Sakhalin-1 Partners Conclude Agreements for Gas Sales to Khabarovsk Krai

Participants in the Sakhalin-1 Project have signed agreements to sell natural gas from Sakhalin offshore fields with two buyers in Khabarovsk Krai, Russia.

The operator of the Project, Exxon Neftegas Limited (ENL), expects the Sakhalin-1 Participants will begin gas deliveries to OAO Khabarovskenergo and OAO Khabarovskkraigas in time for the start of the 2005-2006 heating season. Gas sales will start in October, 2005 with the commencement of first production from the Sakhalin-1 Project. Gas sales to buyers in Khabarovsk Krai will start at up to 1 billion cubic meters of gas per year and could grow to 3 billion cubic meters of gas per year by the end of the decade.

ENL President Stephen Terni, remarked that, "It is fitting that the first deliveries of clean-burning natural gas from the Sakhalin shelf will benefit domestic customers in the Russian Far East. We are pleased that today's signing was endorsed and actively supported by the Khabarovsk Krai Government, and that the Sakhalin-1 Project enjoys support from the Russian Federal Government," he added.

The gas delivered to the Khabarovsk Krai comes from the Chayvo field, offshore Sakhalin Island, in the Sakhalin-1 license area. The development uses extended reach drilling (ERD), a technique at the frontier of currently available technology, to reach targets more than eight kilometers from shore by drilling almost horizontally beneath the sea floor. The Chayvo development includes not only world-record extended reach wells, but also the largest number of such wells in one location in the world. The buyers will transport the natural gas to the Khabarovsk Krai through the pipeline systems of Rosneft-Sakhalinmorneftegas and Daltransgas.

Sakhalin-1 Project benefits to Russia include direct revenues estimated at US$40 billion; and improvement of local infrastructure including improved roads, bridges, airport and seaport facilities, and public-use medical facilities. Other benefits include technology transfer, hands-on training at ExxonMobil facilities worldwide for local-hire operations technicians, new employment opportunities for Russian citizens, and participation by Russian companies in the Consortium, as well as by Russian suppliers and contractors providing goods and services to the Project. The value of the Project contracts awarded to Russian companies to date is over US$3.2 billion.

In addition to ENL (30% interest, operator), Sakhalin-1 Project members are the Japanese company Sakhalin Oil and Gas Development Co., Ltd. (30 %), Indian company ONGC Videsh Ltd. (20 %) and two Russian companies, Sakhalinmorneftegas-Shelf (11.5 %) and RN-Astra (8.5 %).