How would you summarize last year’s performance at Sakhalin Energy?
Sakhalin Energy’s operations last year were quite successful. One of the most important milestones that we achieved, was the start of gas deliveries to Russia’s domestic market. For this purpose we constructed two Gas Transfer Terminals: the one in the north of the Sakhalin island serves to deliver gas to the mainland, while the one in the south supplies gas to the local consumers in Sakhalin. The Southern GTT, which was built by Gazprom to receive our gas, was inaugurated by Vladimir Putin in the spring of 2011, and the Northern GTT was commissioned in the autumn of the same year.
A key achievement of our company is the reliability of our hydrocarbon supplies to our buyers. Due to the production optimization, we managed to produce and offload more LNG than was originally planned. Last year we produced 10.6 million tons of LNG while the installed design capacity of the plant is 9.6 million tons.
All in all, we delivered 183 standard LNG cargoes (a standard cargo is 145,000 cubic meters of LNG). Most of the gas was supplied to Japan (69.2%) and Korea (25.98%). The remaining LNG was supplied to Thailand, China and Taiwan.
The high production performance of our Company enabled us to respond to the energy needs of Japan which dramatically rose last year following the devastating earthquake and the subsequent restructuring of Japan’s energy economy. We delivered to Japan, in excess of our contractual obligations, 34 LNG cargoes, of which 9 cargoes were shipped as additional production volumes, while the rest cargoes were diverted by the decision of our shareholders.
In 2011, our Vityaz oil blend, which Sakhalin Energy had introduced to the market, was supplied to 12 buyers, with shipments accomplished to the ports in Korea (37.84%), China (31.06%), Japan (22.64%), Philippines, Thailand and other countries.
So, I believe it will be right to say that the Company has been meeting the challenges we have faced.
What are your key objectives for 2012 and moving forward over the next few years?
The Company’s objectives are governed by its priorities, which are safety, reliability, cargos, costs and growth.
Our major development projects are associated with efficient operation of our key production assets. They are designed to support stable, high volume oil, gas and LNG production.
The Company carries on its large-scale drilling campaign and drilling process optimization programme alongside with the expansion of the produced water re-injection system capacity and water breakthrough control.
We have completed the two-year rejuvenation project on our first offshore Molikpaq platform (which is Russia’s first offshore production platform ever). This enabled us to start retrofits and workovers of the existing suspended wells, as well as to drill new wells in the Astokh Area. The Piltun Area drilling campaign is also progressing. Another project is associated with drilling wells in the Lunskoye Field oil rim.
This year we expect to produce approximately as much oil as in 2011. Concerning gas and LNG production, in the summer of 2011, the Company completed the first major integrated gas system maintenance shutdown on all the gas assets – LUN-A Platform, Onshore Processing Facility (OPF), gas pipeline and the LNG Plant. It was undertaken to support the maintenance activities across all gas assets and was a highly challenging technical operation in itself. The gas assets shutdown and the gas system maintenance program were completed successfully.
Equipment reliability and integrity and further optimization of the whole gas system operation ensure the current high rate of LNG production. We hope that this reliability will let us exceed the planned annual production targets.
Speaking of the further Project growth in the next five years, the development of the South Piltun Area (accumulations of hydrocarbon reserves in the Piltun-Astokh Field which have not yet been developed) may become a convenient source of incremental reserves and help us maintain the oil and gas production plateaus. Currently, using the Astokh and Piltun Areas field data, our experts are examining the geological models to define, more accurately, the reserves and to review all possible options for the field and infrastructure development.
This summer our Company has completed soil surveys at the potential site where the additional South-Piltun offshore platform may be installed. The survey work scope included an acoustic and a 2D seafloor seismic high resolution surveys, as well as soil sampling. The site survey results will be used to evaluate the seafloor conditions and to identify ways to minimize risks, such as the presence of shallow gas or any conceivable obstructions under the seabed.
I think that the decision whether the Company will continue to develop the South Piltun Project and the development scenarios will be finalized in the near future.
Regarding the more distant prospects, today it is safe to say that for the next 15 to 20 years we will be able to maintain a stable and reliable gas production level to support the operation of our LNG plant. By that time, other reserves of the Piltun-Astokhskoye field will be added to the development, extending the sustainable gas production for several years. In a longer-term perspective, there are many various scenarios of how the future may evolve: there are many factors, primarily technical, which may change. The advancement of technologies is unequivocal and this will aid the enhancement of ultimate recovery.
With BP recently confirming it’s pulling out of Sakhalin 5, is there scope or potential for Sakhalin Energy to get involved with further blocks in the area?
Sakhalin Energy is the operator of the Sakhalin-2 Project under the Sakhalin-2 Production Sharing Agreement, which covers the development of two License Areas – the Piltun-Astokh and Lunskoye oil, gas and condensate fields.
It means that our company cannot be involved in the development of any other hydrocarbon fields outside those covered by our licenses. The company is not considering participation in any other existing or future developments offshore of Sakhalin.
How has the 4D seismic data which you obtained in the summer of 2010 affected the company’s reservoir understanding and production? What is the current state of production from these fields, and how do you plan to firstly manage the fields decline and ultimately extend the fields life?
