LNG Plant of Course to the Entire Team of Also Continued Apace in 2006, Excellent Designers, Engineers, with the LNG Tanks and All Managers and Workers
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Sakhalin Energy The New Energy Source for the Asia Pacific Sakhalin Energy The New Energy Source for the Asia Pacific WWW.SAKHALINENERGY.COM Annual Overview Sakhalin Energy Investment Company Ltd. Corporate Headquarters: 35, Dzerzhinskogo St., 693020, Yuzhno-Sakhalinsk, Russia Phone: +7 (4242) 66-2000 Fax: +7 (4242) 66-2012 www.sakhalinenergy.com www.sakhalinenergy.ru Sakhalin Energy Investment Company Ltd. Moscow Representative Office: 31, Novinsky Boulevard, 123242, Moscow, Russia Phone: +7 (495) 956-1750 Fax: +7 (495) 956-1760 www.sakhalinenergy.com www.sakhalinenergy.ru Sakhalin Energy The New Energy Source for the Asia Pacific Annual Overview Letter of Introduction from CEO It seems that every year, when we operations in 2006, we were able reflect on the past year’s to achieve over 11.5 million developments, we conclude that barrels of oil produced with it was challenging. As it happens, excellent flaring performance. 2006 seems to have been one of the most challenging and pivotal The installation of the Lunskoye years so far. platform topsides was undeniably the most impressive event of the The Sakhalin II Project, which year and also a key milestone on a started in 1996, marked its first critical path toward first LNG. In decade milestone last year. It is another, no less challenging, therefore an appropriate time to operation, two giant new take stock of the journey that we modules were installed on the have travelled together. Molikpaq platform. This also was done with impeccable accuracy. We have come a long way in These modules will play an building the world’s largest integral role in enabling year- integrated oil and gas project on round production of oil. Sakhalin. We were the first in Russia to begin an offshore field The installation of all the offshore development and to commit our pipelines, apart from some tie-ins, gas to LNG exports. Oil produced was completed in 2006. All of the by this Project was also planned Horizontal Directional instrumental in allowing Russia to Drilling river crossings are break into the fast growing complete and over 95% of the markets of the Asia Pacific region. onshore pipelines had been welded by the end of 2006. We owe this success to our employees and shareholders and Construction of the LNG plant of course to the entire team of also continued apace in 2006, excellent designers, engineers, with the LNG tanks and all managers and workers. The marine works, including the Russian Federation authorities installation of the LNG jetty, and the Sakhalin Oblast now complete. Out in Aniva Bay, Administration also played a role the Tanker Loading Unit, which that cannot be too strongly will be used to load tankers with emphasised. crude oil bound for international markets, was also Despite the harsh weather that successfully installed and delayed the beginning of Phase 1 powered up. Sakhalin Energy The New Energy Source for the Asia Pacific We have an extensive work programme to deliver in 2007, including installation of the Piltun-Astokhskoye-B topsides, year-round production for Molikpaq and LNG commissioning The Onshore Processing Facility socio-economic development of entry of Gazprom, the world’s also progressed. Construction the Island. largest gas producer and exporter, works are progressing well and as a leading shareholder will also in January 2007 the plant We also remain committed to be of great value to the Project. commenced supplying power to protecting the environment on the Lunskoye platform. the Island. In 2006 we involved And one more thing. You really independent environmental shouldn’t be surprised if you read With more agreements with LNG experts to further mitigate in our next Annual Report that buyers in 2006, we are happy to potential risks to the Western 2007 was the greatest year of all report that we have contracted to Gray Whale population. We are in the Project’s history. We have a customers practically the entire taking unprecedented actions not close-knit team of professionals LNG capacity for Trains 1 and 2 to disturb the nesting Steller’s sea which is determined to reach on a long-term basis. eagles on the Island, have new heights of success. embarked on a programme to An ever greater role in the Project research Sakhalin taimen and a has been played by domestic river restoration project that will suppliers and contractors, Russian increase salmon spawning areas. specialists and Sakhalin communities. By the end of 2006, When the Project was criticised the total value of contracts signed by Russian regulators, we took with Russian vendors and this as a challenge to improve our suppliers exceeded US$8.2 billion. environmental performance, find This includes significant new new solutions and strengthen awards to local contractors, who controls and management of our have demonstrated their ability to contractors. All this was meet international standards in incorporated into our new developing the oil and gas Environmental Action