Case 4 Sakhalin 1 Project

Sakhalin-1 Project:
Delivering Excellence in Project Execution

This case is about the Sakhalin-1 Project considered to be the largest and the most
ambitious world-class oil and gas development projects in the world. Located on the
northeast shelf of Sakhalin Island in Russia, the project is developed by a consortium
of Russian, Indian, Japanese, and US oil and gas companies.
Operated by Exxon Neftegas Ltd (ENL), the Sakhalin 1 Project includes three offshore
oil fields, the Chayvo, Odoptu, and Arkutun Dagi. The project is being developed in
four phases using both onshore and offshore drilling fields. The total recoverable
reserves were estimated at 307 million tons of oil and 485 billion cubic meters of
natural gas.
The case describes the development and execution of the project. Advanced
technologies and construction methods were adopted in the execution of the project
which reduced the overall cost of development and minimized environmental impact.
The case highlights how the project overcame the technical and environmental
difficulties to achieve its goals. It discusses how the project team successfully
managed the challenges associated with the project such as limited infrastructure,
complex regulatory rules, limited skilled labor, and difficult logistics. Analysts opined
that with careful planning and efficient use of technologies, the project successfully
completed its first phase of development.
The project, one of the largest single foreign direct investments in Russia, aimed to
fulfill the growing energy demand worldwide. It provided energy supplies for
domestic use and for export to Northeast Asia and consolidated Russia's strategic
position as an energy supplier to world markets. The case also discusses the benefits
the project brought to Russia, particularly to people of the island of Sakhalin.
The case concludes by discussing the future phases of the Sakhalin-1 Project.
Sakhalin-1 Project:
Delivering Excellence in Project Execution
The key to maximizing resource value lies in the ability of a global organization to
apply leading-edge technology and deliver excellence in project execution. Nowhere
is this truer than in the challenging Russian Arctic, where ExxonMobil is proud to be
associated with Sakhalin-1 one of the most ambitious projects industry has ever
undertaken.1
-
JB McNeil, vice-president, ExxonMobil Development Company in 2008.
Introduction
In December 2008, the American oil and gas company ExxonMobil Corporations2
(ExxonMobil) oil and gas development project in Russia3, the Sakhalin-1 project
received the Excellence in Project Integration Award from the committees and
sponsoring societies of the International Petroleum Technology Conference 4 (IPTC).
The award was given to the company for effectively implementing the first phase of
the Sakhalin-1 Project through the application of modern production engineering
techniques, geoscience knowledge, construction and facilities engineering practices,
health, safety, and environmental processes, human resources policies, community
development, and collective teamwork. Commenting on the achievement, Mark
Albers, senior vice president of ExxonMobil, said, We are extremely proud of the
Sakhalin-1 project achievements. The Sakhalin-1 project is one of the largest energy
investments in Russia and is a testament to international cooperation to successfully
execute this project in one of the most challenging Arctic environments in the world
in a safe and environmentally responsible manner.5
The Sakhalin-1 Project is one of the largest oil and gas development projects in the
world. Located on the northeast shelf of Sakhalin Island, the project comprises three
offshore oil fields, the Chayvo, Odoptu, and Arkutun Dagi. The total oil and gas
1
Sakhalin 1- A New Frontier,

http://www.exxonmobil.com/Corporate/Files/Corporate/SakhalinEnglish_Intro.pdf.
Based in Irving, Texas, ExxonMobil Corporation is one of the worlds largest oil & gas
companies. It is involved in the exploration, production, transportation, and sale of crude oil
and natural gas. The company markets fuels and lubricants under three brands Esso,
Exxon and Mobil. For the year ended 2008, the companys revenues were US$ 477.35
billion.
Prior to 1991, Russia was the largest republic in the Soviet Union (USSR). The troubled
economic conditions together with political turmoil led to the dissolution of the Soviet Union
in 1991 into fifteen separate countries. As a result, Russia together with the Ukraine and
Belarus formed the Commonwealth of Independent States which was later joined by other
Soviet republics.
The IPTC Excellence in Project Integration Award recognizes companies which
successfully execute multi billion oil and gas industry projects. The International Petroleum
Technology Conference (IPTC) is an international oil & gas conference and exhibition. IPTC
addresses key challenges and issues plaguing industry specialists in the gas sector world
over. The third edition of the IPTC was held from 3-5 December 2008 at the Kuala Lumpur
Convention Center and was hosted by PETRONAS, the national petroleum corporation of
Malaysia. About 7,568 participants from 57 countries attended the event.
Sakhalin-1 Project Receives Award for Excellence from International Petroleum
Technology Conference, www.sakhalin1.com, December 3, 2008.
382
Sakhalin-1 Project: Delivering Excellence in Project Execution

reserves of the fields are estimated to be about 307 million tons (2.3 billion barrels) of
oil and 485 billion cubic meters (17.1 trillion cubic feet) of natural gas. The project is
operated by Exxon Neftegas Limited 6 (ENL), a subsidiary of ExxonMobil, on behalf
of an international consortium comprising Russian, Indian, Japanese, and US oil and
gas companies. The project was declared commercial in October 2001, and the
development of oil and gas from the fields began in 2005.
In the first phase of development of the project, oil was produced from the Chayvo
field using both onshore and offshore facilities. These facilities included the
construction of one of the worlds largest land-based drilling rigs, an offshore drilling
platform, an onshore oil and gas processing facility, a crude oil pipeline, and an oil
export terminal. Initially, the project produced up to 50,000 barrels of oil and 60
million cubic feet of natural gas per day. The oil was exported to the Asian markets
whereas the natural gas was supplied to domestic customers in the Khabarovsk Krai7
region. The subsequent phases were to involve development of oil and natural gas
from the Odoptu and Arkutun-Dagi fields. In 2008, the development of the Sakhalin-1
Project was put on hold for about two months as it awaited budget approval from the
Russian government for the years 2008 and 2009. After the budget was approved by
the Russian Energy Ministry in April 2009, the project resumed with the development
of the second phase of the project.
According to experts, the multi-billion dollar Sakhalin-1 Project was one of the largest
foreign investment projects in Russia. The investment was expected to reach US$ 12
billion over the life period of the project. In addition to oil and gas development, the
project was expected to bring in significant economic as well as social benefits to the
Russian community. Economic benefits included improved transportation and medical
facilities and other infrastructure developments. Besides generating revenues to the
government, the contracts awarded to Russian companies as part of the development
of the project were estimated to be more than US$ 3.2 billion. More than 13,000 jobs
were created for Russian nationals during the initial development of the project.
Experts opined that though the project brought in significant benefits, it was replete
with challenges. The project had to deal with multiple problems including a harsh subArctic climate, a remote location with minimum infrastructure, logistic problems,
limited availability of skilled labor, and a complex regulatory system. Despite these
challenges, it was successful in completing the initial development phase and was
reportedly prepared to address the future challenges too. Experts were of the view that
with global energy demand expected to increase by almost 50% by 2030, the
Sakhalin-1 Project would become a vital link in the global energy supply and in
meeting the worldwide energy demand. Talking about the benefits of the project,
Steve Terni (Terni), president of ENL, said, Working together, Russians, Americans,
and our international partners have overcome great challenges to accomplish what
many previously doubted was even possible. Forty years from now, Sakhalin-1 is
expected to still be reaping benefits for Russia, the Asia-Pacific, and an energy hungry
world. Equally important, it has created opportunities for people to enjoy a better
quality of life. With support from the Russian local, regional, and federal
governments, the Sakhalin-1 consortium will continue to work to make this people
achievement even greater.8
6
Exxon Neftegas Limited (ENL) is a subsidiary of ExxonMobil Corporation. It is the operator

of the Sakhalin-1 Project and holds an interest of 30% in the project.
Khabarovsk Krai is a Russian federation located in the Russian Far East along the coastline
of the Sea of Okhotsk.
The administrative center of the Krai is the city of Khabarovsk.
383
International Business
Background Note
Sakhalin, one of largest islands in Russia, is located off the east coast of Russia in the
Sea of Okhotsk. Colonized by Russia and Japan in the 18th and 19th centuries, the
island came under Russian control in 1875. The Sakhalin region is popular for its vast
natural and hydrocarbon resources. Oil reserves in the area are estimated to be around
14 billion barrels while the natural gas reserves are approximately 96 trillion cubic
feet.9 Commercial oil reserves were discovered in the region in 1910 in the Okha field.
But because of political unrest, difficult climatic conditions, and lack of adequate
finance, the oil fields could not be developed.
In the early 1970s, a subsidiary of Rosneft,10 Sakhalinmorneftegas Ltd.11
(Sakhalinmorneftegas) pursued the development of offshore oil resources in the
Sakhalin continental shelf. During that time, the Russian oil and gas industry lacked
adequate infrastructure to carry out oil explorations in the region. Moreover, the
industry did not have the technical know-how and had very limited experience of
offshore oil and gas development in sub-arctic regions such as Sakhalin Island.
Therefore, Sakhalinmorneftegas, with support from the Russian government, decided
to seek foreign assistance. Japan was considered as a potential investor as it had some
major oil and gas companies which could provide the needed infrastructure.
Geographically too, it was close to the Sakhalin Island. In 1975, Russia signed a
cooperation agreement with the government of Japan for oil and gas exploration and
development in the region. As per the agreement, Sakhalinmorneftegas had to work
with Japanese consortium Sakhalin Oil and Gas Development Co., Ltd. 12 (SODECO)
to carry out oil and gas development in the region.
Between 1977 and 1989, Sakhalinmorneftegas and SODECO were involved in
exploring the oil fields in the region. The oil exploration process involved seismic
surveys13 and exploratory drilling. The extensive efforts led to the discovery of three
oil fields in the region the Odoptu field in 1977, the Chayvo field in 1979, and the
Arkutun Dagi field in 1989. With the discovery of the oil fields, the Russian
government planned to develop Sakhalin Islands offshore oil reserves and export
energy to Northeast Asian markets, mainly Japan.
In 1991, after the dissolution of the Soviet Union, Russia became a separate state and
the country opened its doors to foreign investments. The Russian government was
looking for more international investors who could explore and develop the oil fields
in the island. The government then decided to auction off sections of the Sakhalin
shelf for developing oil and gas. It began to offer tenders for blocks of acreage on
9
http://www.eoearth.org/article/Energy_profile_of_Sakhalin_Island,_Russia.
Rosneft is the largest oil producing company in Russia. It is involved in the exploration and
production of hydrocarbons, petroleum products, and petrochemicals. For the year ended
2008, the companys average daily crude oil production was about 2.12 million barrels. The
Russian government holds a 75.16% stake in the company.
11
In 2008, Sakhalinmorneftegaz Ltd produced 1.76 million tons (12.9 million barrels) of crude
oil and 0.63 billion cm of gas.
12
Sakhalin Oil and Gas Development Co., Ltd. (SODECO) is a consortium of several major
Japanese companies, including the Japanese National Oil Company. The other principal
shareholders in the company are Japanese investment companies such as JAPEX, Itochu and
Marubeni.
13
The seismic survey is a type of geophysical survey which measures the properties of the
earths sub surface by generating, recording, and analyzing sound waves (also called as
seismic waves) that travel through the Earth. The surveys generate seismic images which
help geologists in locating underground structures that may contain oil or gas reserves. These
surveys are primarily used for oil and gas exploration.
10
384

