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St Petersburg Times: Exxon’s Sakhalin-1 Broke PSA

Friday 13 October 2006
Reuters
 
MOSCOW — The Audit Chamber said Friday that the ExxonMobil-led Sakhalin-1 energy project had broken many terms of its production sharing agreement.The agency, which supervises the use of government finances, said in a statement that the group had started oil production two years later than expected and still had no clear gas export plans.

The agency has no enforcement powers but can send its conclusions for further investigation by prosecutors. It said it had sent a letter to President Vladimir Putin.

The agency has repeatedly criticized the neighboring Sakhalin-2 project, led by Royal Dutch Shell, which has run into trouble after telling the government last year that it would double costs to $20 billion. But this is the first time the agency has released a major statement on Exxon’s Sakhalin-1, whose activities have been seen until recently as much safer than those of Shell.

In recent months, Russian officials have told Exxon they would not approve a cost increase to $17 billion from the previous $12.8 billion. They also said the company had to undergo more checks at its De Kastri terminal on the Pacific before beginning commercial crude exports of up to 250,000 barrels per day from next year — an eagerly awaited addition to Asian Pacific markets.

Exxon has, however, started loading crude at De Kastri and the first tanker is due to sail next week.

Oil output from the Exxon Mobil-led Sakhalin-1 project will peak in 2007 and start to decline immediately afterwards partly because it failed to agree with Russia to extend the field’s territory, a project member said on Monday. Lev Brodsky, head of Sakhalin projects at Rosneft, told a news conference Monday the failure to agree the extension of license territory would cut the projected output by around 10 percent.
 

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