BLOOMBERG: BP to Expand at Russian Sakhalin to Revive Oil Growth (Update2): “Sakhalin island has an estimated 45 billion barrels of oil and gas reserves, according to Ian Craig, chief executive at Sakhalin Energy Investment Co., operator of the Shell-led Sakhalin-2 project.”: Posted Friday 2 December 2005
(Bloomberg) -- BP Plc, Europe's largest oil producer, plans to revive growth in output by cooperating with Russia's state oil company to extract more oil off Sakhalin island, which may supply more crude than Libya.
BP and OAO Rosneft plan to expand exploration at Sakhalin, which may reach daily output of 2 million barrels of crude and as much as 8 billion cubic feet of gas in less then two decades. Libya, the Organization of Petroleum Exporting Countries' eight- largest oil producer, extracted 1.7 million barrels a day in October, according to Bloomberg estimates.
``It's a world-class basin, there is still a tremendous amount to play for,'' Doug Suttles, BP Sakhalin's president, said today in an interview in London. ``When BP enters a province, we only enter provinces that are material, that can be large.''
BP is turning to Sakhalin as output growth slows at its Russian venture. BP, Exxon Mobil Corp. and Royal Dutch Shell Plc are seeking closer ties with Rosneft and Russia's state natural-gas company OAO Gazprom to develop Sakhalin as President Vladimir Putin increases the state's role in the oil industry.
Exxon and Shell plan to invest about $35 billion to tap Sakhalin oil and gas fields, in projects that will pump about a quarter of the region's potential output, according to BP's estimates.
``The basin is big, we have the right partner and we have a reasonable position,'' Suttles said. ``Now it's just down to finding the oil.''
Expanding Sakhalin
Russia, the world's second-largest oil supplier, may increase output growth next year as Shell and Exxon expand Sakhalin projects in the Far East, the International Energy Agency said in July. Russian oil output probably will grow 2.5 percent this year, slowing from a 9 percent expansion in 2004, Energy Minister Viktor Khristenko said Oct. 3.
``We expect surge of oil production on the Sakhalin island in 2006 and 2007,'' Galina Pavlova, director of the oil and gas department at the Sakhalin regional administration, said yesterday in London. Oil companies have invested $12 billion in Sakhalin projects as of mid-2005, she said.
Sakhalin island has an estimated 45 billion barrels of oil and gas reserves, according to Ian Craig, chief executive at Sakhalin Energy Investment Co., operator of the Shell-led Sakhalin-2 project. Gas accounts about two-thirds of this volume.
The amount of oil reserves in the Sakhalin fields may be equal to the North Sea, one of the main sources of crude for Europe, according to BP and Shell estimates.
Exploring Okhotsk
BP and Rosneft plan to invest $200 million to drill two wells next year in the Sea of Okhotsk in Asian Russia. The partners, who struck oil at two previous wells, hired Transocean Inc., the world's largest offshore drilling company, for the project.
``The next year will outline prospects for us,'' said Lev Brodskiy, the general director of Rosneft's ZAO Sakhalin Projects, which operates the local developments. The partners will either announce commercial oil discovery or extend their five-year exploration license, he said today in an interview in London.
BP and Rosneft plan to produce about 500,000 barrels a day from the Sakhalin fields, Suttles said. ``That's all depend on the exploration success and this is where we come in.''
Replacing Shell
London-based BP spent $7.7 billion over the past two years to set up TNK-BP, a joint venture that allowed the company to replace Shell as the world's second-biggest publicly traded oil company.
BP's share of production at TNK-BP, Russia's biggest oil producer, and its units was about 1 million barrels a day in the third quarter of this year,
26 percent of BP's total output.
BP and Rosneft set up ZAO Elvary Neftegas to jointly explore Kaigansko-Vasyukansky deposit, where they plan to drill the second well next year. BP owns 49 percent of Elvary and Rosneft the rest.
The companies also agreed to drill the first well at the West Shmidtovksy deposit in the area next year, and at least one well at East Shmidtovksy in 2007, Suttles said. All three fields are part of the Sakhalin-4 and Sakhalin-5 projects. The partners will secure the second rig and drill five wells at the fields in 2007, Suttles said. He declined to comment on potential reserves at the sites.
Rosneft tripled oil production this year after the government combined it with what had been OAO Yukos Oil Co.'s main business.
The company raised output to 1.5 million barrels a day, enough to supply Spain, after it bought OAO Yuganskneftegaz in December. The government confiscated and sold Yugansk for $9.3 billion to help cover $28 billion in tax claims against Yukos.
The government increased its control of the oil industry in Russia, the world's second-biggest exporter of the fuel, to 30 percent after Gazprom paid $13.1 billion in October to buy OAO Sibneft, the country's fifth-biggest producer. The state now owns 100 percent of Rosneft and more than 50 percent of Gazprom.
To contact the reporter on this story:
Eduard Gismatullin in London at egismatullin@bloomberg.net
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