A combine of Marathon Oil Co., McDermott International Inc., and Mitsui & Co. Inc. is advancing toward approval of the first project in hotly contested international bidding to develop oil and gas reserves off Sakhalin Island in the Russian Far East.
The Russian Federation signed a letter of intent for the MMM group to conduct a detailed feasibility study of developing Piltun-Astohskoye and Lunskoye oil and gas fields and conduct further exploration in the tender area (see map, OGJ, Mar. 18, 1991, p. 35).
The fields, in the Sea of Okhotsk, have combined reserves estimated at more than 750 million bbl and 14 tcf of gas, Marathon said.
McDermott first got involved in Sakhalin Island work more than 3 years ago with letters of intent with Soviet authorities that included a joint venture to develop Sakhalin offshore oil and natural gas (OGJ, Feb. 27, 1989, p. 34).
Mitsui and Mitsubishi Corp. were involved in project financing for the earlier joint venture.
MORE AWARDS?
At least two other Sakhalin Island offshore development projects apparently are still under consideration for international bidding.
Odoptu-More oil and gas field was discovered by local oil authority Sakhalinmoreneftegas. Chaivo-More oil and gas field was discovered by Sakhalin Oil Development Co. (Sodeco), a group of Japanese trading houses and manufacturing companies led by Japan National Oil Co. and active in Sakhalin Island exploration and development since 1976.
A combine of Exxon Corp. and Sodeco is among bidders for Offshore Sakhalin work and has been described as a frontrunner in the bidding. A joint venture of Exxon and C. Itoh offered a separate proposal to develop the three fields outside the Sodeco area.
Other bidders at various times have been Amoco Corp., BHP Petroleum Pty, Ltd., Mobil Oil Corp., Royal Dutch/Shell Group, and Palmco, a combine of Ralph M. Parsons Co. and South Korean companies.
Tentative development plans include a proposal to export about 40% of Sakhalin offshore gas via pipeline or as liquefied natural gas to Japan and/or South Korea.
WHAT'S INVOLVED
Development off Sakhalin will involve extremely harsh pack ice and weather conditions. That will make it one of the largest, most complex hydrocarbon development projects ever attempted, requiring an estimated capital investment of several billion U.S. dollars, Marathon said.
A formal agreement covering the feasibility study is expected to be signed by Mar. 31. Work on the feasibility study will begin immediately thereafter, along with negotiations on development terms and agreements.
The Marathon group will work with Sakhalinmorneftegas, the Sakhalin Island government, and other Russian Federation entities on the feasibility study and ultimate development.
BACKGROUND
International groups of companies have been vying for the project for months amid delays and confusion as what terms would be involved and which entities would have jurisdiction (OGJ, Dec. 16, 1991, p. 24).
Sakhalinmorneftegas announced an international tender in 1991.
Although the project was initially awarded to the Marathon group, the local government asserted its authority in the wake of the aborted coup in the Soviet Union, and the summer tender was declared void. The local government asked Russian President Boris Yeltsin to place the tender under Sakhalin authority, then sought commitments from all bidders to invest huge additional sums in developing the island's infrastructure.
Squabbles over jurisdiction continued until the federation and local governments formed a new committee to award Sakhalin contracts (OGJ, Jan. 13, Newsletter).
The first discoveries off Sakhalin Island were drilled in the early 1970s in shallow Sea of Okhotsk waters near the island's northeast coast. Estimates of hydrocarbon potential vary widely, with the most recent official estimate of 10 billion bbl of original oil in place in the Sea of Okhotsk off Sakhkalin. Pravda also reported a gas resource in the Soviet Far East, mainly in the Sea of Okhotsk, estimated at 600 tcf.
There is no commercial hydrocarbon production off the island. Onshore Sakhalin Island production has slipped recently to about 40,000 b/d from an average 50,000 b/d.
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