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ExxonMobil and Moscow happy with Sakhalin-1

Things are going according to plan at Sakhalin-1, says ExxonMobil By Tom Nicholls in Houston Peak production at Russia’s Sakhalin-1 project of 250,000 barrels a day has been reached and the Russian government is satisfied with the way the offshore oil and gas field is being developed, according to Rex Tillerson, chief executive of project leader ExxonMobil. “So far everything is going well under our Sakhalin-1 agreements,” Tillerson said on the sidelines of the Cera Week conference in Houston, Texas. “We’re having no issues at this time whatsoever.” He added: “I think they [the Russian government] are happy with our performance.” There has been some speculation that Moscow would interfere in the ownership structure or contract terms governing Sakhalin-1, after the foreign companies developing the nearby Sakhalin-2 project were forced, late last year, to cede a stake of 50%-plus-on-share in the project to Gazprom. Sakhalin-1 differs because the consortium already involves a state-owned Russian company – Rosneft, albeit with a stake of just 8.5%. Also, cost overruns at the ExxonMobil-led project have been overshadowed by overspending at Shell-led Sakhalin-2. Cost overruns are a sensitive subject with the Kremlin because, under the production-sharing agreements that govern both these Sakhalin Island projects royalty and tax payments to the state are delayed because the developers are entitled to recoup costs first. Nonetheless, there have been suggestions that the general drive towards greater state control of energy resources in Russia would result in some kind of renegotiation of the terms of the Sakhalin-1 project. Meanwhile, Tillerson said discussions with China National Petroleum Corporation (CNPC) over possible gas exports from Sakhalin-1 continue, following the signing last year of a heads of agreement for gas sales. However, Tillerson added that the consortium continues to consider other options and is talking to customers in Japan and India. India’s ONGC has in the past expressed an interest in liquefying Sakhalin gas for export. Sakhalin-1 began producing oil and gas in October 2005, with gas deliveries being made to Russia’s Khabarovsk region and oil being exported via the De-Kastri oil terminal on Russia’s east coast. ExxonMobil’s partners in Sakhalin-1 include Rosneft, India’s ONGC and a group of Japanese companies. Sakhalin-1’s recoverable resources are estimated at 2.3 billion barrels of oil and 17.1 trillion cubic feet of gas.