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. Last Updated: 07/27/2016

Exxon Prepares to Drill at Sakhalin-1

bloombergExxon's offices in Yuzhno-Sakhalinsk. The firm is ready to drill new exploration wells under the Sea of Okhotsk.
CHICAGO -- ExxonMobil is preparing to drill new exploration wells at its $17 billion Sakhalin-1 project in Russia, even as a dispute with the government over budgets and work plans lingers.

Contractors have completed a 100-kilometer move of Parker Drilling's 22-story Yastreb drilling rig for Exxon on Sakhalin Island in the Far East and are assembling equipment to commence the search for crude under the Sea of Okhotsk, said David Mannon, chief operating officer for Parker.

The relocation of the Yastreb follows Exxon's Feb. 13 announcement that it had put new exploration and other work on hold at Sakhalin because the government failed to approve spending and work plans for 2008 and 2009.

Exxon spokesman Len D'Eramo on Wednesday declined to comment on the Yastreb and said work remains in "suspension" at Sakhalin-1.

"Rig-up on the new location is currently under way," Parker Drilling's Mannon said Wednesday during a conference call with investors and analysts.

Exxon, which began pumping oil from the Chayvo field at Sakhalin-1 in 2005, is looking for untapped reservoirs in adjacent rock formations to maintain output after a 23 percent slump in production since Chayvo came into service.

Output from Sakhalin-1 has tumbled to about 193,000 barrels of crude a day from a February 2007 peak of 250,000. Production may slide another 11 percent this year, Exxon said in September. The company operates and owns a 30 percent stake in Sakhalin-1.

Chayvo and its sister fields, Odoptu and Arkutun-Dagi, hold an estimated 2.3 billion barrels of oil and 17.1 trillion cubic feet of natural gas. At current market prices, the crude portion of the reservoir is worth about $92 billion.

D'Eramo declined to comment on the state of negotiations with the Russian authorities.

"We prefer not to discuss the specific nature of these communications, as our focus at this time is to work directly with Russian Federation officials," D'Eramo said. "Our goal is that we can successfully resolve these issues as quickly as possible with a minimal impact on project development."

The Yastreb, which was specially built for Exxon to drill down through Sakhalin Island and horizontally beneath the sea floor, is the world's largest land-based drilling structure.

In April 2007, Exxon engineers spent 61 days to carve an 11-kilometer well down through the island and under the ice-choked sea to tap a section of the Chayvo field. The field, discovered in 1979, is more than 5 miles offshore.

Rosneft, the largest Russian crude producer, and ONGC Videsh of New Delhi each own 20 percent stakes in Sakhalin-1. Japan's Sakhalin Oil and Gas Development owns 30 percent.