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Sakhalin II boosts Russian enterprise to the tune of $6 billion

Posted: 06 April 2006

Sakhalin Energy Investment Company Ltd, the project operator of Russia’s first offshore oil and gas project, reported that Russian companies received about $1 billion worth of new contracts for project-related work in 2005, which constitutes 87% of the total amount of all new contracts awarded in 2005.

This brings the total value of contracts with Russian vendors and suppliers to over $6 billion since 1996.

This major boost to Russian enterprise was announced at a meeting of the Supervisory Board – the highest governing body of the Sakhalin II Project – held on Wednesday 5 April in Moscow. The Supervisory Board consists of six representatives of the Project operator and investor – Sakhalin Energy Investment Company, Ltd. – and its shareholders, and six representatives of the Russian Federation Government and the Sakhalin Region Administration.

The Supervisory Board meeting reviewed the operator’s Health Safety and the Environment report, the status of Project financing, and the latest information concerning training of personnel.

The parties also discussed the progress of the ongoing review by Russian Authorities of the Amendment to the Sakhalin II Phase 2 budget, and ways to optimise and accelerate this work.

In addition to headline value of Russian content, the presentation to the supervisory panel emphasised the unique exposure Russian companies have gained in technologies never before used by Russia for the exploration and production of hydrocarbons, such as construction of offshore platforms, and production and transportation of Liquefied Natural Gas (LNG).

A detailed review was provided on the status of the Phase 2 project’s implementation and acknowledgement was made of the progress achieved to date in the construction of this complex innovative project.

Overall Phase 2 progress is now 70%, with 1200 km of onshore trunk pipelines welded and the construction of the Onshore Processing Facility going forward at a rapid pace.

Future milestones include the sail-away of the 22,000 tonnes Lunskoye topside from Korea scheduled for early summer.

It will be towed from its construction yard to its planned location offshore Sakhalin Island where it will be placed atop a concrete Gravity Base Structure that was installed on the sea-bed last summer.

In strict conformity with the schedule, the construction of Russia’s first LNG plant is also moving steadily forward with all major equipment expected to be installed on the first LNG train before the end of the year.

Russian gas will start to flow to Asian Pacific and American markets in 2008. Discussing the Company’s gas sales efforts, the parties stated that in little over two years Sakhalin Energy had achieved a major marketing breakthrough for Russia by forward selling practically all of the project’s LNG production capacity. There are significant successes in selling the LNG volumes, with agreements expected to be signed this year.



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