Sakhalin-1 Production Starts

Monday, October 03, 2005
Exxon Mobil subsidiary, Exxon Neftegas Limited, has commenced production from the multiphase Sakhalin-1 Project offshore Eastern Russia. The initial phase of the project will produce 50,000 barrels (6,300 metric tons) a day by year-end 2005 and 250,000 barrels (33,000 metric tons) a day of oil by year-end 2006 from the Chayvo field. Associated domestic gas sales will start at about 60 million cubic feet (1.7 million cubic meters) per day, and ultimately are expected to increase to about 250 million cubic feet (7.1 million cubic meters) per day by the end of the decade. The project start-up was on schedule and within about 10% of unit development cost expectations.

The Sakhalin-1 project, representing one of the largest single foreign direct investments in Russia, involves the construction of both offshore and onshore facilities as part of its initial development phase. These include the world's largest land-based drilling rig using extended-reach drilling to reach reserves six miles (10 kilometers) from shore, an offshore platform that provides drilling capacity for up to 20 wells, an onshore oil and gas processing facility and an associated 140-mile (225 kilometers) crude oil pipeline, and a marine export terminal providing year-round storage and tanker loading facilities on the Russian mainland at DeKastri.

Initial natural gas production will be sold to two domestic customers (OAO Khabarovskenergo and OAO Khabarovskkraigas) in the Khabarovsk Krai in the Russian Far East. The buyers will transport the gas to the Khabarovsk Krai through the pipeline systems of Rosneft-Sakhalinmorneftegas and Daltransgas. The potential exists for export of additional gas volumes by pipeline to buyers in Asia.

Initial oil production will be sold into the Russian domestic market. Upon completion of the DeKastri oil terminal and pipeline, oil will be sold to international markets by mid-2006.

"ExxonMobil is pleased with the timely start-up of Phase 1 of the Sakhalin-1 project. This project employs leading-edge technology including the use of artic development technologies and extended reach drill wells that are among the longest in the world," said Rex Tillerson, President of Exxon Mobil Corporation. "Application of this technology for the Sakhalin-1 project is a significant breakthrough in our ability to develop the resources in the most cost effective, efficient, and environmentally sound way possible."

"The successful implementation of the Sakhalin-1 project became possible thanks to mutually-beneficial cooperation between Federal and regional Russian authorities, and the members of an international consortium including operator ExxonMobil, a global leader in the oil and gas industry," said Dr. Galina N. Pavlova, Director of the Oil and Gas Industry Department of the Sakhalin Oblast Administration. "This consortium brings together the talents of major companies: ExxonMobil, SODECO of Japan, ONGC of India, and the Russian state oil company Rosneft."

During the more than 36 million worker hours of construction and drilling activities associated with the Sakhalin-1 project, personnel achieved a level of safety performance that was more than four times better than the average for the oil and gas industry.

In addition to the government revenues generated from production royalties and taxes, the project has created a number of economic benefits including improved roads, bridges, airport and seaport facilities, public-use medical facilities and other infrastructure improvements. Other benefits include technology transfer, hands-on training at ExxonMobil facilities worldwide for local-hire operations technicians and contract awards to Russian companies in excess of $3.2 billion. More than 13,000 direct and indirect jobs will be created for Russian nationals as a result of the initial development.

Exxon Neftegas Limited (ExxonMobil interest 30 percent) is operator for the project, which includes the Japanese company Sakhalin Oil and Gas Development Co. Ltd., (30 percent); affiliates of Rosneft, the Russian state-owned oil company, RN-Astra (8.5 percent), Sakhalinmorneftegas-Shelf (11.5 percent); and the Indian state-owned oil company ONGC Videsh Ltd. (20 percent).

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