YUZHNO-SAKHALINSK, Russia - A major Sakhalin oil and gas project being led by ExxonMobil Corp. has achieved its first major goal - recovery of initial capital costs - and is now gearing up for a significant expansion.
Recovery of capital costs is a key milestone in Sakhalin I’s project agreement with the Russian government because it triggers and expansion of revenues paid to the federal government and the local Sakhalin Oblast regional government, James Taylor, president of ExxonMobil’s Russian subsidiary, said during an oil and gas conference in Sakhalin Oct. 3 and 4.
Sakhalin I has been producing oil and gas since October 2005, with oil being shipped to export markets from an oil terminal on the Tartar Strait, which separates Sakhalin Island from Russia’s mainland.
Natural gas also produced is sold to communities on the Russian mainland, Taylor told the 12th Sakhalin Oil and Gas Conference.
Meanwhile, construction is essentially complete on Sakhalin II, a second major project on Sakhalin being led by Shell Oil and Gazprom, Russia’s state-owned gas company. The project is set to begin year-round oil exports later this year and exports of liquefied natural gas, or LNG, in early 2009, said Ian Craig, president of Sakhalin Energy Investment Co.
Sakhalin Energy is the company managing the Sakhalin II project.
The LNG plant was built at Prigorodnoye, the port city on Sakhalin’s southern coast. It is one of the world’s largest LNG projects.
Sakhalin is emerging as one of the world’s major new oil and gas producing areas. ExxonMobil and Shell, with their Russian, Japanese and Indian partners, have established the initial infrastructure and now other discoveries are being made, mainly by Russian-owned state companies. One of these, Roseneft, announced another major gas and condensate discovery at the Sakhalin conference Oct. 3.
Craig said Sakhalin Energy would begin filling a newly completed 800-kilometer oil pipeline later this month from the offshore Molipaq platform, one of three platforms in the project. Molipaq, which was brought to Sakhalin from the Alaska Beaufort Sea, has been producing oil and loading directly to tankers during ice-free months since 1999.
“Oil from the Molipaq platform will be introduced into the northern section of the (onshore) pipeline system later this month,” Craig told the Sakhalin conference. “At this point the offshore export of oil will cease.”
It will take several weeks for oil from Molipaq and Piltun-Astokhskoye-B, a second platform nearing completion, to fill the newly completed Trans-Sakhalin oil pipeline, he said.
Delivery of gas to a gas pipeline from the two platforms, as well as LUN-A, a third platform, is also on schedule, Craig said. Two pipelines, one for gas and the second for oil, were built alongside each other from the producing fields, in the northern part of the island, to the LNG plant and export terminals in the south. The target is for the first LNG deliveries to be made in early 2009.
As for the pipelines, Craig told the conference that pipeline crossings of 19 areas of high seismic activity have been completed, and remaining pipeline commissioning is underway. Each of the crossings had to be tailored to conditions at the sites. In the seismic crossings, the pipelines were provided with elbows to minimize stresses and add strength, and were surrounded by light, crushable material in the trenches to facilitate movement in an earthquake.
Craig also said SEIC has made good progress on restoration of the pipeline right-of-way under an environmental action plan agreed on with Russian governmental agencies.
“The reinstatement work will be substantially completed before the onset of winter, but we do expect some follow up work in 2009 and beyond as it takes some time for rehabilitation measures to become fully established,” Craig said.
Meanwhile, drilling of new production wells is underway on both the Piltun-Astokhskoye-B and LUN-A. Wells for injection of drilling mud and cuttings back into underground reservoirs have been completed on both platforms and the drilling of the first oil production well is now underway on the Piltun-Astokhskoye-B platform, Craig told the conference.
On the LUNA-A platform, two gas production wells have been substantially completed, but gas production will not begin until the platform and onshore processing facility is ready to accept the gas, which is expected to be in November, Craig said.
Two more gas wells will be drilled at the LUN-A platform and the combined production from four wells on the platform should be sufficient for starting up production of liquefied natural gas in early 2009, he said.
Craig also said condensates from the gas will be separated and mixed with crude oil.
“The gas condensate will eventually become a significant proportion of our liquids production,” eventually reaching about a third of the liquids volume, he said.
Sakhalin Energy is now in the final phase of commissioning the second LNG production unit. The first train, or unit, was commissioned last May with liquefied gas imported from other areas, including the Alaska LNG plant near Kenai.
On the Sakhalin I project, Taylor told the conference that ExxonMobil plans to begin drilling in the Odoptu field in 2009 and will have construction underway this winter on a 50-mile pipeline from Odoptu to Chayvo, the Sakhalin I field currently producing. Odoptu is the second of three fields in the Sakhalin I project and is about 80 miles north of Chayvo, the first field to be developed.
An oil field construction subsidiary of CH2M-Hill is managing pipeline construction in a joint venture with Russian partners, and CH2M-Hill’s Anchorage office is in charge of the pipeline. A number of Alaskans are working on the project. Pipeline construction is expected to be completed by March and the system should be tested in late spring.
Taylor said ExxonMobil is also now moving the large Yastrub drill rig from the Chayvo field to Odoptu. Yastrub is a specialized rig, one of the world’s largest, built for the long extended-reach wells needed in both Chayvo and Odoptu.
Constructed and operated by Parker Drilling Co., Yastrub weighs 5,000 tons. The rig has been broken down into truck-sized units and is being moved in 340 trips by truck over local roads to the Odoptu field.
Although Odoptu is an offshore field, there will be no offshore platform, unlike at Chayvo. All of Odoptu’s production wells will be drilled from shore through extended-reach drilling. At the Chayvo field, some production wells were drilled from shore and from a single offshore platform, the Orlan.
A third Sakhalin I field scheduled for development, Arkutun-Dagi, is in deeper water and will require a platform and pipeline to shore. Arkutun-Dagi construction is tentatively planned for 2010 and 2011.
Taylor told the conference that Arkutun-Dagi and Odoptu will help offset the decline in oil production from Chayvo, which is now producing about 190,000 barrels per day, down from its peak of 250,000 barrels per day in 2007. The fields will also make more gas available for either exports or domestic sales.
Taylor said that, to date, the Russian federal government has received $1.1 billion in taxes and shared production value, but Russia will receive about $50 billion in total over the life of the project.
Sakhalin Oblast has received about $200 million in shared revenues with an additional $100 million paid to the Sakhalin Oblast Development Fund, Taylor said. Another $60 million will be paid in to the Sakhalin Oblast as additional phases of the Sakhalin I project start up, he told the conference.
Since the start of the Chayvo field the Sakhalin I project has produced and exported 157 million barrels of crude oil through the De-Kastri export terminal on the Tartar Strait, Taylor said. There have been 200 tanker sailings and never a missed shipment because of weather of ice conditions, he said.
Also, about 105 billion cubic feet of gas from the Chayvo field has been produced and sold to customers in Khabarovsk Krai, on the Russian mainland. The company’s customers there include a metallurgical factory, an aircraft plant, utilities serving several communities and several medium and small-sized businesses, he said.
ExxonMobil’s Russian subsidiary, Neftegas Ltd., is the operator of the Sakhalin I project. Partners include Sakhalin Oil and Gas Development Ltd., a Japanese consortium; two affiliates of the Russian state-owned Rosneft, RN-Astra and Sakhalinmoreneftegas-Shelf; and ONGC Videsh Ltd., owned by the Indian state.
Reserves at Sakhalin I are estimated at 2.3 billion barrels of oil and 17.1 trillion cubic feet of natural gas.