Sakhalin Island. The government along with the local Sakhalin Oblast
administration14 divided the Sakhalin continental shelf into six blocks and named
them Sakhalin 1-6 (Refer to Exhibit I for a snapshot of the Sakhalin blocks). The
contracts for developing the oil reserves in each of these blocks were allocated to
various consortiums comprising foreign as well as Russian multinational oil
companies. Besides the six blocks, the government planned to develop three more
blocks on the Sakhalin continental shelf. The new blocks which were yet to be
awarded would be called Sakhalin 79. As of 2008, all the six Sakhalin projects were
in different stages of development. Of the six blocks, Sakhalin-1 and Sakhalin-2 were
the front-runners as the oil and gas produced from these regions was expected to meet
a significant percentage of energy demands in the Asian continent.
The Sakhalin-1 Project area comprised the Chayvo, Odoptu, and Arkutun Dagi fields.
These fields were estimated to contain 2.3 billion barrels of oil (307 million tons) and
17 trillion cubic feet of gas (485 billion cubic meters). Initially the contract to develop
the Sakhalin-1 oil fields was awarded to a consortium comprising US, Russian, and
Japanese oil and gas companies. ENL and SODECO held a 30% interest each in the
project. The other investors were Russian oil companies Sakhakinmorteneftegas
(23%), and RosneftSakahalin (17%). In 2001, the ownership pattern changed as
Indian oil and gas company ONGC Videsh Limited15 joined the Sakhalin-1
consortium with a stake of 20% while the subsidiaries of Russian oil company
Rosneft, Sakhalinmorneftegas-Shelf, and RN-Astra had an 11.5% and 8.5% stake in
the project respectively. The responsibility of the consortium was to manage the
construction of the projects oil and gas extraction and transportation facilities. Capital
investment over the life of the project was estimated to reach US$ 12 billion, making
it one of the largest foreign direct investments in Russia.
Exploration and Project Documentation

In late 1993, the five-member consortium signed a Memorandum of Understanding
with the Russian government to formulate the Sakhalin-1 production-sharing
agreement16 (PSA).The PSA, considered as the governing document for the Sakhalin1 Project, required about two years to negotiate. Finally in October 1996, the PSA
was approved and executed. It established a clear set of guidelines related to the
operational, financial, and administrative aspects of the project. Under the PSA, the
Russian government was to retain ownership of the oil and gas resources in the state
while the consortium would invest the capital required to develop the fields.
14
15
16
The Sakhalin Oblast is a federal region of Russia comprising the island of Sakhalin and Kuril
Islands.
The ONGC Videsh Limited (OVL) is a wholly-owned subsidiary of the national oil company
of India, the Oil and Natural Gas Corporation Limited (ONGC). It is involved in the
development of oil and gas acreages including acquisition of oil and gas fields, exploration,
development, production, transportation, and export of oil and gas. The companys
international oil and gas operations produced about 8.802 million metric tons of oil and gas
in 2007-08.
Production sharing agreements (PSAs) is a commercial contract between an investor and the
state government which allows the investor to undertake large scale and long term
investments in the state. The PSA defines the terms and conditions for the exploration and
development of resources through a contract based arrangement that exists over the life of
the project.
385
Exhibit I
The Sakhalin Blocks (May 2008)
Sakhalin I
Sakhalin II
Sakhalin III
Kirinskii,
Odoptu
Primary Field/Block
Names
Chayvo
Arkutun-Dagi
Veninskaya,
VostochnoOdoptu,
Aiyashkii
Sakhalin V
Sakhalin VI
Pogranichny
Block, West
Schmidt,
Okruzhnoye
field
KaiganskoVasyukansk (KV), E. Schmidt
Pogranichny
Oil Reserve
Estimate
975 million
bbl*
1.0-1.2 billion
bbl
4-5 billion bbl
880 million
bbl.
E. Schmidt -2.98
bill. bbls). K-V 8.5 billion bbls
600 million bbl
Natural Gas
Reserve Estimate
11 Tcf**
17.3 Tcf
27-38 Tcf
19 Tcf.
15.2-17.7 Tcf
n/a
Phase 1: $4.5
billion, Phase 2:
$20 billion
$13.5 billion
expected
(ExxonMobil$80m in
geological
studies)
$2.6 billion
expected
$3-5 billion
expected
n/a
Net Total
Investment
386
PiltunAstokskoye,
Lunskoye
Sakhalin IV
Phase 1: $5
billion
Sakhalin I
Current & Expected

Production Level
Primary Project
Developers
Max oil
production
from Chayvo
field achieved
in Feb. 2007 at
250 kb/d.
Commercial
gas production
expected in
2008
Exxon
Neftegaz
(30%),
SODECO
(30%), ONGC
Videsh (20%),
Sakhalinmorne
ftegaz
(RosneftSakhalinmorne
ftegaz
Subsidiary,
11.5%), and
RN Astra
(Rosneft
Sakhalin II
Sakhalin III
Sakhalin IV
Sakhalin V
Sakhalin VI
Current: 80,000
bbl/d for 6
months
Phase II:
180,000 bbl/d,
year-round oil
production
expected by
2009, LNG
production
expected by
2009
n/a
n/a
n/a
n/a
Gazprom
(50%+),
Sakhalin Energy
Investment
Company: Shell
(27.5%), Mitsui
(25%),
Mitsubishi
(20%)
Rosneft is
primary
developer.
Veninsky
Block: Rosneft
(49,8%),
Chinese
Sinopec
(25.1%) and
Sakhalinskaya
Neftyanaya
Kompaniya
(25.1%)
BP (49%),
Rosneft (51%)
Elvary Neftegaz:
BP (49%), Rosneft
(51%)
Urals Energy
(via Petrosakh),
Alfa Eco
387
Sakhalin I
Sakhalin II
Sakhalin III
Sakhalin IV
Sakhalin V
Sakhalin VI
Oil production
began in 1999;
Processing
terminal under
construction with
capacity of
66,000 bbl/d of
oil, 1.8 bcf/d of
gas
License
possibly
suspended.
Lukoil in
association
with Gazprom
would
probably take
part in new
tenders for
Kirinskii and
Vostochno
blocks.
There is
speculation
that
unreleased dril
ling results
during 2007
were not
positive. No
drilling
planned in
2008, although
seismic
activities
continued.
Activities in 2008
included seismic
processing,
interpretation and
acquisition on the
existing license
blocks
3 blocks in
Sakhalin VI
have not been
awarded, but
Gazprom seems
to be interested.
Subsidiary,
8.5%)
Status
Mode of gas
export still up
for
negotiation.
Exxon
preferred
pipeline
exports to
China. Other
shareholders,
Gazprom
preferred
piping to LNG
terminal at
Sakhalin II.
* bbl stands for barrels

