ONGC cautious in Sakhalin-1 forecasts after resumption of production: there was heavy dependence on foreign service cos

MOSCOW. Nov 23 (Interfax) - The Sakhalin-1 project was heavily dependent on the service support of major Western companies that left the Russian market this year, and it will be difficult for it to reach previous levels of production after resuming operations under the new conditions, ONGC, the Indian company participating in the project, said.

During a conference call with investors, ONGC Videsh Limited head Nirmal Kumar said that the company has information on the resumption of production in the PSA project and expects official confirmation of this information in the near future after it officially became one of the owners of the Russian project operator.

"Sakhalin used to give us about 2 million tonnes of oil a year. As I said, we have information about a resumption of production. However, it will take a lot of resources to get to the plateau. And going forward, these resources will be limited due to the fact that much of it was provided by Western service providers such as Schlumberger, Weatherford, Baker Hughes or Parker Drilling. Now, the maintenance of production itself could become a challenge," Kumar said.

"We will consider ourselves very lucky if we manage to reach 1.5 million tonnes by the end of this fiscal year [ONGC's fiscal year ends on March 31 - IF], and this is our goal for this fiscal year," he said.

Kumar assured the participants of the conference that after the change of the project operator to a Russian limited liability company the insurance of the vessels transporting crude from the project is not a cause for concern: "Up until now the operator of Sakhalin-1 has been a Western oil company which did not want to leave the P&I Club insurance. Now that the project has come under Russian control, there are many insurance options, including sovereign guarantees, (...) so this issue will not be a problem," he said.

As reported, in April, Exxon Neftegas Ltd, the project operator, declared a force majeure and began reducing oil production at Sakhalin-1, and later announced its intention to transfer its rights to an unnamed third party. A decree by Russian President Vladimir Putin signed on 14 October in Yuzhno-Sakhalinsk registered a company which was given the status of the new operator of the PSA project - Sakhalin-1 LLC. The sole executive body of the operator is Sakhalinmorneftegaz-Shelf, which received 11.5% in its charter capital (in proportion to its share in the PSA). Another 8.5% is managed by RN-Astra.

The share held by foreign participants totaled 80%, of which 30% were held by Exxon, 30% by SODECO and 20% by ONGC, were on the balance sheet of the LLC itself when it was founded. In November, in accordance with a resolution from Prime Minister Mikhail Mishustin, ONGC and SODECO received their respective shares in the authorized capital of the new operator. For its part, Exxon Mobil announced its withdrawal from the PSA project and its complete withdrawal from Russia.

Sakhalin-1 includes three oil and gas fields: Chayvo, Odoptu, and Arkutun-Dagi on the northeastern shelf of the peninsula. Total reserves are estimated at 307 million tonnes of oil and 485 billion cubic meters of natural gas, with annual production of 11.3 million tonnes of oil.