Sakhalin investment less promising now than in 2001

Vol 12, PW 5 (24 Jul 08) People & Policy

Seven years ago when ONGC Videsh invested $1.7bn to buy a 20% stake in three oil and gasfields offshore Sakhalin Island in Russia it was billed as the largest overseas investment ever by an Indian company.

But in less than three years since first production crude output at the main Chayvo oil and gasfield is dropping sharply, with worse to come. PETROWATCH learns that from a low of 50,000 b/d first production in October 2005, output from around 30 wells at Chayvo steadily peaked at 250,000 b/d in February 2007 but has been steadily declining ever since, dropping to the point where by July 21 this year it had fallen 25% to 200,000 b/d.

Gas production, also recorded on July 21 this year, is between 21m cm/d and 23m cm/d. By its own admission (see graph) OVL recognises that crude production at Chayvo will fall further to 150,000 b/d by 2009 and 125,000 b/d by 2010.

Contacted by PETROWATCH no one at OVL seems unduly worried by this sharp drop in production or the steadily declining production profile. “This is a natural decline,â€‌ we hear.

“In fact peak production (250,000 b/d) was sustained for longer than expected. OVL factored in the decline when it prepared its business plan.

They knew all along.â€‌ One immediate casualty could be the early termination of tanker contracts hired by the Sakhalin consortium to evacuate the crude.

Presently the consortium has five tankers each evacuating 50,000 b/d (total: 250,000 b/d) but the number is likely to come down earlier than expected, as production falls. Another major setback to increased production from Chayvo is the refusal of Russian authorities to extend the above-surface boundary of the 75-sq km field with its 243-sq km sub-surface reservoir.

More than two years of talks between the Exxon-led consortium and Russian authorities eventually broke down last November. Chayvo is one of three oil and gasfields operated by Exxon at Sakhalin, where OVL has a 20% stake.

Production at Odoputu and Arkutun Dagi is yet to begin.