**tcf stands for trillions of cubic feet
Source: www.eoearth.org/article/Energy_profile_of_Sakhalin_Island,_Russia
388

The Russian government was to receive a proportion of revenues from production as
the project progressed. As per the PSA, the oil derived from the Sakhalin shelf would
be shipped to Asia and other markets while the natural gas would be sold exclusively
in the domestic market. The PSA stipulated that all the members of the
consortium would proportionally share income from the sale of oil and natural gas
generated from the project.
Upon the execution of the PSA in 1996, a five-year exploration period began. A
commercial development plan for the Sakhalin-1 Project was also formulated during
this period. The exploration period involved delineation of the three oil fields,
assessment of hydrocarbon volumes in the region, and identification of the best
resource location from where oil could be developed. As part of the exploration
process, seven appraisal wells17 were drilled and three-dimensional seismic data was
collected covering more than 1,200 square kilometers area. ENL used advanced 3D
seismic technology18 to map the Sakhalin-1 fields. With continuous 3D surveys and
evaluation drilling, the consortium discovered crude oil on the western flank of the
Chayvo field. This was a major discovery for the project to proceed further.
Finally, in September 2000, the exploration period ended with the demarcation of the
Chayvo 6 well which confirmed the presence of a 150-meter oil column in the Chayvo
reservoir. Talking about the discovery of oil reservoirs in the Chayvo field, Richard
Powell (Powell), ExxonMobils Geoscience project manager for the Caspian, Russia,
and the Middle-East, said, We now had found what could be a 150 million-metric ton
(1 billion barrel) oil development that was previously unknown. This became the
centerpiece to the dining room table we had been searching for. But in the end, it
really was about more than just new technology. It truly came down to the teams
creativity, innovation, and determination to find and deliver that first step for Sakhalin
1.19
After successfully completing the exploration period, the Sakhalin-1 consortium
declared the project commercial on October 29, 2001. It was approved by the Russian
Federation on December 3, 2001. The declaration formally ended the exploratory
phase and marked the commencement of the 20-year development period of the
project. The project was subjected to over one hundred agency inspections and audits
to ensure that it complied with Russian regulatory and project documentation
procedures. In July 2002, the project was given the green signal by the State
Ecological Expert Review20 (SEER) for use of Extended Reach Drilling 21 (ERD)
technology to drill wells in the region. In October 2002, the technical expertise bureau
17
18
19
20
21
Appraisal wells are drilled to assess characteristics of a hydrocarbon source accumulated in

a reservoir
3D seismic technology constructs models of underground rock formations based on threedimensional models. Earlier, 2D models were used but they were difficult to read. 3D
techniques significantly reduced the number of dry holes drilled, thereby increasing the
number of productive wells.
The Quest Begins, www.exxonmobil.com/Corporate/Files/.../SakhalinEnglish4.pdf.
The State Environmental Expert Review (SEER) is an independent body which assessed
Sakhalin-1 Projects design, waste management, and water protection measures, disaster
management, economic and social impact as well as the measures taken by the project to
protect marine and land biological resources.
Extended Reach Drilling (ERD) is an evolved form of simple directional drilling and
employs both directional and horizontal drilling techniques. It is defined as a type of
directional drilling in which the horizontal well departure is at least twice that of its total
vertical depth-to-deviation (TVD). ERD is cost effective as it does not require installation of
additional offshore facilities or pipelines. Production from ERD wells which run through
long distance reserves is much greater than output from conventional wells.
389
of Russia approved the Justification of Investment 22 (JOI) for the Sakhalin-1 Project.
Approval of the JOI was a key milestone for the Sakhalin-1 Project as it allowed the
project to proceed to the Technical and Economic Substantiation of Construction
(TEOC) stage required for the construction of the oil export pipeline route across
Sakhalin Island to an export terminal. As part of the project documentation stage, the
consortium received over 1,000 additional approvals, licenses, and permits from
federal, regional, and local district authorities in the Sakhalin region.
In April 2003, the Authorized State Body23 (ASB) approved the Development
Program and Budget24 (DP&B) for the Sakhalin-1 Project. Total capital expenditure
for the project was set at US$12.8 billion. In April 2004, the Russian government
approved the TEOC stage which allowed the consortium to start full-scale
construction of facilities at the project site. According to project operator ENL, once
the Sakhalin-1 Project had passed the exploratory stage, project costs increased
significantly. To carry out operations related to the development and construction of
oil fields in the region, tenders were awarded to Russian contracting companies. In
2002, Russian businesses acquired large contracts, and the total value of the contracts
awarded to Russian suppliers and contractors as part of the Sakhalin-1 Project
exceeded US$ 1 billion (Refer to Exhibit II for the list of contacts awarded).
According to Galina N. Pavlova, Director of the Oil and Gas Industry Department of
the Sakhalin Oblast Administration, The successful implementation of the Sakhalin-1
Project became possible thanks to mutually-beneficial cooperation between Federal
and regional Russian authorities, and the members of an international consortium
including operator ExxonMobil, a global leader in the oil and gas industry. This
consortium brings together the talents of major companies: ExxonMobil, SODECO of
Japan, ONGC of India, and the Russian state oil company Rosneft. 25
Development
The Sakhalin-1 Project was executed in phases. According to analysts, a phased
development approach was followed so that the procedures built in the first phase
could be used in the future phases, thereby making the project cost-effective. The first
phase of the Sakhalin-1 Project involved the development of oil and gas in the
Chayvo oil field. The subsequent phases included oil and gas development in the
Odoptu and Arkutun Dagi fields, Chayvo field gas development, and late-life gas
development. It was reported that these future phase developments would push the
Sakhalin-1 Project through 2050.
22
23
24
25
Justification of Investment (JOI) is a document that addresses the feasibility of a proposed

project. It analyzes the returns from an Investment by demonstrating the proposed projects
goals and capabilities.
Authorized State Body (ASB) is a constituent of the Russian Industry and Energy Ministry.
It is the governing authority of the Sakhalin 1 Project and oversees the implementation of the
PSA on behalf of the Russian Federation. It includes representatives of the Federal
Ministries of Economic Development and Trade, Taxes and Levies and Energy, and the
Sakhalin Oblast Administration.
The Development Program and Budget (DP&B) is a strategic plan which provides cost
estimates of activities related to the oil and gas development production in the Sakhalin
region. It also lists the benefits the project would bring to Russia and provides details of
environmental protection measures undertaken as part of the project.
Exxonmobil Announces Production Start-Up from Sakhalin-1 Project in Russia,
www.sakhalin1.com, October 2, 2005.
390
Exhibit II
List of Contracts Awarded for Sakhalin-1 Project
Contract Project
Area
Scope of Work
Contractor
DeKastri
Material Supply, Transportation

and General Services at DeKastri
ACCESS - Amur
Services Co., LLC.
Orlan, Chayvo,
DeKastri, Yuzhno
General Maintenance and

Mechanical Services for
Production Facilities
ECC-VECO, LLC.
Orlan, Chayvo,
DeKastri, Nogliki,
Odoptu, Yuzhno
General Instrument, Control &

Automation, Electrical,
Telecommunication Maintenance
and Construction Services
OOO Kentech
Sakhalin Technical
Services
Orlan, Chayvo,
DeKastri, Nogliki,
Odoptu, Yuzhno
General Engineering and

Procurement Services for
Sakhalin-1 Facilities
OOO Sakhalin
Technical Services
Network
Chayvo
Fleet Management, Fuel Depot

and General Services at Chayvo
Pacific Rim
Constructors
Orlan, Chayvo,
DeKastri, Nogliki,
Yuzhno
Camp Management and Catering

Services at various Sakhalin-1
sites
Remote Project
Services Group
Global, LLC.
Orlan, Chayvo,
DeKastri, Nogliki,
Odoptu, Yuzhno
Misc. Personal Protective

Equipment
ZAO Vostok-Service
Sakhalin
Kholmsk, Korsakov
Shorebase Services (facility,

manpower, equipment)
Sakhalin Shelf
Services
*Data as of 2007
Source: www.sakhalin1.com/en/contracting/opportunities.asp
Phase I - Development of Chayvo Field

