OREANDA-NEWS. September 27, 2013. Read Roman Dashkov’s speech on the recent key milestones of Sakhalin-2 project at Sakhalin’s major energy conference.

Good afternoon, ladies and gentlemen!

Sakhalin Energy has taken part in Sakhalin Oil and Gas Conferences starting from 1997. For me personally, this is the first opportunity to share some information about our business and the current status of the Sakhalin-2 project at this forum.

Our vision is to be the premier energy source for the Asia-Pacific.

Our major production and processing facilities are located 800 km away from here, off the Northeastern coast of Sakhalin Island, where we operate three offshore platforms in severe subarctic conditions.

Sakhalin Energy has been producing hydrocarbons for 14 years. The company has completed two project phases and will move to phase 3 starting next year.

Currently, we produce more than 14 thousand metric tonnes of oil per day. We have 23 oil producing wells, including 13 at the Molikpaq platform installed at the Piltun Astokh field. This platform was installed in 1998 to become Russia’s first stationary offshore oil production platform.

This platform currently accounts for the bulk of our oil production. The platform is past its peak production levels; half of the reserves at this field have already been extracted. We are currently stabilising production at the Molikpaq while implementing the platform life extension project. This will allow us to continue producing from the Molikpaq over the next 30 years. Next year, we will complete workover activities at our existing producers and injectors there and will start our in-fill drilling programme.

We have ten oil producers at the PA-B platform. This is where, for the first time in Russia, we have implemented the smart (or intelligent) well completion technology. This was driven by the need to produce simultaneously from several hydrocarbon-bearing formations with different permeability and porosity characteristics. This leads to uneven oil production from exposed reservoirs and large scale gas break through highly porous sub-layers.

Intelligent completion technology permits commingled production from several development targets. Use of Automated Downhole Equipment allows for continuous real-time data collection.

Recently, we have acquired a better understanding of the Piltun area subsurface and how peripheral water injection affects production rates. In the future, we will develop new, more effective and efficient ways of drilling and oil production to be used there.

We produce natural gas at the Lunskoye field from nine wells. We have completed both phase 1, reaching the design natural gas production capacity, and phase 2, oil rim appraisal, at Lunskoye. On average, the Lunskoye-A platform produces over 42 million cubic meters of gas per day. Unfortunately, we have only been able to confirm oil rim reserves in 50% of the cases, while the feasibility of oil production there is extremely low. The cost of horizontal oil rim wells actually exceeds the potential revenue associated with oil production.

Presently, we use big bore wells to produce gas from the Lunskoye gas field. LNG plant production demand is fully met with 75% average load per well. LUN-A drilling platform quantitative slot design constraints coupled with rigid schedule of gas supply to LNG plant led to necessity to drill big bore wells of 444.5 mm with 244.5 mm tubing diameter up to the top of reservoir. Gas rate of a single big bore gas wells now reaches 10 million cubic meters per day. Big bore gas wells used on LUN-A platform are unique to both Russian and worldwide oil and gas practices.

December will mark five years since the start of oil export from the port of Prigorodnoye. Over this period, more than 280 oil tankers have been loaded there with Sakhalin-2 oil. Overall, since 1999, we have shipped more than 440 oil cargoes, or 40 million tonnes of oil and condensate, and 680 LNG cargoes, to our customers.

Our 2013 LNG production target of 10.5 million metric tonnes will be fully met.

In accordance with the 2008 Plan of Development, we are completing our construction and drilling projects under phase 2. We have fully met our commitments under phase 2; profit sharing under the Sakhalin-2 project started earlier than expected.

Phase 3 will include the OPF Compression Project, as well as further drilling activities at Piltun, Astokh and Lunskoye areas to ensure steady production levels.

I would like to say a few words about safety, our top priority.

Over the last several years, the company’s HSE performance has been quite good. At the same time, it’s no secret that keeping it at that level is becoming a more and more challenging task, first and foremost because of human negligence and complacency and because of the constant influx of new employees. Our first priority now is to make people pay more attention to safety, to make them more responsible and accountable for their actions. This applies to everyone – our managers, supervisors and all employees, as well as to our contractors. Additionally, we plan to improve the competence of our employees through additional training and learning sessions.

I would like to remind you that last year, the company reached an important milestone – we commenced production sharing. This year, we began paying the profit tax at a 32% rate based on our financial performance in 2012. It is expected that the company will pay approximately US\\$2.5 billion to the Russian Party in 2013.

The financial benefits to Sakhalin are supplemented by the natural gas supplied to regional consumers. Currently, we supply gas via two gas transfer terminals, one in the north of the island, the other in the south. Just in 2013, 17 new gas supply links have been established on the island.

Our social investment is another important component of the company’s activities on the island. Our objective is to ensure Sakhalin’s future sustainable development to a maximum extent.

To summarise my short presentation in a few words, I’d like to emphasise three important points.

Our company is safe.

Our company is stable.

Our company is looking ahead – in other words, it is growing.

Next year, Sakhalin Energy will celebrate its 20th anniversary. It was the launch of the first Russian offshore PSA projects in 1994 that resulted in the idea to establish this forum. It is my pleasure to announce that next year, one conference day will be devoted to the Sakhalin -2 project experience.

In conclusion, I would like to wish you the best of success and safety at work!