Plan, industry on the Island. More than which is now being implemented 740 Russian staff, including 439 to ensure a higher level of locals, were hired in 2006 as we protection for the sensitive built up our capacity. environment of Sakhalin Island. We are confident that a large- Looking ahead, we have an scale project such as this one extensive work programme to should ultimately improve the deliver in 2007 including quality of life for local installation of the Piltun- communities. With this in mind, Astokhskoye-B topsides, year- we continued to develop the round production for Molikpaq Island’s infrastructure, building and LNG commissioning. Sincerely, and fitting out social welfare facilities and providing support to An important factor in the Ian Craig, the indigenous people, healthcare Project’s progress is the agreement CEO and education systems. We have with the Russian Party on the moved on from everyday social Amended Development Budget, Sakhalin Energy Investment issues to long-term goals for the reached in December 2006. The Company Ltd. Annual Overview 3 Contents MILESTONES IN 2006 6 OUR PROJECT, OUR COMPANY 12 Sakhalin Energy and Sakhalin II Project 14 Shareholders 15 Production Sharing Agreement 16 Benefits for Russia 17 Resource Base 19 Phase 1 and Phase 2 20 1996–2006: Key Milestones of the Decade 21 Key 2007 Milestones 23 INNOVATIONS. CONSTRUCTION 24 Project Map 26 The Innovator 27 Offshore Platforms 28 LNG Plant 30 Oil Export Terminal 32 Onshore Processing Facility 33 Onshore Pipelines 34 River Crossings 35 Offshore Pipelines 37 Ensuring Seismic Safety 38 Infrastructure Projects and Logistics 39 PRODUCTION. COMMERCE 40 Oil Production 42 Oil Marketing 43 4 Annual Overview LNG Marketing 44 Hydrocarbons Transportation 45 ECONOMICS. FINANCE 46 General Business Principles 48 Financing and Project Costs 49 Economic Efficiency 50 Taxes and Payments 51 RUSSIAN CONTENT 52 Russian Content Development Strategy 54 New Contracts 56 How to Become a Contractor 57 MANAGEMENT. PERSONNEL 58 Management System 60 Supervisory Board 61 Committee of Executive Directors 62 In Dialog with the Society 63 Personnel Development 64 ENVIRONMENT. SAFETY 66 Safety and Environment: Integrated Approach 68 Labour Safety 69 Environmental Protection 70 Emergency Response 72 Rare Species 74 SOCIAL RESPONSIBILITY 76 Annual Overview 5 Sakhalin Energy The New Energy Source for the Asia Pacific MilestonesMilestones inin 20062006 On 26 June 2006, Sakhalin Energy successfully completed the installation of the Lun-A topsides on the Concrete Gravity Base Substructure in the Sea of Okhotsk Oil Production In December 2006 Sakhalin Energy successfully completed the eighth production season at the Vityaz Complex. Production season 2006 at the Molikpaq Platform resulted in 11.58 million barrels of oil produced. A total of 19 cargoes of Vityaz crude were delivered during the season to existing markets in Japan, Korea, Thailand and the USA. The Phase 1 cumulative oil production since 1999 amounted to 85 million barrels, or approximately 11.5 million tonnes. (For more detail see Production and Commercial) plant under construction in The LNG jetty is capable of Prigorodnoye. handling LNG tankers ranging Construction of Major Oil and from 18,000 m3 to 145,000 m3. Gas Infrastructure Sakhalin Energy completed the installation of the Molikpaq tie-in On 30 August 2006, Sakhalin In 2006, considerable modules on 19 July 2006. The Energy completed the Sakhalin II progress was achieved in the two modules, each the size of a offshore pipelines ahead of construction of the Phase 2 10-storey block, were successfully schedule. The completion of the oil and gas infrastructure. lifted into position using offshore pipeline construction The most significant Castoro 8, a mobile crane barge. ahead of schedule allowed the milestones include the In addition, a new multi-million- early demobilisation of vessels installation of Russia’s first dollar crane assembled locally in engaged in the construction offshore gas platform at the Kholmsk was also installed works, which significantly Lunskoye gas field, the successfully on the platform. reduced total noise impact. installation of two Molikpaq These modules will allow year- tie-in modules, the round production from the Success in LNG Marketing completion of the offshore platform when the pipeline pipeline construction system is complete. New LNG sale and purchase (achieved ahead of schedule) agreements were added to and finalisation of the LNG With the installation of the last the LNG long-term contract jetty construction. trestle and the LNG loading portfolio in 2006. This has platform of the LNG jetty contributed to Sakhalin’s On 26 June 2006, Sakhalin reaching out 800 metres into development as a new Energy successfully completed Aniva Bay, Sakhalin Energy strategic source of natural the installation of the Lun-A completed the LNG jetty gas for Japan and has topsides on the Concrete Gravity construction on 23 August 2006. confirmed the Asia Pacific Base Substructure in the Sea of The completion of the LNG jetty region as a major new market Okhotsk in the north-eastern represents a major event for the for Russian energy.