The first phase of the Sakhalin 1 Project focused on oil and limited natural gas
production from the Chayvo field. The development costs of this phase were expected
to be about US$ 4 billion. The initial phase was expected to produce 50,000 barrels
(6,300 metric tons) of oil per day by the end of 2005. By 2006, the production was
expected to reach 250,000 barrels (33,000 metric tons) of oil per day. The
development of oil from the initial phase of the Sakhalin-1 Project began on October
2, 2005. The time period of Phase I of the Project was about five years.
The harsh Arctic weather and the remote location of Sakhalin Island presented
significant challenges for the execution of the initial phase. Experts opined that the
development of infrastructure amidst such climatic conditions was a herculean task.
However ENL, which had developed some of the major oil fields in the world, was
able to overcome these barriers. Despite the adverse climatic conditions, phase I of the
391
Sakhalin-1 Project started on schedule. The Russian Amur Services Company (ASC)26
provided a complete range of construction support services for the Sakhalin-1 Project
while ECC-VECO LLC27 provided civil construction, maintenance, and other services
for the project. ExxonMobil is pleased with the timely start-up of Phase 1 of the
Sakhalin-1 project. This project employs leading-edge technology including the use of
Arctic development technologies and extended reach drill wells that are among the
longest in the world. Application of this technology for the Sakhalin-1 project is a
significant breakthrough in our ability to develop the resources in the most costeffective, efficient, and environmentally sound way possible,28 said Rex W Tillerson,
Chairman and CEO of ExxonMobil.
The first phase of development involved the construction of offshore and onshore
drilling facilities, an onshore oil and gas processing facility, a crude oil pipeline, and a
marine export terminal with year-round storage and tanker loading facilities (Refer to
Exhibit III for a route map of the first phase of the Sakhalin 1 Project). The first step
in the Phase I of the Sakhalin-1 Project was to access the oil and gas reserves in the
Chayvo field using onshore and offshore drilling procedures.
Exhibit III
Route Map of Sakhalin-1 Project
Source: www.eoearth.org/article/Energy_profile_of_Sakhalin_Island,_Russia
26
27
28
Founded in 2002, Amur Services Company (ASC) provides infrastructure and support
services for construction projects including transportation, cargo hauling, logistics, waste
management, etc.
ECC-VECO LLC is a Russia-based construction company formed specifically to carry out
construction activities at Sakhalin shelf projects.
ExxonMobil Announces Production Start-Up from Sakhalin-1 Project in Russia,
www.sakhalin1.com, October 2, 2005.
392
Onshore Drilling
The Chayvo field was developed using onshore as well as offshore drilling facilities.
To drill the north western flanks of the Chayvo fields which were about 8-11
kilometers offshore, a suitable option was ERD as it not only reduced the amount of
drilling but also saved on time and costs per well. For this purpose, ENL planned to
construct an onshore land rig29 with numerous extended-reach wells from the
shoreline to the Chayvo field. Talking about the application of ERD, Powell said, We
were aware that 11 kilometer (seven-mile) extended-reach wells had been drilled in
the United Kingdom and South America. What about at least partially developing
Chayvo with extended-reach drilling (ERD) from the Sakhalin shore-line? It not only
would offer the potential for lower cost and faster drilling start-up but would reduce
environmental impact as well.30
The construction of the 22-storied land rig and its support equipment began in October
2001 in Louisiana, USA. The rig was designed and built by Parker Drilling
Company31 in less than two years. The rig was disassembled and shipped to Sakhalin
Island, which was about 11,000 kilometers from the construction site, aboard three
cargo vessels. Despite the adverse weather conditions on the Island, the rig reached on
time, was reassembled at the Chayvo field, and was ready for drilling by June 2003.
According to Richard Rush, Sakhalin drilling group manager, The weather-related
delays and logistic hurdles stemming from the absence of a dock at Chayvo worksite
forced us to continue working into late fall and winter. In all, we shipped 1,500 to
1,800 loads by rail and truck, and still managed to get the rig assembled and ready to
drill on schedule by June 2003.32
Named Yastreb (meaning hawk in Russian), the land-based drilling rig was 230 feet
tall (70 meters) and was custom designed to drill extra long extended reach wells from
land-based locations to offshore fields. The rig could withstand temperatures of -400
Celsius and high intensity earthquakes. Its power was 13,000 hp33 almost double
that of conventional land rigs. The Yastreb rig could drill extended reach wells
downward and then horizontally under the sea to a total distance of up to 6.8 miles till
the Chayvo field, making it one of the most powerful land rigs in the world. We
called it the Yastreb, which is the Russian word for hawk. And like a hawk, the
Yastreb has soared to great accomplishments with the extended-reach wells it has
drilled,34 said Sam Vera, drilling engineering supervisor of Sakhalin-1 project.
The rig became functional in November 2003. The rig drilled the first Sakhalin-1 well,
the Z6, to a total measured depth of 9,375 meters (30,938 feet). To improve the
drilling rate and to ensure safety, ENL used modern drilling procedures. Baker
29
A land rig is a drilling machine that drills only on land. It consists of pumps, a derrick or
mast, a substructure, drill pipe, mud tanks, a rotary table, and engines to power the
equipment.
30
The Hawk and the Sea Eagle,
www.exxonmobil.com/Corporate/Files/.../SakhalinEnglish5.pdf.
31
Parker Drilling Company is a US-based global energy company which provides offshore and
onshore contract drilling services, project management, and rental tools to the energy
industry worldwide.
32
World-Class by Any Measure,
33
Horsepower (hp) is a non-metric unit of power. It is equal to 746 watts.
34
www.exxonmobil.com/Corporate/Files/.../SakhalinEnglish5.pdf
393
Hughes INTEQs35 AutoTrak Rotary Closed Loop System (RCLS)36 was used to
enhance well-site efficiency and improve the quality of bore holes. With continued
improvements in well design and drilling procedures, the daily drilling rates doubled.
In April 2007, ENL completed drilling of the 17th ERD well, the Z-11,37 at the Chayvo
field. It was drilled in 61 days, about fifteen days ahead of the schedule, with below
expected costs.
By 2007, about 17 ERD wells were drilled from the Yastreb rig as part of Phase I of
the Sakhalin-1 Project. Experts pointed out that since the drilling of the Z6 well in
2003, the time required to drill these wells had come down by more than 50%. The
presence of repair centers close to the Chayvo well installed by the Russian contract
companies ensured smooth drilling without any delays. Repair and maintenance of
key drilling equipment was carried out at these service centers. Otherwise, the
equipment would have had to be repaired at regional centers as far as Singapore.
Experts also pointed out that by using ERD, ENL had curtailed operational costs as
extended reach wells did away with the need for building and installation of additional
offshore structures. Moreover, ERD followed safe drilling practices and addressed
environmental issues by minimizing the impact on marine environment, they said.
Offshore Drilling
To develop the south western flank of the Chayvo field, a gravity-based offshore
platform was used. Called Orlan38, it was one of the largest offshore drilling platforms
constructed in the world. The earthquake and high wave resistant Orlan platform
featured a drilling rig with more than 13,000 hp, a 10 mega-watt power plant, and
living quarters for 120 workers. The Orlan platform was actually a concrete island
drilling system39 (CIDS), which was withdrawn from use and kept in reserve in
Alaska. ENL decided to use the CIDS for offshore drilling at Chayvo. Talking about
the procurement of the Orlan platform, John Plugge (Plugge) offshore subproject
manager of ExxonMobil, said, We were pleased to find it in quite good condition.
But before we reached a decision, we invited a team of about 25 Russian specialists to
come look it over the following summer. Nobody knows ice and the Arctic like the
Russians. After a very thorough inspection, they concurred that it was quite suitable
for Chayvo and could be used for many years to come. This was great news for the
project since we originally estimated the use of CIDS would save a minimum of $100
million. And with the better understanding of costs we have today, we know that the
savings is considerably more. 40
The CIDS platform was shifted to the Amursky Shipbuilding yard located in Far East
Russia for removing the CIDS topside facilities and a large wave deflector was
constructed around the platform base to make it earthquake resistant. In 2001, the
35
36
37
38
39
40
Based in Houston, Baker Hughes INTEQ is one of the eight divisions of Baker Hughes Inc.,
an Oil field service company. It is one of the worlds leading oilfield drilling and evaluation
service companies.
Rotary Closed Loop System (RCLS) is an advanced drilling technique used to drill deep
bore holes in extended-reach wells.
The Z-11 was the longest ERD well in the world. It achieved a total measured depth of
37,016 feet (11,282 meters) or over seven miles.
The Orlan platform was named after a white-shouldered sea eagle unique to the Sakhalin
island.
The CIDS is gravity-based offshore drilling platform. Built in 1983, the CIDS was designed
for year round drilling in Arctic waters.
394

CIDS platform was towed to Russia using three super-class tugs. The renovation of
the platform was completed in 2004 after which it was taken to Ulsan, South Korea,
where top side modules weighing nearly 12,000 metric tons and a fully automated
drilling rig were installed. After installation of the support equipment, the platform
was tugged to Russia and was ready for offshore drilling. Talking about the advantage
of the platform, Plugge said, A major advantage of the gravity-based platform is that
its self contained. Crews can live onboard and get the platform ready for drilling
while its still in the shipyard. Then, when you are ready, you essentially just deballast
and go offshore.41 The Orlan drilled its first extended reach well in December 2005.
A total of 18 extended wells were drilled using the Orlan offshore drilling platform.
Onshore Processing Facility

In order to separate the oil and gas produced from the drilling operations, an onshore
processing facility (OPF) was installed at the Chayvo field. The OPF was designed to
process up to 34,000 metric tons (250,000 barrels) of oil and 23 million cubic meters
(800 million cubic feet) of gas per day from the Chayvo field.42 An off-site modular
construction approach was followed to build the OPF instead of a stick build
approach. Talking about the importance of the facility, the project manager of
Sakhalin-1, Jim Flood (Flood), said, Its truly the heartbeat of this project. All of the
pieces of the project were ancillary to some extent to the successful completion of the
OPF. Any delays in the OPF construction and start-up would greatly impact the
overall economics of the project. Yet with a scheduled construction cycle of only 36
months and the major limitations on the productivity due to the highly remote subArctic location, we were not confident that a conventional stick-build approach would
get the job done in time.43
The construction of the OPF began in 2003 and the contract to design the facility was
awarded to Fluor Corporation44. The modules of the OPF were fabricated at the
Hyundai Heavy Industry yards in Ulsan, South Korea. The platform contained 36
modules weighing 40,000 tons. The heavy modules were unloaded at Sakhalin
through two sea lifts and moved to the OPF site through the Chayvo Bay Bridge45.
The offsite construction of the OPF helped the project in saving 18 months of time
and more than US$300 million in cost. Our execution strategy for the OPF included
using 36 pre-assembled and pre-commissioned modules for a majority of the plant
facilities. This helped offset the productivity impacts of working in a remote Arctic
environment with a short construction window, 46 said Flood.
Until the OPF became fully operational, the project team decided to install an interim
processing facility (IPF) in order to process the crude oil obtained as a result of
drilling at Yastreb and Orlan. In 2004, an IPF comprising 60 modules was built in the
41
42
43
44
45
46

From Design to Loading Tankers in 34 Months,
ww.exxonmobil.com/Corporate/Files/.../SakhalinEnglish6.pdf.
Fluor Corporation is a US-based engineering, construction, and maintenance services
company.
The Chayvo Bay bridge, completed in 2003, links the Chayvo well site with the OPF. Built
by Dalmostostroi, a Khabarovsk Krai construction company, the bridge is 830 meters (2,700
feet) long.
ExxonMobil-40 Years of Arctic,
395
US and Canada and then sea lifted to Sakhalin and assembled. The IPF was installed
by the Expro International Group Plc, a UK-based oilfield services company. In
August 2005, the IPF with the capacity to process 6,300 metric tons (50,000 barrels)
of oil and 4.2 million cubic meters (150 million cubic feet) of gas per day became
operational. In 2006, when the OPF became functional, the IPF was closed down. The
OPF produced stabilized crude oil called Sokhol crude oil which was piped to the De
Kastri oil export terminal. The dry gas obtained was re-injected into the Chayvo field
for conservation.
Oil Export System

