Sakhalin Energy Starts Ninth Production Season at Vityaz

Sakhalin Energy Investment Company Ltd. (Sakhalin Energy) opened the ninth hydrocarbon production season Friday.

Oil is produced from the Vityaz production complex at the Astokh feature of Piltun-Astokhskoye oil field offshore the northeast coast of Sakhalin Island.

In the past eight production seasons since first oil in 1999, the Molikpaq has produced some 85 million barrels (or some 11.5 million tonnes) of oil that were exported to new markets for Russia in the Asia-Pacific region and USA.

Two new ice-class tankers, "Sakhalin Island" and "Governor Farkhutdinov," each with a deadweight of 108,000 tonnes, will be used to transport oil from Sakhalin II this year. The tankers, chartered from Primorsk Shipping Corporation (PRISCO), were built in Croatia in 2004. Both tankers are double-hulled and designed to operate in low temperatures.

The tankers will continue to be used in oil exports under the Phase 2 project, after the changeover to year-round production. Sakhalin Energy plans to convert the Molikpaq to a year round production cycle at year end 2007, once the platform has been connected to the new pipeline system. This will enable oil transport to the south of Sakhalin, where the sea is largely ice-free all year round, to an oil export terminal currently under construction in Aniva Bay.

Oil is produced from the Molikpaq arctic type drilling and production platform--the core element of the Vityaz production complex. It is then exported via a sub-sea pipeline to a Floating Storage and Offloading Unit, the Okha supertanker, for subsequent loading on to tankers for delivery to customers in the Asia-Pacific and elsewhere in the world. Tankers are provided either by Sakhalin Energy or the customers.

After the re-commencement of production Okha will be at the Vityaz complex moored to the Single Anchor Leg Mooring (SALM) receiving oil produced from the Molikpaq platform. In the winter months when production is shut-in at Vityaz, Okha is chartered out to transport oil for other parties and SALM unit is lowered to the seabed.

PRISCO has provided tankers to Sakhalin Energy since 2000 for export from the Company's Vityaz Complex. This experience has demonstrated the value of working closely with world-class Russian companies particularly when Sakhalin is developing into a new Asia Pacific energy province, and Russia is becoming a global energy supplier. This deal signifies a further commitment by Sakhalin Energy to a Russian owned and operated contractor although the Sakhalin II PSA commitments do not apply to oil shipping.

Due to severe climatic conditions in the Okhotsk Sea, Vityaz production is currently limited to a six-month ice-free period. To convert Russia's first offshore oil platform Molikpaq to a year-round production cycle and connect it to the new offshore and onshore pipeline network currently being constructed, a Molikpaq tie-in module has been fabricated in the Abu Dhabi Gulf Piping yard and installed on the platform in July 2006.