With regard to the future field development plans, I can say that Sakhalin Energy has accumulated vast experience over the years of operations in the subarctic environment. We were the first to have gained such hands-on experience in the offshore development. The hydrocarbon fields like ours have never been developed in Russia before, and we had to rely only on our own lessons learnt.
Reality is always, to a greater or lesser degree, different from the assumptions about the future. This is exactly our case: the operation of a project in the subarctic offshore environment turned out to be more challenging than we could foresee at the design phase. As it is, the 2010 Piltun-Astokh seismic survey data and the ongoing modeling exercises, which used actual production data, allowed us to get a better understanding of the geological structure. And we have also gained working knowledge of the actual well performance.
The Company has amassed a huge amount of information which is used to refine our plans for the future. These updated development plans are currently being reviewed.
Sakhalin Energy is a key provider of LNG to the world markets. What is the current status of your LNG trains and what expansion plans do you have for the future?
Our LNG Plant system’s adjustment programme has already boosted LNG production, and we plan to continue this work.
As for the LNG Plant expansion , it’s for our shareholders to decide whether or not the Train 3 project should be pursued. The pre-FEED (Front End Engineering Design) activities that we have launched upon the shareholders’ request will be hopefully completed by the end of 2012. The shareholders will make their decision based on all the information available.
With Russia looking to expand further into the offshore market, what experience or knowledge can be drawn from Sakhalin Energy to aid these projects?
Our company has been dubbed the “trailblazer” of Russian offshore projects, and with good reason. We were the first to develop offshore fields in a remote sub-Arctic area of Russia using gravity-base platforms. Sakhalin Energy installed its oil and gas production platforms on the Sakhalin shelf, one of which was Russia’s first natural gas production platform. Our LNG plant was the first and remains the only LNG plant in Russia.
It wouldn’t be an exaggeration to say that our experience in building from scratch an integrated oil and gas infrastructure comprising production, transportation and processing facilities, as well as in managing one of the world largest oil and gas projects, will be of great value for future integrated offshore projects in Sakhalin or any other Far-Eastern or Arctic offshore area in Russia.
Sakhalin Energy was the first to use a unique practice of attracting and developing Russian vendors and contractors. Our project gave those companies access to new technologies and products, opening up new markets for their goods and services. For example, the first steelworks in Russia to have manufactured Ø30” 1.5” surface casing for Piltun-Astokhsloye and Lunskoye wells was Vyksa Steelworks, which joined the club of the five high-tech manufacturers capable of competing with Japanese and European producers of casing pipes. And I could give you more examples.
I can also tell you with great pleasure that Sakhalin Energy’s practices are being replicated. To give you an example, a dry dock was set up for a special purpose of building the gravity-base substructures for our platforms. The Piltun-Astokhskoye-B and Lunskoye-A substructures built in the dry dock were the largest concrete structures ever manufactured in Russia. A few years later Sakhalin-1 contracted the same dry dock to build concrete substructures for their platforms. Another example is LNG shipping. Russian shipping companies had never before shipped LNG and had no experience in operating LNG carriers. They are now full-fledged players in the global LNG shipping sector.
Sakhalin Island is a very sensitive environmental area and the company has undertaken a lot of work to protect the marine and island wildlife. What environmental projects are you currently working on?
The flora and fauna of Sakhalin are very sensitive to induced impacts. Minimising the impacts from the Sakhalin-2 operations has always been our priority. For that purpose we have developed and are implementing a programme of environmental monitoring and biodiversity protection. We are monitoring flora and fauna, soil cover, protected bird species, river ecosystems, marine environment, small mammals and ballast water in the areas potentially affected by onshore pipelines and other project facilities. The monitoring results provide a basis for our future environmental protection plans.
The monitoring of the Steller’s Sea Eagle occupies a special place in the multitude of the Company’s environmental protection programmes. In Japan this species is regarded as a national natural monument. Sakhalin Energy’s Steller’s Sea Eagle monitoring programme has been in place since 2004.
Another important programme is the monitoring of wetlands, which in case of disturbance take a very long time to recover.
One more major programme implemented by the Company for environmental protection is a Ballast Water Control Programme. Sakhalin Energy began handling the ballast water issue as soon as the Company started its marine operations, well before the relevant International Convention came into effect.
The Company’s Western Grey Whale Protection Programme is well known to both experts and the public at large. Sakhalin Energy, in addition to conducting the Western Grey Whale research, has also taken unprecedented steps to protect the marine giants. An independent Western Grey Whale Advisory Panel was established at the Company’s initiative and under the IUCN sponsorship as a long-term advisory body.
On a number of occasions, Sakhalin Energy amended its plans to follow the Advisory Panel’s recommendations. For example, it postponed the construction of the Sakhalin-2 onshore pipelines and even changed the pipelines’ route, and also delayed the planned seismic survey, etc.
Our Western Gray Whale protection activities involve a satellite tagging programme, which is co-financed by Sakhalin Energy and Exxon Neftegaz Limited. The satellite tagging helps obtain more accurate information about the routes of the grey whales’ migration.
I believe that our environmental protection programmes set a good example of the scientists, NGOs and businesses successfully joining efforts to address environmental issues. We plan to operate in Sakhalin for a very long period of time, and we stay focused on sustainable development, in which environmental protection is a key element.