The oil export system of the Sakhalin-1 Project included a pipeline which was of 24
inch diameter and about 225 kilometers long, valve stations, an oil export terminal, a
single point mooring (SPM) facility, and oil tankers.
From the OPF, the pipeline transported oil across the western Sakhalin Island and the
Tatar Strait47 to an oil export terminal located at De Kastri in the Khabarovsk Krai
region. The construction of the pipeline began in 2004. The design and location of
each pipeline was approved in advance by the Russian environmental protection
agencies and the construction was carried out during winters when the streams were
frozen to reduce possible impacts on the marine life. Adequate measures were taken to
ensure the safety of endangered species during construction of the pipeline. For
instance, on discovering a nest of an Orlan sea eagle during construction, the project
team rerouted the pipeline. The project operators installed eight remotely operated
valve stations to shut down the pipeline in case of a leak or any emergency. To
facilitate communications across the entire pipeline route, the team installed a fiber
optic cable along the length of the pipeline and a microwave tower on each side of the
Tatar Strait. The pipeline could transport approximately 250 thousand barrels of oil
per day (12 million tons of oil a year).
The construction of the oil export terminal at De Kastri began in December 2003. A
Russian construction company JST Trust Koksokhimmontazh (KXM) designed,
manufactured, and built two 100,000 cubic meter (650,000 barrel) storage tanks for
the De Kastri oil terminal. By June 2006, the oil terminal became operational. The De
Kastri oil export terminal had oil storage facilities and a single point mooring (SPM)
tanker loading facility to load crude oil onto tankers for export to world markets. The
SPM facility located 5.7 kilometers offshore was fully automated with a conical base
built to withstand heavy loads. It weighed 3,200 tons and was 210 feet above sea
level. The facility was installed by J. Ray McDermott, a US-based supplier of offshore
field development products. The oil was transferred from the oil terminal through a
subsea loading line to the SPM facility. The SPM, considered as the worlds largest
fixed tower, allowed emergency shutdown and released tankers during unfavorable
weather conditions. It was considered as the safest, most environmentally sound, and
cost-effective method of tanker loading in an Arctic environment as it eliminated the
need for a jetty48 for tankers.
The Delivery
In August 2006, the Sakhalin-1 Projects oil export system was commissioned. With
the commissioning of the system, the Sokhol crude oil developed by the project was
supplied to international markets. The startup of Sakhalin-1 exports will provide
47
48
The Tatar Strait is a channel between Sakhalin Island and the Asian mainland, in the
Northwest Pacific Ocean, connecting the Sea of Japan and the Sea of Okhotsk.
A jetty is a structure which extends into the sea and generally protects a harbor or coastline
from the effects of currents and tides.
396

additional needed energy supplies to the expanding economies of Asia and to other
global customers. This project is another example of a long-lead time, technology
intensive development brought to fruition this past year to help address the
world's ever-growing energy demand,49 said Stuart McGill, senior vice
president of ExxonMobil.
On August 29, 2006, SPM received the Sokhol crude oil from the De Kastri terminal
for loading onto tankers. On September 30, 2006, the first tanker loading of the crude
oil started. Aframax class tankers50 were supplied to the project by Russias Primorsk
Shipping Corporation (PRISCO)51. Each tanker carried up to 720,000 barrels (100,000
tons) of crude. According to Les Carter, sub-project manager at DeKastri terminal,
Our pumps at the terminal are designed to move 6,100 metric tons (45,000 barrels) of
oil an hour into the subsea loading line, through the SPM, and onto the tankers. With
the loading operations gradually ramped up to full project capacity, tankers began
departing De-Kastri on average every three to four days in early 2007.52
In the first quarter of 2007, the Sakhalin-1 Project achieved its production goal as it
reached production rate of 34,000 metric tons (250,000 barrels) of oil per day. The oil
was supplied to refineries throughout the Asia-Pacific region while the natural gas
was supplied to domestic consumers in the Khabarovsk Krai region. In December
2007, the Sakhalin-1 Project achieved a production milestone of 100 million barrels of
crude oil from the Chayvo field. Commenting on the achievement, Stuart McGill,
Senior Vice President of ExxonMobil, said, ExxonMobil, through the operatorship of
Exxon Neftegas Limited, is pleased that the Sakhalin-1 Consortium achieved its
production goal for peak crude oil operations in a timely manner. Achieving this
production milestone is a significant example of how the energy industry and
exporting nations can work together to provide needed energy supplies to global
markets.53
The domestic sales of natural gas began in 2005 and totaled 575 million cubic meters
(20.3 billion cubic feet) in 2006. Experts opined that the supply of natural gas from
the Sakhalin-1 Project to customers in the Khabarovsk Krai was a significant step in
the Russian Far East Gasification Program54. By February 2007, the natural gas supply
to the Khabarovsk Krai region had reached 35 billion cubic feet (one billion cubic
meters). In 2007, the average gas supplies to Khabarovsk Krai were 115 million cubic
feet (3.27 million cubic meters) per day.
In January 2008, local natural gas sales were above 200 million cubic feet/day (5.85
million cubic meters) per day. 55 As of August 2008, domestic gas sales totaled 105
billion cubic feet (3 billion cubic meters). According to experts, the gas supply from
the Sakhalin- 1 Project was expected to fulfill the demand in the Khabarovsk Krai
region until 2025. According to governor of Khaborovsk Krai Viktor Ishaev, This
gas has helped bring fuel stability to our region and represents a major step in support
49
50
51
52
53
54
55
ExxonMobil Announces Start of Sakhalin-1 Exports; Newest Milestone in

Company's Effort to..., www.allbusiness.com, September 7, 2006.
Aframax tankers are small oil tankers which carry oil through narrow harbors and canals.
Primorsk Shipping Corporation (PRISCO) is a Russian shipping company involved in the
transportation of various oil and liquid cargos.
Sakhalin-1 Project Production Goal Achieved, www.sakhalin1.com, February 14, 2007.
The gasification of Russian regions was started in 2001 by state-owned oil company,
Gazprom. As part of the program, Gazprom finances construction of gas pipelines and
ensures gas supply for regional consumers.
http://www.sakhalin1.com/en/project/marketing.asp.
397
of Russias Far East Gasification Program. With increased supplies becoming
available from Sakhalin 1, we look forward to being able to move more of our
communities away from dependence on coal to greater use of natural gas. 56
Project Benefits
According to experts, the Sakhalin-1 Project was one of the biggest projects
developed by the international oil and gas industry. It represented one of the largest
single FDIs in Russia managed by a multinational consortium. According to analysts,
the Sakhalin-1 Project had helped Russia in strengthening its position as an energy
supplier to world markets by providing oil and gas supplies for export to domestic and
commercial markets. It also served as a medium for developing friendship between
Russians and other foreign nationals, they said. According to Anna Kuniasky, Vice
President Corporate Affairs, ENL, The joint work on the project, including the many
years of negotiations, is a vehicle for developing friendships between Russians and
foreigners and appreciation for each other's capabilities. This experience has increased
the trust between the Russians and foreigners and thus has contributed to the success
of the Sakhalin-1 project. I also believe that our positive experience will open future
opportunities for foreign investment. 57
The Sakhalin Project was one of the first oil and gas projects in Russia to employ
PSAs. The PSA approach attracted a huge amount of foreign investment as it offered
suitable tax procedures and guaranteed stability of the project over its lifetime. This,
in turn, allowed the development of the project in harsh environmental conditions.
Experts opined that the Sakhalin-1 Project was successful in developing the oil
resources present in the Sakhalin Island in an efficient and cost-effective manner.
Some of the achievements of the Sakhalin-1 Project included the on-schedule
commencement of the first phase of the project, drilling of record breaking ERD
wells, commissioning of the OPF before schedule, timely completion of the export
pipeline and terminal, start-up of the oil export operations, and attaining the targeted
levels of 250,000 barrels of oil per day. Commenting on the key elements which
ensured the success of the Phase I development of the Sakhalin-1 Project, Terni said,
Todays world-scale projects require proven capability to develop, extend, and apply
leading edge technology to all aspects of a project. Technology was fundamental to
the projects focus on developing the Chayvo resource at maximum value. However,
leading-edge technology alone was not enough. Also key to maximizing value was the
ability of ExxonMobils global functional organization to deliver excellence in project
execution from concept selection to start-up and a strong commitment to excellence in
all aspects of project development. Equally important, these capabilities were brought
to bear in partnership with co-ventures, the Russian government, and local contractors
as well as the Sakhalin and Khaborovsk communities to successfully execute the
project on schedule despite one of the worlds toughest environments. 58
Besides developing oil and gas, the project offered economic as well as social benefits
to Russia and to the Sakhalin region in particular. Benefits to Russia from the
Sakhalin-1 Project included direct revenues to the Russian state, major infrastructure
developments, technology transfer, the employment of Russian citizens, and the use of
56
57
58
To Full Production and Beyond,

