Governor Alexander Khoroshavin of the Sakhalin region has said that the state may replace the Sakhalin-1 project operator (Exxon Neftegas). He stressed that this issue would be considered "if the project becomes less efficient." The Interfax news agency quotes Khoroshavin as saying that the state has set two conditions for Exxon Neftegas - cutting costs and increasing profits - but "we have yet to see any substantial proposals from the operator."
A source at Exxon told us that the company doesn't understand why Khoroshavin made this statement. The only disputed point Khoroshavin mentioned was approval of project cost estimates for 2010: Exxon Neftegas wanted to spend $3.5 billion this year, but in late 2009 the authorized government body approved expenditures of $1 billion and declined to increase this beyond $2-2.5 billion. A source close to the government body said that negotiations have taken place, with both parties agreeing on a cost estimate of $2.5-2.6 billion. He added, however, that in order to receive approval, Sakhalin-1 needs to update its obsolete long-term planning program (approved in 2003); and the operator seems in no hurry to change this document, but is threatening to suspend the project. Another source close to the authorized government body has corroborated the view that cost estimates for 2010 remain unapproved because they are inconsistent with the long-term planning program.
A source at Exxon Neftegas said that the long-term planning program is a framework document, and the cost estimates can be approved without editing it. An Exxon Neftegas spokesman would only confirm that the company had wanted to spend $3.5 billion in 2010 - on launching the Odoptu field (third quarter of 2010), plus infrastructure construction and project work at the Arkutun-Dagi field (to be launched in 2014). The production sharing agreement (PSA) for Sakhalin-1 was signed in 1995, but the annual approval of cost estimates has taken place on schedule in only one year since then. In 2009, due to yet another disagreement, work at the Odoptu field was suspended for two months.
Another source close to the authorized government body said that the Energy Ministry has found fault with Sakhalin-1: the Ministry is displeased because Exxon Neftegas still hasn't decided how to sell the gas it produces. Most of it (around 6 billion cubic meters a year) is being supplied to the Khabarovsk territory. The second phase of development at the Chaivo field is expected to yield around 10 billion cubic meters a year. That's more than the Khabarovsk territory needs, according to Exxon Neftegas. The company had planned to export gas to China - but Gazprom stepped in to point out that it holds a monopoly on gas exports from Russia, and announced plans to direct gas from Sakhalin-1 into the Sakhalin-Khabarovsk-Vladivostok pipeline, currently under construction. According to our source at Exxon Neftegas, the company has been unable to reach agreement on price with Gazprom. Official spokespersons for Gazprom and Exxon Neftegas confirmed that negotiations are continuing.
Another source close to the authorized government body told us about another disputed issue: PSA terms set a profit tax rate of 35% for Sakhalin-1, while the general rate in Russia is now 20%. Exxon Neftegas is paying 35%, but keeps raising the question of getting this rate reduced; so far, the government hasn't agreed. When approached, an Exxon Neftegas spokesman declined to comment on this information; we were unable to corroborate it. An Energy Ministry spokesman and both of our sources close to the authorized government body say there has been no discussion of whether to replace the Sakhalin-1 operator.
