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Exxon Starts Oil, Gas Production at $12.8 Bln Russian Project

Exxon Starts Oil, Gas Production at $12.8 Bln Russian Project

Oct. 2 (Bloomberg) -- Exxon Mobil Corp.'s $12.8 billion Sakhalin-1 project started producing oil and gas in Far East Russia a decade after the government and partners signed a contract to share production from the venture.

Oil and gas is flowing to the Khabarovsk region on the Russian mainland, the partners said today in Yuzhno-Sakhalinsk, Russia. Oil production will rise to 250,000 barrels a day in late 2006 from an initial 50,000 barrels and an export gas pipeline to China may be built within five years, said Stephen Terni, president of operator Exxon Neftegas Ltd.

Sakhalin-1 is the first of five projects on Sakhalin Island that may secure supplies for Asia and allow the region to reduce its dependency on the Middle East. The Royal Dutch Shell Plc will start supplying 9.6 million tons of liquefied natural gas from its $20 billion Sakhalin-2 project in 2008.

``This is the first of three fields to be developed by the Sakhalin-1 consortium,'' said Terni. ``The next phase will be gas export sales; the logical markets for that would be the regional markets and we're looking at China.''

The Sakhalin-1 group is developing the offshore Chayvo field using two rigs. Its licence includes the Odoptu and Arkutun Dagi offshore fields.

Sakhalin-1 may reach an agreement in 2006 to export gas to China National Petroleum Corp., the nation's biggest oil company, Terni said. China, the world's fastest-growing major economy, is the ``number one priority'' for gas sales in Asia, Alexander Medvedev, deputy chief executive of Russia's monopoly exporter OAO Gazprom, said in an interview in Beijing Sept. 21.

Exxon Mobil and its partners signed contracts on Sept. 26 to supply 1 billion cubic meters of natural gas a year to customers in Russia's Far East.

Initial Production

The project's initial production is 1.7 million cubic meters of gas a day and can rise to over 7 million cubic meters a day, Terni said.

The project's oil and gas fields may hold as much as 485 billion cubic meters of gas, enough to meet China's needs for almost 15 years, and 2.3 billion barrels of oil. Exxon Neftegas plans to invest $12.8 billion in the Sakhalin-1 fields, it said in August.

The other partners include Japan's Marubeni Corp., Japan Petroleum Exploration Co., and Itochu Corp., which together hold a 30 percent stake, and India's Oil & Natural Gas Corp. with 20 percent.

Pipelines

The first buyers, OAO Khabarovskenergo, the Khabarovsk regional power utility, and OAO Khabarovskkraigaz, a regional gas retailer, will ship gas from Sakhalin through pipelines belonging to units of the state-owned oil company OAO Rosneft. Rosneft holds a 20 percent stake in the project.

Exxon Neftegas may triple deliveries to buyers in the Khabarovsk region over the next five years to 3 billion cubic meters of gas a year, according to a Exxon Neftegas statement from Sept. 26.

Oil exports will begin in the second quarter of 2006 from a terminal at the De Kastri port in the Khabarovsk region. The terminal will allow tankers to ship oil all year, including months when ice covers the Sea of Okhotsk, which surrounds Sakhalin.

To contact the reporter on this story:
Hector Forster in Yuzhno-Sakhalinsk, Russia at 3359 or [e-mail].


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