http://www.sakhalin1.com/en/news/project/pnw_03152002_lamp.asp.
398

Russian suppliers for contracts and procurement. It was reported that over the life of
the project, the Russian state would receive more than RUB59 1.250 trillion (US$50
billion) as taxes, royalties, and the states share of hydrocarbons from the Sakhalin-1
Project. As of August 2008, the Russian government had received approximately US$
1.1 billion (RUB 28 billion) in royalties and the states share of oil production. Since
the inception of the project, the Sakhalin Oblast administration received RUB 5.3
billion (US$ 211 million) in revenues.
The Sakhalin-1 Project also brought significant benefits to the people of Russia,
particularly to those in the Sakhalin region. In 2005, the project employed
approximately 8,000 workers, including direct employees and contractors. Nearly 500
Russians worked directly for ENL. To enhance their skills, many of them received
professional training in Russia, the US, and Canada. The value of these training
programs was estimated to be about US$ 12 million. For instance, a workshop at the
Sakhalin-Alaska College helped 60 Sakhalin welders to improve their professional
skills and obtain international certificates. According to ENL, More than 13,000 direct
and indirect jobs would be created for Russian nationals as part of the initial
development of the project. It was expected that the number of Russian nationals
working on the project would reach 90% within 10 years. (Refer to Exhibit IV for
some of the achievements of the Sakhalin-1 Project).
Exhibit IV
Accomplishments of Sakhalin-1 project
The project applied cutting-edge technologies engineered specially for Arctic
operations to develop the Sakhalin Island energy resources with careful regard
for the environment, efficiency, and costs.
The three-dimensional seismology used by ExxonMobil increased exploration
success and reduced exploration costs.
The project undertook successful operations in seas with six feet thick ice
which were carried out using state-of-the-art computer models and five years
of ice data.
The project invested over 17.5 billion RUB (US$700 million) in environmental
projects to help protect wildlife and habitats in the areas of operation.
The design of the project facilities was protective of the Western Gray Whale,
the Orlan eagle, and other wildlife native to Sakhalin Island.
Employees worked over 80 million hours with industry-leading safety
performance. The project's Lost Time Injury Rate (or LTIR) of 0.02/200,000
work-hours was several times better than the international oil and gas
construction industry average.
The project followed a phased development strategy along with detailed and
integrated front-end execution planning. It implemented a plug-and-play
approach which allowed it to capture efficiencies and minimize risk.
The project set 17 world records for extended-reach drilling and also for
drilling speed. The worlds most powerful land-based rig was drilled in the
Chayvo field as part of the Sakhalin-1 project.
59
Ruble (RUB) is the currency of Russia. As on November 2009, 1 US$ was approximately
equal to 28.70 RUB.
399
The project awarded contracts worth over US$5 billion to Russian companies
or joint ventures.
The project funded over US$120 million to improve infrastructure in the
Sakhalin region including hospitals, clinics, roads, bridges, harbors, airports,
and power and water facilities.
The project donated over US$3.5 million in charitable contributions to local
community organizations, including health, youth, arts, and civic projects.
Compiled from various sources
One of the key objectives of the consortium was to promote Russian content. It hired
as many local contractors as possible for the project. ENL, along with the Sakhalin
Oblast Administration and the Ministry of Economic Development and Trade of the
Russian Federation, established a Joint Committee to promote local content. The main
objective of the Joint Committee was to maximize the involvement of Russian
subcontractors and Russian suppliers of goods and services in the project. According
to Neil Duffin, president of ENL, For Russia, a key is to create jobs and maximize
local content that is, Russian goods and services in the project. One of our goals
is to maximize involvement of Russian companies in our operations where possible
and recruit Russians to commence building the operations group in 2002. We also
have employees from both of our Russian consortium partners helping to manage the
project.60
As of 2008, the value of contracts awarded to Russian companies as part of the
Sakhalin-1 Project was about 125 billion RUB (over US $5 billion), more than twothirds of the total contracts awarded to third-party vendors. The consortium also
launched a project website to communicate information related to the Sakhalin-1
Project to Russian contractors and suppliers. Seminars related to the project were held
in Moscow, Khabarovsk, and Yuzhno-Sakhalinsk.
The strategy to promote Russian content was mutually beneficial to the Russian
contractors as well as to the project operators. The project operated smoothly due to
the experience of the regional contractors who understood the local operating
environment better. On the other hand, ENLs latest construction, drilling, and
production procedures helped the local contractors gain sufficient knowledge about
the latest technologies and improve their productivity.
Community Development
Besides creating jobs and awarding contracts to Russian suppliers, the Sakhalin-1
consortium contributed to the well-being of the community as it tried to improve the
standard of life of the communities in which it operated. ENL implemented various
charitable small-grant programs to support communities in the Sakhalin Oblast and
Khabarovsk Krai region. These programs primarily focused on areas of education and
healthcare and support for local people. ENL contributed over RUB 85 million
(US$3.5 million) to support education, healthcare, and cultural projects in the
Sakhalin region such as instituting Teacher of the Year awards, setting up hospitals
for children, organizing summer camps, as well as supporting earthquake victims
(Refer to Exhibit V for community development initiatives of Sakhalin-1 Project).
60
Denise Allen Zwicker, Multi-national Project to Represent Record Foreign Investment in

Russia, http://www.sakhalin1.com, 2002.
400
Exhibit V
Sakhalin-1 Project: Community Development Initiatives
Education
The Sakhalin-1 project supported educational organizations and elementary and
secondary schools in order to improve teaching and learning and achieve
professional development. It provided educational materials and equipment and
sponsored student programs and extracurricular activities to enhance the quality of
learning.
The Sakhalin-1 project offered grants toward educational development to the
following:
Sakhalin State University, for purchase of equipment for the media laboratory
of the Journalism Faculty.
Junior Achievement Sakhalin Foundation, which helped students from K-12 to
learn the basics of business and economics. In 2005, over 7,500 students
participated in the JA events compared to 1,980 students in 2000.
Sakhalin Oblast Department of Education, where ENL was the General
Sponsor for the annual Teacher of the Year Competition.
Logos Club, which organized intellectual competitions (trivia contests) for
high-school and college-age students in Yuzhno-Sakhalinsk. During the years
of ENLs sponsorship, more than two thousand students participated in the
Logos Club competitions.
Volunteer Involvement Program. ENL offered small grants to support
employees volunteer activities in schools and kindergartens that their children
attended. The program made possible field trips to natural history sites,
classroom improvements, book purchases, and many other contributions.
Val Settlement (Nogliki District) Secondary School, for purchase of personal
computers to improve computer training resources.
Sakhalin Oblast Traffic Inspectorate and the Sakhalin Oblast Committee of
sports and physical culture. ENL sponsored the Safety Wheel children's traffic
safety festival, in which teams from all over Sakhalin competed to show their
knowledge of the rules of the road.
Yuzhno-Sakhalinsk Education Department, to sponsor academic Olympiads in
which over 1,500 high school students took part each year.
Special Correction Comprehensive School for Mentally Challenged Children,
for purchase of athletic equipment and educational materials.
Health
ENL supported programs targeted at health issues and made contributions to
health-related organizations which addressed public health issues and local
community needs.
Examples of organizations and programs that received contributions included:
Paramedics-Midwife Stations in remote areas (Val, Nekrasovka): purchase
of medical equipment.
Nogliki Secondary School for purchase of medical equipment.
Support of the International Conference Publicly Accessible
Defibrillation and Preventive Measures for Sudden Cardio Death.
401
Civic and Community Service
ENL supported civic and community service organizations which fulfilled social
needs and enhanced social and economic conditions. It also supported cultural
organizations, which provided access to art.
Examples of organizations and programs that received contributions included:
Sakhalin Culture Fund rewards which gifted youth and professionals for
their contribution in culture and arts.
Publication of the Sakhalin Oblast Commemorative Book dedicated to the
history of Sakhalin from 1930 to 1950.
Centennial Celebrations of the Yuzhno-Sakhalinsk City Park.
Okha Central Library for purchase of office equipment, software, and
books.
Okha Childrens Library for purchase of personal computers and office
equipment.
Sakhalin Regional Library for purchase of equipment
Yuzhno-Sakhalinsk Chamber Orchestra for purchase of musical
instruments and sponsorship of concerts.
Indigenous Minority People of the North (IMPN) was an important recipient of
ENL
contributions.
ENL financed the following organizations and programs in association with
IMPN:
Summer camp for IMPN children from Ulchi District;
Support of the Giva IMPN Folk Ensemble (Bulava Settlement)
Tourist equipment for IMPN children of the De-Kastri Settlement
Equipment for restoration of documents in the Bogorodskoye Public
Museum
Sponsorship of the Ulchi District Nivkh delegation participation in the 1st
Nivkh Congress
Support of the Bulava social center
Contribution of furniture, athletic, and other equipment for Sofijsk and
Tyr Boarding Schools
Equipment for the sewing lab of Khabarovsk Technical College Bulava
Branch
Source: www.sakhalin1.com
The Sakhalin-1 Project invested over RUB 3 billion (US$120 million) in
infrastructure improvements in the Sakhalin region such as upgrading hospitals, roads,
bridges, ports, and airports. The project also contributed to the development of the
local communities. For instance, the project donated US$ 300,000 for the purchase of
new surgical and diagnostic equipment at the Central District Hospital in Khabarovsk
Krai. In 2007, ENL made significant investments in the modernization of the YuzhnoSakhalinsk Womens Clinic.
402

Another noteworthy initiative launched by the Sakhalin-1 Project was a regional small
business development program launched in 2004 in the northern Sakhalin districts of
Nogliki and Okha in association with USAID.61 The program launched with an
investment of US$ 500,000, created about 180 small businesses and more than 500
local jobs in the region. It provided financial support to small business units which
were unable to obtain commercial bank loans. The project also contributed about US$
100 million to the Sakhalin Development Fund over a five-year period (2003-2008)
and offered production bonuses of about US$ 60 million.
Safety and Environment

