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Sakhalin Energy welcomes EBRD’s announcement Sakhalin II Phase 2 project is fit for purpose


Yuzhno-Sakhalinsk, Russian Federation, 14 December, 2005: Sakhalin Energy Investment Company Ltd (Sakhalin Energy) welcomes the European Bank for Reconstruction and Development’s (EBRD) announcement that the Sakhalin II Phase 2 Project’s approach to environmental and social issues management is fit for purpose.

EBRD is a prospective lender considering part financing the Sakhalin II Phase 2 Project.

Over the past three years the prospective lenders have undertaken a rigorous assessment of the project.

EBRD’s fit for purpose announcement is a significant milestone in that it enables the start of a 120-day period of public disclosure of and consultation on the Project’s environmental, social, health and safety issues and mitigation documentation. During this period, EBRD and Sakhalin Energy will jointly conduct public meetings. Sakhalin Energy will also continue to engage with NGOs and other stakeholders on their concerns.

Sakhalin Energy’s CEO Ian Craig said; “I am pleased with EBRD’s announcement, which reflects the rigorous environmental and social standards adopted by the Company. The Lenders’ assessment has been very thorough and they provide an important independent perspective and challenge. We look forward to strengthening our relationship with the Lenders as the development progresses. We also welcome the opportunity to continue further engagement with stakeholders.”

The project is being implemented to the highest Russian and international health, safety and environmental standards. First Liquefied Natural Gas (LNG) sales are currently scheduled for summer 2008 and all year round oil production is currently planned for late 2007.

Notes for editors

The shareholders in Sakhalin Energy are: Shell Sakhalin Holdings B.V. with 55 % interest (parent company – Royal Dutch Shell plc), Mitsui Sakhalin Holdings B.V. with 25% (parent company – Mitsui & Co., Ltd.) and Diamond Gas Sakhalin B.V. with 20 % (parent company – Mitsubishi Corporation).

The Sakhalin II Project

Sakhalin Energy Investment Company Ltd. is an incorporated company, established in April 1994 and based in Yuzhno-Sakhalinsk, Russia for the purpose of the implementation of and development of the Sakhalin II integrated oil and gas project.

The Sakhalin II development represents the largest foreign direct investment project underway in Russia. It was the first Production Sharing Agreement (PSA) to be signed in Russia and the first PSA to go into operation.

Phase 1 has been producing oil from the Vityaz Complex offshore Sakhalin since July 1999. The Vityaz complex consists of the Molikpaq production platform, a single anchor leg mooring buoy and the Okha floating storage and offloading unit, and is located on the Astokh feature of the Piltun Astokhskoye (PA) reservoir offshore Sakhalin. The Molikpaq is the first offshore oil production platform in the Russian Federation.

Production is currently limited to the ice-free period during the summer months. Production during the 2004 season amounted to 11.6 million barrels. Sakhalin Energy has sold its crude oil to refineries in seven different major markets - Japan, Korea, China, Taiwan, the Philippines, Thailand and the USA.

Phase 2 of the Sakhalin II Project is one of the biggest single integrated oil and gas project ever undertaken. It entails the further development of the Piltun Astokhskoye (PA) field – an oil reservoir with associated gas – and the development of the Lunskoye field – a gas reservoir with associated condensate. Apart from the Lunskoye platform, the project also calls for a further oil and gas production platform on the PA field and a 9.6 million tonne per annum LNG plant.

The concrete gravity base structures for both platforms are in place offshore Sakhalin, and the topsides are currently under construction in Korea.

An onshore processing facility is being built to separate gas and condensate from the Lunskoye field. Pipelines will transport the oil and gas more than 800 km to an oil export terminal and an LNG plant at Prigorodnoye currently under construction on the southern end of Sakhalin Island, which remains largely ice-free year round. The Phase 2 Project will also enable year-round production from the Molikpaq platform.


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