Sakhalin-1 Project Participants Sign Letters of Intent for Gas Sales to Khabarovsk Krai Buyers
June 10, 2004 - Khabarovsk, Russia. -- Participants in the Sakhalin-1 Project today announced they have signed Letters of Intent to sell natural gas from Sakhalin offshore fields with two buyers in Khabarovsk Krai, Russia.According to the operator for the Project, Exxon Neftegas Limited (ENL), the Sakhalin-1 Participants will endeavor to begin gas deliveries to OAO Khabarovskenergo and OAO Khabarovskkraigas as early as the start of the 2005-2006 heating season. Gas sales to buyers in Khabarovsk Krai could grow to up to 3 billion cubic meters of gas per year by 2009. These Letters of Intent fix the agreement terms and conditions for the actual Sale and Purchase Agreements.
The Letters of Intent are the first ever concluded between investment project participants under a Production Sharing Agreement (PSA) and domestic Russian gas buyers for long-term gas sales based on international market pricing and commercial terms.
ENL President, Stephen Terni, remarked that, "It is fitting that the first deliveries of clean-burning natural gas from the Sakhalin shelf will benefit domestic customers in the Russian Far East. We are pleased that today's signing was endorsed and actively supported by the Khabarovsk Krai Government, and that the Sakhalin-1 Project also enjoys support from the highest levels of the Russian Federal Government," he added.
The gas associated with the early oil development to be delivered to the Khabarovsk Krai comes from the Chayvo Field, offshore Sakhalin Island, in the Sakhalin-1 license area. Gas will be produced from multiple development wells including those drilled using extended reach drilling (ERD) technology -- two ERD wells have already been successfully drilled. These extended reach wells reach targets eight kilometers from shore by drilling almost horizontally beneath the sea floor and are among the longest extended reach wells in the world. The gas will be sold at the Chayvo Onshore Processing Facility. The buyers will transport the natural gas to the Khabarovsk Krai through pipeline systems of Rosneft-SMNG and Daltransgas.
The Sakhalin-1 Project includes the Chayvo, Odoptu and Arkutun Dagi Fields located off the northeast coast of the Sakhalin Island. These fields have potential recoverable resources of approximately 2.3 billion barrels (307 million tons) of oil and 17 trillion cubic feet (485 billion cubic meters) of gas. Capital investment in the full Sakhalin-1 development is estimated at over US$12 billion.
Project benefits to Russia include direct revenues, estimated at US$40 billion, improvement of local infrastructure, new employment opportunities for Russian citizens, and participation by Russian companies in the Consortium, as well as by Russian suppliers and contractors providing goods and services to the Project. The value of the Project contracts awarded to Russian companies to date is approximately US$2.8 billion.
In addition to ENL (30% interest, operator), Sakhalin-1 Project members are the Japanese company Sakhalin Oil and Gas Development Co., Ltd. (30 %), Indian company ONGC Videsh Ltd. (20 %) and two Russian companies, Sakhalinmorneftegas-Shelf (11.5 %) and RN-Astra (8.5 %).
For more information on the Sakhalin-1 Project, please contact Glenn Waller (Moscow, 095- 980-5650, Michael Allen (Yuzhno-Sakhalinsk, 4242-646-88-12), Dilyara Sydykova (Houston, 281-654-7697) or logon to the Sakhalin-1 website (www.sakhalin1.ru or www.sakhalin1.com)