26 Oct 2010 17:49

Russian company may become Sakhalin-1 operator - Audit Chamber (Party 2)

MOSCOW. Oct 26 (Interfax) - The Russian Audit Chamber does not rule out that Sakhalin-1 project operator Exxon Neftegas may be replaced by a Russian company, Auditor Mikhail Beskhmelnitsyn told journalists.

"No one is irreplaceable. We consider any issue and any proposal. Today Russian companies may arrive in their place," he said, asked whether the operator might be changed.

The issue of revoking Sakhalin-1 license is not being examined at present, he said.

Exxon Neftegas was not immediately available for comment.

Sakhalin-1 involves the phased development of three fields with reserves totaling an estimated 307 million tonnes of oil (2.3 billion barrels) and 485 billion cubic meters of gas (17 trillion cubic feet). Oil production commenced at the Chayvo field in 2005. ENL put Odoptu, the second oil field in the Sakhalin-1 project, on stream at the end of September and will continue to prepare the Arkutun-Dagi field to go on stream in 2014. The Odoptu field ought to produce 1.5 million tonnes or 11 million barrels of oil next year - enough to offset falling production at Chayvo, the first of the fields to go into production, and achieve approximately 3% growth in Sakhalin-3 oil production in 2011.

The Sakhalin Natural Resources Ministry has said Saklhalin-1 produced just over 8.2 million tonnes of oil and 9 billion cubic meters of gas in 2009, compared with 9.6 million tonnes and 8.3 bcm in 2008. The most oil the project has produced was 11.2 million tonnes in 2007.

Sakhalin-1 participants include project operator Exxon Neftegas (30%), Rosneft (20%), ONGC (20%) and SODECO (30%).

The project operator has for several years been discussing exporting the gas with China and Gazprom . But Gazprom and the Energy Ministry have both said the Sakhalin-1 gas is needed for the Far East's gasification. ENL has said it is prepared to supply gas to the domestic market, but that some of the gas would have to be exported in order to keep the project profitable.

The Authorized State Body for the project has so far been unable to approve the 2010 Sakhalin-1 costs. It approved a budget with approximately $1 billon in expenses in December last year, but ENL wants spending totaling about $3.5 billion in 2010. The Energy Ministry has said on several occasions that it does not like the project's economic model, including the fact that the operator has not yet resolved the issue of selling the project's gas.

A source close to the Energy Ministry has told Interfax that the Authorized State Body might meet at the end of October or early November once ENL had presented its updated plan to equip the Sakhalin-1 fields. The original plan was drawn up in 2003, but the schedule of works has altered considerably since then, including where this concerns the phased commissioning of the fields.

It is also expected that the Authorized State Body will look at the project's budget for this year, which could run to $2.6 billion.

The Audit Chamber's Beskhmelnitsyn said Exxon Neftegas had submitted project costs of $95.3 billion to 2055, amounting to an overrun of 120%.

"In August 2010, Exxon Neftegas presented a long-term program of works and costs to 2055, envisaging a significant reduction in operating figures yet a growth in costs from a planned $48.2 billion to $95.3 billion," he said.

Beskhmelnitsyn also said the Audit Chamber was proposing to make Russian companies acting on the state's behalf in production-sharing agreements submit the control agencies with information on costs borne during the course of a project.

"We're discussing expanded monitoring. There are operators who are obliged to have information - I mean operators acting on Russia's behalf - and they should let us have it," he said.