Russia's Sakhalin-I oil and gas field -- will begin drilling operations in two offshore deposits in October, company president Neil Duffin told. Exxon Neftegas will invest $ 725 mm this year in the first stages of development.
This will cover modernisation of the Orlan offshore platform in the Sea of Okhotsk east of Sakhalin, off Russia's Pacific coast, Duffin said. A contract to supply equipment for a coastal oil complex is to be completed later this year. Exploitation of the Chaivo oil field could begin at the start of the year once authorisation is received from the Russian authorities, he said.

Exxon Neftegas is currently engaged in talks on gas exports due to come online in 2008-10. Duffin said that once negotiations are concluded, the company "hopes to begin exporting to Japan in 2008." The three offshore fields in the Sakhalin-I project -- Chaivo, Odoptu and Arkutun-Dagi -- are estimated to contain 307 mm tons or 2.3 bn barrels of oil and 485 mm cm of gas.
The fields are to be operated by an international consortium in which ExxonMobil and Japan's Sakhalin Oil and Gas Development (SODECO) each hold a 30 % stake. The other investors are India's ONGC Videsh and two subsidiaries of Russia's Rosneft. The consortium has already invested $ 450 mm in a five-year prospection drilling programme. Overall investment in the project is expected to be around $ 12 bn over 30-40 years.

Sakhalin oil is to be exported to Japan and could make up about 6 % of Japan's total crude imports. Gas supplies would help to meet domestic demand in Russia's Far East region and also export to Asian markets. Within a few years the project is likely to become the biggest single source of inward investment in Russia.
Exxon Neftegas said last year it expected oil production to begin at the end of 2005. Russian oil and gas sales from Sakhalin-I are set initially at $ 250 mm a year, rising with 10 years to $ 1 bn a year. Russian Prime Minister Mikhail Kasyanov discussed the Sakhalin-I project with ExxonMobil chief Philip Watson at the World Economic Forum in New York earlier this month.

Russia began tendering Sakhalin offshore leases to foreign consortia in the early 1990s to develop what is considered a possible strategic source of energy for the developing Asian countries. The Anglo-Dutch oil producer Shell is set to develop the Sakhalin-II oil and gas project, also on the island's eastern shelf, where oil production began last year.