Sakhalin Island’s Vice Governor, Sergei Belozerskikh, has signed a Protoco ...

Sakhalin Island’s Vice Governor, Sergei Belozerskikh, has signed a Protocol of Mutual Obligations that gives the go ahead for Sakhalin Energy to invest almost $15mn on road and infrastructure repairs that are required in seven of the Island’s municipalities for the implementation of the Sakhalin II, Phase 2 project. Shareholders in Sakhalin Energy are Shell (55%), Mitsui & Co (25%) and Mitsubishi Corporation subsidiary Diamond Gas Sakhalin (20%). The Sakhalin II development represents the largest single foreign direct investment project underway in Russia at the moment. It is the first production sharing agreement (PSA) to be signed in Russia and the first to go into operation following commencement of oil production under Phase 1 of the Sakhalin II project. Phase 1 has been successfully producing oil from the Vityaz complex offshore Sakhalin since July 1999. The complex consists of the Molikpaq production platform, a single anchor leg mooring buoy and the Okha floating storage and offloading unit, and is located on the on Astokh feature of the Piltun-Astokhskoye (PA) reservoir offshore Sakhalin. The Molikpaq is the first offshore oil production platform in the Russian Federation. Production is currently limited to the ice-free period during the summer months. Output during the 2002 season amounted to 10.8mn barrels, which has been exported to customers in Japan, China, and Korea. Operations are well advanced to commence the Molikpaq’s fifth production season at the beginning of June. Target crude oil production this season is 9.7mn barrels - about 70,000 b/d. The reduction in volume over previous seasons is due to natural pressure reduction in the reservoir. A pressure maintenance project (PMP) is currently underway to boost production back up to early production levels of 90,000 b/d using water injection to re-pressurise the reservoir. Phase 2 of the project is thought to be the biggest single integrated oil and gas project ever undertaken, and calls for the further development of the PA field - an oil reservoir with associated gas - and the development of the Lunskoye field - a gas reservoir with associated condensate. In addition, the Phase 2 project will involve the construction of an onshore processing facility to separate gas and condensate from the Lunskoye field, 800 km of pipelines to transport the oil and gas, an oil export terminal and Russia’s first ever LNG plant. The Phase 2 project will also enable year round production from the Molikpaq following the installation of offshore pipelines that will bring the oil ashore at Piltun Bay.