The Scottish Oil Club

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"The Sakhalin II Phase 2 Project The New Energy Source for the Asia Pacific: Transforming the Vision into Reality"

Thursday 13th October 2005, 6:00 p.m.
The Royal Scots Club, 30 Abercromby Place, Edinburgh

See Google Maps for a map of the venue location.

To view the presentation in Adobe Acrobat, click on the above icon. To download the right mouse click on the above icon. The file is approximately 11 mb in size.

Click on the above icon (or right mouse click to download) a 1.5 mb Windows Media video file showing the casting strategy for the platform bases.

A programme of student dinner attendance is sponsored by Wood Mackenzie

Speaker

David is a proud Scotsman, graduate of the University of Edinburgh, and a resident of Edinburgh.

An accomplished professional chartered engineer with over 25 years of experience, which has provided the opportunity to experience a very wide range of engineering, commercial and management positions, in a variety of environments around the world. He is currently assigned to Sakhalin Energy and acts as the Deputy CEO and Project Director of the landmark Sakhalin Phase 2 Project. In this role, he is responsible for the overall management of one of the largest integrated oil and gas projects in the world, the Sakhalin II Phase 2 Project, based on Yuzhno-Sakhalinsk, Sakhalin Island, Eastern Russia. The multi-billon dollar project is being developed in an extremely demanding socio political and physically demanding environment and has high levels of exposure in terms of stakeholder relations, contracts and procurement, financial planning and control, project performance. The project is currently approximately 60 % complete and the first deliveries of LNG to customers are planned to commence in 2008. In his role as Deputy CEO, he liaises with the Sakhalin Island Government, Japanese Shareholders and Asian LNG buyers on a regular basis as well as many other local and international stakeholders which include, but are not limited to, the world’s major NGO’s and major lending institutions such as EBRD, JBIC and US Exim.

Prior to this assignment, he was assigned to the role of Director of EP Projects, which was established in July 2002 as a global centre of excellence for major Shell Exploration and Production projects. Its goal was to improve Shell’s competitive advantage by applying best project engineering and management practices to ensure delivery of major projects on time, within budget and performing in line with predictions.

Prior to that David directed the successful execution of the Malampaya Deep Water Gas to Power Project in the Philippines, which is seen as one of the best examples in Shell - and in the industry - of a professionally managed world-scale project. In particular Malampaya was applauded for its exceptional sustainable development programmes and was recently awarded the United Nations Sustainable Development Award by the World Business Council in Johannesburg in August 2002.

In earlier assignments, He has worked in the Netherlands, United Kingdom, Norway, Canada, Oman and Argentina.

In recognition of his work on the Malampaya Project and in particular in the sphere of sustainable development, David was awarded an OBE in the 2003 UK New Years Honours list.

Arrangements

Members and guests are invited to convene between 17:30 and 18:00 for coffee/tea and biscuits (pay-bar available). The Annual AGM of the Scottish Oil Club commences at 18:00.  The presentation will follow shortly.  An opportunity for informal discussion between members and guests will follow the presentation in the Cocktail Bar where a pay-bar is available until commencement of the Discussion Dinner (Chatham House Rules) at about 20:00.

Menu: melon with parma ham • Steamed pavé of Scottish salmon with a hollandaise sauce • Dark chocolate gateau/torte

Wine: Lambert’s Bay Grenache Syrah, France •  Santa Serena, Chardonnay Sauvignon Blanc, Chile

Cost:  £31 inclusive of wine and VAT. (If vegetarian meal required, please order at time of booking).

Synopsis

Sakhalin Energy Investment Company Ltd. is an incorporated company based on Sakhalin Island located in the far east of Russia. The Company was established for the development of the Sakhalin II integrated oil and gas project and the shareholders of the Company comprise: Shell Sakhalin Holdings B.V. with 55 % interest (parent company – Royal Dutch/Shell), 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 Phase 2 Project represents the largest foreign direct investment project underway in Russia and the project is one of the largest integrated oil and gas projects ever undertaken in the world. It was the first Production Sharing Agreement (PSA) to be signed in Russia and the first PSA to go into operation.

Phase 1 of the Sakhalin II Development 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 was the first offshore oil production platform in the Russian Federation. Phase 1 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 Development is thought to be the biggest single integrated oil and gas project ever undertaken, not just within Russia but also globally. The Phase 2 Project reached a major milestone when the Declaration of Commerciality for the project was signed on 15th May 2003. The Phase 2 Project marks the dawn of the offshore oil and gas and liquefied natural gas industry in Russia, illustrating the crucial importance of integrating the development of gas markets with the rapid construction and successful operation of the necessary offshore and onshore infrastructure. It entails the further development of the PA field – an oil reservoir with associated gas – and the development of the Lunskoye field – a gas reservoir with associated condensate. Apart from the PA oil and gas production platform, the project also includes a further gas production platform on the giant Lunskoye (LUN-A) gas field and an LNG plant with a capacity of 9.6 million tonnes per annum. The concrete gravity based structures for both platforms were successfully constructed in Port Vostochny, near Vladivostok and the first, LUN-A, was successfully installed offshore on schedule on July 3rd 2005. The second structure, PA-B, will be installed in Q3 2005. The Topsides facilities for the LUN-A and the PA-B concrete gravity-based platforms are currently under construction in Korea. An onshore processing facility is being built to separate gas and condensate from the Lunskoye field and to boost production from the Piltun field. The Phase 2 pipelines are major engineering challenges in their own right, traversing rugged topography through seismically active and environmentally sensitive onshore and offshore regions to transport oil and gas more than 800 km to an oil export terminal and the LNG plant at Prigorodnoye at the southern end of Sakhalin Island, which remains largely ice-free year round. The Phase 2 Project will also enable year-round oil production from the existing Molikpaq platform. Deliveries from the new LNG plant to customers in Japan, Korea and the United States of America are planned to commence in 2008.

The project schedule to meet the LNG sales commitments to international gas buyers was very tight from the outset and has necessitated a peak requirement of 16,000 workers to execute the scope in challenging environmental and meteorological circumstances. The project goals are being achieved by continued attention to the six project tenets of cost containment, schedule attainment, quality, exemplary HSES (health, safety, environment and security) management, stakeholder engagement and sustainable development. A large number of substantial gains have already been achieved on the technical, commercial, operational, contracting, organisational, human resources and reputation-management fronts, which are considered to be of great value to other major projects being planned or implemented in such frontier locations. The lessons gained from this unique project should not be forgotten, as they will undoubtedly be of great value to future frontier mega-projects in such remote and challenging locations and to the E&P industry at large.

This paper describes the history behind this landmark undertaking, the great progress achieved to date, the technically challenging solutions developed for this frontier, harsh environment, the contracting strategies employed as well as the many venture management, HSE, commercial, resourcing and sustainable development challenges that are currently being pioneered by Sakhalin Energy to successfully transform this exciting frontier project on the beautiful island of Sakhalin from a vision into a reality.