Besides offering multiple benefits to Russia, the project paid attention to operational,
environmental, and safety performance. The Sakhalin-1 project ensured the safety of
people, the environment, and the local community through effective application of the
safety system and tools. With support from the consortium and the Russian
government, the project applied best safety and environmental practices in a phased
development approach. The lost-time incident62 (LTI) rate reported by the project was
significantly better than the average for the worldwide oil and gas construction
industry. From the first quarter of 2005 to January 2006, the project operated for 26
million work hours without an LTI. By the end of 2006, the projects LTI rate was
nine times better than the worldwide oil and gas construction industry average. The
total recordable injury index of the Sakhalin-1 Project was 0.21, three times better
than the index of 0.59 for all projects operated globally by ExxonMobil. When you
take into account a multinational workforce operating in a harsh sub-Arctic
environment and amassing more than 75 million work hours since the start-up of
drilling and construction activity in 2003, this was an incredible accomplishment.
Making these safety records even more impressive was the fact that the workers
achieved them while keeping the project moving ahead on schedule,63said Tim
Murphy, lead safety advisor of Sakhalin 1 Project.
One of the primary reasons for the safety success of the project was an ExxonMobil
business plan called the Operations Integrity Management Systems (OIMS). The
Sakhalin-1 Project fully adopted and implemented the OIMS. Jim Reisz, the OIMS
safety manager, described the OIMS as defining everything we do and how we do it.
It takes the randomness out of your approach to business, safety, and the environment
and makes it predictable. Just as you develop a business plan, you also develop a
safety plan and an environmental plan. And, most importantly, every employee is
accountable.64
According to experts, besides achieving excellence in safety, the Sakhalin-1 Project
also ensured environmental protection. For instance, the oil export pipeline was
designed to run east-west rather than north-south to reduce the number of stream
crossings and lessen environmental impact. While carrying out drilling and
construction activities, care was taken to protect fish and endangered wildlife. To
protect endangered marine species, the construction of jetties along the shoreline north
of Chayvo was eliminated from the development plan as that construction might
61
The United States Agency for International Development (USAID) is the US federal
government organization providing economic and humanitarian assistance to countries
worldwide.
62
Lost-time incident (LTI) is any work related injury which prevents personnel from doing any
kind of work after the accident.
63
Champions for the Safety and Environment,
64
403
disturb the marine life. The Orlan platform was successfully towed from the ice
conditions of the Bering Sea to the Sakhalin Island. In Russian, Orlan symbolizes
strength, boldness, and speed, and Orlans 3000-mile journey from Alaska to the
Russian port of SovGavan without incidents underlines our commitment to safety and
the environment in all aspects of our business,65 said Tom Hall, manager of Sakhalin1 Project.
Western gray whales, which were considered as an endangered species by the World
Conservation Union,66 inhabited the shallow waters off Sakhalins northeast coast.
Since 1997, the Sakhalin-1 consortium spent about US$15 million on studies related
to these whales and adopted measures to protect them. During the 2001 seismic
survey in the Odoptu field, the project implemented the most extensive whale
protection program ever undertaken by the oil and gas industry. We developed a
monitoring program in which we had trained observers, usually marine biologists,
stationed on the seismic vessel and support boats. When a gray whale was sighted
within a protection zone of four to five kilometers between the vessel and the
mammal, operations were shut down until it had cleared the area, 67 said Dan Egging,
Sakhalin-1 Houston regulatory manager.
To protect endangered birds such as Stellers Sea Eagle (Orlans), the Sakhalin-1 team
carried out field studies in association with environmental experts. For example, with
help from Vladimir Masterov, a leading ornithologist from Moscow State University,
the project conducted a number of baseline studies to identify sea eagle habitat along
the coasts of Sakhalin including the mapping of nests and hunting areas. They
constructed artificial nests and perches to attract the birds to new coastal sites away
from project facilities. The project also gave precedence to protecting native islands
and the livelihoods of reindeer herders, who inhabited the northern Sakhalin Island
and the Khabarovsk Krai. As of June 2008, the project had spent over US$ 700
million in environmental projects to help protect wildlife and safeguard environment
in the areas of operation. Out of this, over US$ 40 million were spent on various
archaeological, ornithological, bathymetric, meteorological, seismic, topsoils,
fisheries, stream crossing, waste management, bioremediation, oil spill response, and
other studies, and another US$ 17 million on initiatives aimed at preserving the
western gray whale population.
Challenges
Experts considered the Sakhalin-I Project to be a multifaceted engineering project as it
posed some of the most difficult challenges that the oil and gas industry had faced
anywhere in the world. The project faced both environmental as well as manmade
problems. These challenges included operating in a harsh physical environment, a
remote location with limited infrastructure, environmental limitations, government
regulations, and lack of skilled labor. Analysts opined that the project team had to
understand the physical, cultural, and political environment of the area to make the
project successful.
65
66
67
Denise Allen Zwicker, Multi-National Project to Represent Record Foreign Investment in

Russia, http://www.sakhalin1.com, 2002.
The name World Conservation Union was used in conjunction with the International
Union for Conservation of Nature (IUCN), an international organization dedicated to the
conservation of natural resources.
404

Sakhalin Island, situated between Russia and Japan in the North Pacific, is a
mountainous region with a harsh Arctic environment. The region is covered by a pack
of ice three to five feet thick about six to seven months in a year. As a result, the
project could operate only during the months of summer. The region is seismically
active and earthquakes occur frequently. Moreover, the geology of the region is
complex, leading to exploration problems. The remote location of the site made travel
difficult. An extensive network of helicopters, trains, and vehicles was required to
reach the work site.
Besides climate-related problems, another important challenge confronting the project
was environmental protection. The region was characterized by abundant flora and
fauna. Developing oil and gas in an ecologically sensitive area would lead to protests
from environmentalists. Environmentalists pointed out that that increasing seismic
surveys, constant drilling, and oil spills from rigs and tankers and movement of
vessels and helicopters at the production site affected the marine environment present
in the Sea of Okhotsk. To protect the marine life, the Russian Ministry of Natural
Resources restricted seismic testing and drilling in some areas of the island. Due to
environment restrictions, drilling of some of the wells was carried out from onshore
instead of offshore. This resulted in a delay in the project and increased costs. Due to
the delay, the payback period of the project could get extended, analysts said.
In October 2008, a group of NGOs filed a lawsuit, appealing against the verdict of the
State environmental appraisal for the Sakahlin-1 Project. According to them, the
projects appraisal required a thorough investigation as some significant changes had
been recorded in the distribution and number of Western Pacific grey whales in the
Piltun spit. They attributed the changes in the number of grey whales to the activities
related to the Sakhalin-1 Project in the region. According to them, the pipeline
between the Odoptu drilling platform on the Piltun spit and the Sakhalin Island was
dangerous for the whales. They demanded that the pipeline construction across Piltun
bay be stopped. According to Alexey Knizhnikov, head of the The World Wildlife
Fund (WWF) - Russia68 Program on environmental policies of the oil and gas sector,
Sakhalin 1 project must immediately halt its pipeline construction across Piltun
Bay, before the formal Court consideration. It is also important to identify the exact
reasons for the changes in the whales distribution observed in the summer 2008. 69
A court ruling was awaited in the lawsuit.
In addition to physical and environmental challenges, the Sakhalin-1 Project also
faced workforce related problems. There was no skilled labor in the region. ENL had
to invest significantly in training the workers but they were not very adept with the
latest construction and drilling procedures. To minimize training expenses, the project
operators imported manpower from other regions. The Sakhalin regional
administration alleged that most of the workers participating in the project were
foreigners. According to them, the project should maximize Russian content by hiring
contractors and workers from the region as stipulated in the PSA.
Analysts were of the view that though the project faced some harsh challenges, ENL
through the application of leading-edge technologies such as 3D seismic and ERD,
visualization analysis, simulations, and field studies had managed to successfully
complete the first phase of the Sakhalin-1 Project. Commenting on the challenges of
the project, Terni said, People ask me if ExxonMobil with its 100-plus years of
global exploration and development has ever been involved in a project that offered so
68
The World Wildlife Fund (WWF) Russia Program works for the conservation of wild life in
Russia.
69
Environmentalists Appeal to Halt Sakhalin 1 Project Before any Formal Court Ruling,
www.wwf.ru, January 12, 2009.
405
many challenges. I tell them that the company has had experience with all of these
challenges-operating in sub-Arctic environments with short work seasons, researching
and applying ice-breaking technology so we get could get the oil to the market,
working in remote areas thousands of miles from manufacturing and supply centers
which required extensive logistics planning, developing drilling plans for extreme
horizontal drilling, working under complex regulatory regimes, and many others.
However, while we might have faced two or three of these challenges on a project
before, just about every single one of them came together on this project.70
Outlook
After completing its first phase, the project moved on to the next phase which was to
develop oil and gas from the Odoptu field. According to the project consortium,
experience gained during the first phase including ERD, logistics, winter work
productivity, contracting strategies and Russian contractor expertise, regulatory
processes and design criteria would be used to carry out the subsequent phase of the
project. Future phases of the Sakhalin-1 Project would include developing the
Arkutun-Dagi fields, expanding the Chayvo OPF, and further developing the Chayvo
gas field (Refer to Exhibit VI for a brief on the future phases of Sakhalin 1 Project).
Experts felt that the three fields in the Sakhalin oil field area could provide a longterm supply of gas for export and domestic use in Russia. It was estimated that the
Chayvo field alone had enough gas to produce 1 billion cubic feet per day (10 billion
cubic meters per year) for more than 25 years. Similarly, the Odoptu and ArkutunDagi oil fields could sustain oil development for more than 40 years at a production
rate of 1 billion cubic feet per day (10 billion cubic meters per year).
In February 2009, ENL suspended work on the Odoptu and Arkutun Dagi fields at
Sakhalin as the Russian government did not approve its development plans and
budgets for 2008 and 2009. However, production from the Chayvo field was not
halted. Due to suspension of work, a 23% fall in oil production was noticed. As in
February 2009, output decreased to about 193,000 barrels of crude oil per day from a
peak of 250,000 barrels per day in February 2007. It was speculated that production
might further drop by 11% in 200971.
According to some analysts, the reason for the suspension of work at the two fields
was a dispute between ENL and the Russian government over the sale of natural gas
developed from the region. The Russian government wanted the operators of
Sakhalin-1 to sell the natural gas to Gazprom72 to cover domestic needs, while Exxon
planned to export the gas to China. ENL wanted to build a natural gas pipe line to
China and supply 8 billion cubic meters of gas annually to China. But the Russian
government did not approve the pipeline to transport the gas as it wanted ENL to sell
the projects gas to Gazprom at a lower price. Some observers felt that the Russian
government was creating obstacles for the project as it felt that it was losing control
over the domestic oil and gas companies and wanted to confine the Sakhalin-1
consortium just to developing the Chayvo field and to develop the remaining two
fields on its own.
70
71
72

