an arctic success story

This article originally appeared in the Lamp, 2008 — Number 2

As Exxon Neftegas Limited hits peak production at a Sakhalin Island oil field, those involved take stock in operating in one of the world’s toughest energy environments.

Sakhalin Island, rising off Russia’s eastern coast, is a gem of rolling green meadows, thickly forested mountains and sparkling seas. It boasts brief but glorious summers, harsh winters, subtle springs, bright-red falls — and huge, offshore hydrocarbon reserves.

While exploration began off the island in the 1970s, technological and development challenges kept those reserves locked in place for many years, and oil companies have only recently begun to tap those resources. In 2005, only four years after the project was announced to be commercially viable, ExxonMobil subsidiary and operator Exxon Neftegas Limited (ENL), along with its co-venturers from Japan, India and Russia, celebrated as the first production flowed from the Sakhalin-1 project (ExxonMobil interest, 30 percent).

ENL achieved another milestone early in 2007 when the project reached its targeted peak production rate of 250,000 barrels of oil a day from its offshore Chayvo field in the Sea of Okhotsk. This is just the first phase of a multiphased development that also includes drilling of the offshore Odoptu and Arkutun-Dagi fields. All told, the project is expected to yield more than 5 billion oil-equivalent barrels of energy and should sustain production until 2050.

Sakhalin-1 represents one of ExxonMobil’s first ventures in Russia and is the company’s largest investment in the country, with direct revenues to Russia during the life of the project expected to exceed $50 billion. In addition, the company is committed to capacity building through workforce and supplier development, and strategic community investments.

“Russia is the second-largest oil producer after Saudi Arabia,” says Mike Flynn, vice president of ExxonMobil Development Co. “Its reserves are vital to helping fuel an increasingly energy-hungry world. Our success at Sakhalin has helped to establish important relationships with government organizations, the community and our co-venturers in the region. This success provides a solid foundation for the future.”

Drilling success in the arctic

The Chayvo field sits more than six miles offshore in the Sea of Okhotsk, which in winter can become a sea of moving ice up to six feet thick. It’s also subject to gale-force winds and seismic activity as well as negative-digit temperatures throughout much of the winter.

“We’ve had to face every challenge imaginable in this project — from the harsh conditions, to the remote location with very little infrastructure, to the complex regulatory structure,” says Steve Terni, chairman of ENL. “But we’ve assembled truly multifaceted, international project and production teams to take on these challenges, including our drilling organization, whose performance has been truly outstanding.”

To reach Chayvo’s offshore oil, ENL has drilled horizontally from the land, a technique known as extended-reach drilling, which, although technologically challenging, uses a smaller environmental footprint and is more efficient and cost-effective than depending solely on offshore drilling platforms, Terni says.

One key to ENL’s success is the towering blue edifice named Yastreb, the Russian word for hawk. It is the world’s most powerful land-based drilling rig. By June 2008, Yastreb had drilled 28 wells ranging from five to more than seven miles in total depth. Seven of these broke the world record for the longest extended-reach wells ever drilled.

None of this has been easy. Terni likens drilling six miles from land beneath frigid waters and floating icepack to “threading the needle in the proverbial haystack, from way across the farm, in a blizzard.”

To tap the outer reaches of the field, ENL has also used an offshore platform, the Orlan, named after the Russian sea eagle, which was retrofitted to withstand the area’s turbulent storms and seismic activities.

Through the application of cutting-edge technology, including the combination of ExxonMobil’s extended-reach drilling and the company’s Fast Drill Process, ENL has been able to drill wells in nearly half the time anticipated.

Chayvo’s oil is transported and processed onshore, then transferred by a 140-mile-long pipeline across the island and under the Tatar Strait to the DeKastri Terminal on the Russian mainland, where it is loaded through a single-point mooring facility onto specially built, double-hulled oil tankers. Icebreakers escort the tankers out to sea, ensuring a safe voyage as the oil is delivered to international buyers. A portion of the field’s natural gas is sold for domestic use and provides a stable supply of gas to the area.

Meeting environmental and social challenges

One of the constant challenges in developing oil and gas projects in arctic conditions is managing costs and meeting project schedules. Jim Flood, Sakhalin-1 project executive, says ENL has accomplished this, in part, by using modular construction for its massive onshore facilities. Thirty-six pre-assembled modules, which accounted for more than 44,000 tons of fabricated facilities, were shipped and installed in the summers of 2005 and 2006, he says.

“This greatly helped offset the development challenges of working in a remote arctic environment with such a short construction window,” Flood says. “Our goal during project execution was to manage through winter conditions. We’ve done that in the first Chayvo phase, and we’ll continue to apply what we’ve learned to the future Odoptu and Arkutun-Dagi development phases.”

A phased approach has the added benefit of allowing the company to gain experience and apply lessons learned to subsequent projects. “From our Chayvo experience,” Flood says, “we have worked hard to develop and enhance the capabilities of local contractors and vendors, and have also learned the best ways to successfully achieve outstanding results in safety, environmental management and operational performance in a harsh environment.”

Steve Terni agrees that new technology and the disciplined and phased-management approaches account for much of the company’s current and expected future success. But he also attributes that achievement to ENL’s reputation as a company of integrity that emphasizes safety, environmental protection and unwavering ethics, and that embraces strong relationships with local residents, and the Russian and Sakhalin governments.

“Through it all, we’ve followed rules and regulations to the letter,” Terni says. “That has reinforced our reputation for being a sound, thorough company, and has contributed to the support we have with the local and national authorities.”

Another value ExxonMobil embraces is a commitment to supporting Sakhalin’s communities. This has included building roads, bridges, airport and seaport facilities, and medical facilities as well as funding local education, health and environmental protection programs. The company also is dedicated to hiring and training Russian nationals, which has given many workers the opportunity to put their skills to use and to receive training at ExxonMobil operations around the world. The number of direct and indirect jobs created during the life of the project will total more than 13,000.

Jim Taylor is ENL’s president and has made his home on Sakhalin Island. He thinks he’s got the best job in one of the most beautiful corners of the globe, with some of the best workers in the world. Now he’s thinking about the next generation. “One of my life’s goals was to get this job. Now one of my goals is to see one of the young people we’ve trained here replace me,” Taylor says.

Arctic dreams

Sakhalin is not ExxonMobil’s first experience in the arctic. The company pioneered an ice-breaking supertanker, the S.S. Manhattan, in 1969, provided significant research and engineering for the Prudhoe Bay field in Alaska, and has done extensive work in Canada, where ExxonMobil operates the Hibernia platform off Newfoundland — the first and only iceberg-resistant offshore structure in the world. But Sakhalin has presented some of the most extraordinarily extreme work conditions the company has ever undertaken.

Mike Flynn says the company’s experience at Sakhalin is preparing it for future exploration and challenging new developments in arctic conditions.

“As we push farther out into the arctic frontier, we’ll be facing much deeper and colder conditions,” says Flynn. “To work in these challenging regions requires outstanding technology, project management discipline and highly effective execution skills.

“In Sakhalin, we’ve proven we have those attributes,” he adds. “We’ve broken industry records, and we’ve done so while conducting our activities with the utmost respect for the people of Russia and for the environment.”