OVL's Sakhalin-1 project faces roadblocks, www.financialexpress.com, February 25,
2009.
Gazprom is a global energy company involved in the exploration, production, transportation,
storage, processing, and marketing of gas and other hydrocarbons as well as electric power
and heat energy production and distribution. The Russian Ministry of Oil and Gas holds
a 50 per cent controlling stake in Gazprom.
406
Exhibit VI
Future Phases of the Sakhalin-1 Project
Odoptu Development
The second phase of the Sakhalin-1 project included the development of the
Odoptu field. The field is located off the northeast coast of Sakhalin Island about
35 miles (55 km) north of the Chayvo operations. The first stage of development in
the Odoptu field would include modification of the existing Chayvo facilities.
Development plans included the construction of roads to the Odoptu site and the
establishment of on-site housing and work facilities. The Yastreb drilling rig, which
was used for onshore drilling at the Chayvo field, was relocated to the Odoptu site
where it would be used to drill onshore extended reach wells. A 49 mile (79 km)
16-inch flowline would be laid to transport the oil and gas to the existing Chayvo
Onshore Processing Facility, from where the pipeline to the De-Kastri Terminal
would further transport the oil to international markets. As of April 2009, the
Odoptu field development was going through regulatory and government reviews
and the Yastreb rig was relocated to the Odoptu site. The project was to undertake
additional construction activities after obtaining the required regulatory approvals.
Arkutun-Dagi Development
The third phase of development of the Sakhalin-1 project involved the development
of oil and gas from the Arkutun-Dagi field. The field is located approximately 25
kilometers off the northeast coast of Sakhalin Island, east of the Chayvo field. As
part of the Arkutun-Dagi development, a new offshore drilling and production
platform with a gravity base substructure and topsides facilities was to be
constructed. A new flowline would transport the oil and gas from the ArgatunDagi field to the existing Chayvo Onshore Processing Facility, where existing
pipelines would transport the oil and gas for export. Over 30 Russian design
institutes and contractors were involved in the development of the Arkutun-Dagi
field. As of 2009, the development of the Arkutun-Dagi field was passing through
regulatory and government reviews.
Chayvo Field Phase 2 Commercial Gas Development
The Sakhalin-1 project was supplying natural gas to domestic customers in the
Russian Far East as part of the first phase of the Chayvo field development. The
phase succeeding the Arkutun-Dagi field development would be Chayvo Phase 2
gas development. This phase would expand natural gas production by developing
and producing non-associated gas. The development of this phase required a multibillion dollar investment and significant expansion of existing onshore and offshore
facilities at the Chayvo field site including additional drilling, processing, power,
and other infrastructure developments. The gas produced from this phase was to be
supplied to both domestic and export markets. In order to deliver the gas to export
markets such as China and Japan in a cost-effective way, the project consortium
planned to construct a gas pipeline. In October 2006, a Heads of Agreement was
signed with China National Petroleum Company (CNPC) for supply of gas through
pipelines from Sakhali to China.
Source: www.sakhalin1.com
Though the issue related to the supply of natural gas remained unresolved, the
government went ahead and approved the Sakhalin-1 budget after a long delay.
According to analysts, the government approved the budget as the project functioned
under a PSA and any spending delay would reduce the governments income from the
project. It was reported that the budget approved for the project for the year 2009 was
US$ 1.978 billion. Additional spending for 2008 was approved at US$ 404 million,
compared to US$ 627 million in 2007. With the budget approval, the project resumed
its work on the Odoptu field.
407
References & Suggested Readings

1.
Exxon Deal Pending on Sakhalin-1 Gas? (XOM), http://247wallst.com, May 7,

2009.
2.
OVLs Sakhalin-1 Project Faces Roadblocks, www.financialexpress.com,

February 25, 2009.
3.
Environmentalists Appeal to Halt Sakhalin 1 Project Before any Formal

Court Ruling, www.wwf.ru, January 12, 2009.
4.
Sakhalin-1 Project Receives Award for Excellence from International

Petroleum Technology Conference, www.sakhalin1.com, December 3, 2008.
5.
Sakhalin-1 Beyond the Controversy, www.offshore-technology.com, July 27,

2007.
6.
Sakhalin-1 Project Production Goal Achieved, www.sakhalin1.com, February

14, 2007.
7.
ExxonMobil Announces Start of Sakhalin-1 Exports; Newest Milestone in

Company's Effort to..., www.allbusiness.com, September 7, 2006.
8.
ExxonMobil Announces Production Start-Up from Sakhalin-1 Project in

Russia, www.sakhalin1.com, October 2, 2005.
9.
Sakhalin-1 Launches Oil Pipeline Construction, www.indianexpress.com,

November 10, 2004.
10.
Denise Allen Zwicker, Multi-national Project to Represent Record Foreign

Investment in Russia, http://www.sakhalin1.com, 2002.
11.

12.

13.
ExxonMobil-40 Years of Arctic,

14.
The Quest Begins,

15.

16.

www.exxonmobil.com/Corporate/Files/.../SakhalinEnglish6.pdf
17.
To Full Production and Beyond,

18.

19.
www.eoearth.org/article/Energy_profile_of_Sakhalin_Island,_Russia.
20.
www.sakhalin1.com/en/news/project/pnw_03152002_lamp.asp.
21.
www.sakhalin1.com
408

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Sakhalin-1 Project:

Delivering Excellence in Project Execution

JB McNeil, vice-president, ExxonMobil Development Company in 2008.

Sakhalin 1- A New Frontier,

Sakhalin-1 Project: Delivering Excellence in Project Execution

Exxon Neftegas Limited (ENL) is a subsidiary of ExxonMobil Corporation. It is the operator

Sakhalin-1 Project: Delivering Excellence in Project Execution

Exploration and Project Documentation

KaiganskoVasyukansk (KV), E. Schmidt

4-5 billion bbl

600 million bbl

Sakhalin-1 Project: Delivering Excellence in Project Execution

Current & Expected

* bbl stands for barrels

Sakhalin-1 Project: Delivering Excellence in Project Execution

Appraisal wells are drilled to assess characteristics of a hydrocarbon source accumulated in

Justification of Investment (JOI) is a document that addresses the feasibility of a proposed

Sakhalin-1 Project: Delivering Excellence in Project Execution

Material Supply, Transportation

General Maintenance and

General Instrument, Control &

General Engineering and

Fleet Management, Fuel Depot

Camp Management and Catering

Misc. Personal Protective

Shorebase Services (facility,

Phase I - Development of Chayvo Field

Sakhalin-1 Project: Delivering Excellence in Project Execution

Sakhalin-1 Project: Delivering Excellence in Project Execution

Onshore Processing Facility

The Hawk and the Sea Eagle,

Oil Export System

Sakhalin-1 Project: Delivering Excellence in Project Execution

ExxonMobil Announces Start of Sakhalin-1 Exports; Newest Milestone in

To Full Production and Beyond,

Sakhalin-1 Project: Delivering Excellence in Project Execution

Denise Allen Zwicker, Multi-national Project to Represent Record Foreign Investment in

Sakhalin-1 Project: Delivering Excellence in Project Execution

Sakhalin-1 Project: Delivering Excellence in Project Execution

Safety and Environment

Denise Allen Zwicker, Multi-National Project to Represent Record Foreign Investment in

Sakhalin-1 Project: Delivering Excellence in Project Execution

World-Class by Any Measure,

Sakhalin-1 Project: Delivering Excellence in Project Execution

References & Suggested Readings

Exxon Deal Pending on Sakhalin-1 Gas? (XOM), http://247wallst.com, May 7,

OVLs Sakhalin-1 Project Faces Roadblocks, www.financialexpress.com,

Environmentalists Appeal to Halt Sakhalin 1 Project Before any Formal

Sakhalin-1 Project Receives Award for Excellence from International

Sakhalin-1 Beyond the Controversy, www.offshore-technology.com, July 27,

Sakhalin-1 Project Production Goal Achieved, www.sakhalin1.com, February

ExxonMobil Announces Start of Sakhalin-1 Exports; Newest Milestone in

ExxonMobil Announces Production Start-Up from Sakhalin-1 Project in

Sakhalin-1 Launches Oil Pipeline Construction, www.indianexpress.com,

Denise Allen Zwicker, Multi-national Project to Represent Record Foreign

Sakhalin 1- A New Frontier,

World-Class by Any Measure,

ExxonMobil-40 Years of Arctic,

The Quest Begins,

The Hawk and the Sea Eagle,

From Design to Loading Tankers in 34 Months,

To Full Production and Beyond,

Champions for the Safety and Environment,