4. About the company

Sakhalin Energy

Sakhalin Energy Investment Company Ltd. (Sakhalin Energy or the company) was founded in 1994 to develop the Piltun-Astokhskoye and Lunskoye oil and gas fields in the Sea of Okhotsk offshore Sakhalin Island.

Sakhalin Energy operates under the Sakhalin-2 Production Sharing Agreement (PSA) that was signed by the company and the Russian Federation represented by the Government of the Russian Federation and the Sakhalin Oblast Administration (currently, the Sakhalin Oblast Government).

The following companies hold shares in Sakhalin Energy through their subsidiaries: Gazprom (50% plus one share), Shell (27.5% minus one share), Mitsui (12.5%), and Mitsubishi (10%).

To develop these two fields, the company constructed a large-scale infrastructure for extracting, transporting, processing, and then selling hydrocarbons. The infrastructure includes three fixed offshore platforms, offshore and onshore pipeline systems, an onshore processing facility, two booster stations, an oil export terminal with a tanker loading unit, a liquefied natural gas (LNG) plant with LNG export terminal, and gas transfer terminals. This has been one of the most technically complex projects carried out over the last few decades in the global oil and gas industry.

Sakhalin Energy is the first and, for the time being, the only Russian LNG producer supplying gas to foreign markets. Because of Sakhalin Energy, the Russian Federation has become one of the key players on the promising Asia-Pacific market.


Main Production Results in 2016

Sakhalin Energy Is the Leader in Labour Efficiency

Sakhalin Energy is among the leaders of the Labour Efficiency: Russian Industrial Leaders – 2016 All-Russian Award and ranked second in the Top 100: Russian Industrial Leaders – 2016 and Top 30: Highest Productivity in the Russian Oil and Gas Industry categories.

The company is a leader in labour productivity in the Sakhalin Oblast, and takes the second place at both national and local levels for the second year in a row. The award has been granted by Production Management business portal every year since 2015. The main objective of this project is to identify the industry leaders of the country, regions and key industries and to generate benchmarking information. During the analysis of the results, the data from more than 5,000 industrial enterprises in Russia, with total revenues amounting to more than 55% of Russia's GDP, and the number of employees of more than 5.6 mln people, have been studied.


In July 2016, for a second year running, Sakhalin Energy, with support from our core contractors and Original Equipment Manufacturers, safely completed the planned major technical shutdown of the gas production /assets at the Sakhalin-2 project.

This time the production was suspended for 25 days to allow the major inspection and maintenance of large gas turbines and compressors, equipment integrity inspections, process chemicals replacement, control valve overhaul and other tasks. Preparations for this outage took 18 months, and almost every company unit was involved in the process. Lessons learnt from 2015 were incorporated into the planning and execution allowing for a continuous improvement in all aspects.

As a result, all works were performed timely and in a safe manner.

In 2016 the Company delivered oil/LNG production targets ahead of schedule. This was achieved due to elimination and optimisation of limitations in operation of onshore equipment, improvement of well operation modes and reliability of all process equipment of the Company. The above targets have been achieved in compliance with all safety requirements.  

Molikpaq (PA-A) Platform

In July 2016, it was 17 years from the time the Molikpaq platform first started producing oil. Over the first nine years, starting from 1999, Molikpaq operated only during the ice-free season. In 2008, year-round production of hydrocarbons commenced.

As per the end of 2016, the operating well stock of the Molikpaq platform included 15  wells, five water injection wells, and one intake well for re-injecting drill cuttings back into the reservoir. The average daily production rate in 2016 was 6.72 thousand tonnes (49.49 thousand barrels) of oil and 0.83 mln m3 of associated gas.

In 2016, development drilling continued to maintain production plateau. Two new wells were drilled.

  • In May 2016, first new well was drilled since 2005. The well targeted the crest of the field with Frac&Pack completion.
  • Pilot hole drilled in another well acquired core for analysis to reduce existing field uncertainties. After that, a sidetrack was drilled in the same well and completed across a contingent resource layer to assess the layer productivity and performance.

Several well interventions were carried out to manage/remediate well integrity failures. Additional well intervention activities were carried out to safeguard production and perform mandatory reservoir surveillance.

Alongside drilling activities, the company continued to monitor reservoir and well performance, injected water quality and CRI well performance. Additionally, geochemical tracer analysis and water composition assessments were done on produced oil and water samples. Continuous sand and well integrity monitoring is performed on all wells.

Essential rig refurbishment projects (new choke and kill manifold, new spooler) as well as the 5-year rig inspection were successfully completed over the year.

Further Geological Study of Pilot and Full-Scale CRI Zone of Astokh Area of Piltun-Astokhskoye Oil, Gas and Condensate Field. Revision of CRI Volumes report was prepared and submitted for SRC Rosnedra expert review. Positive conclusion was obtained in November 2016.

Piltun-Astokhskoye-B (PA-B) Platform

In summer of 2016, concrete repairs were carried out on the PA-B platform at one of the most challenging locations to work on—the splash zone. All the works were implemented by contractor’s personnel, and in the company’s experts' opinion, these were done at the highest level. During the repair works, all risk factors were taken into account and action plan was elaborated in detail. There were no HSE incidents during the works. It has been a unique experience of repair executed on high-strength concrete in the splash zone on an offshore platform.

As per the end of 2016, the PA-B platform had 13 production wells, seven water injection wells, and two cutting re-injection wells.

The platform’s average daily production rate in 2016 was 3.94 thousand tonnes (29.05 thousand barrels) of oil and 1.17 mln m3 of gas.

In 2016, two oil producers were drilled at Piltun area. One of the drilled oil producers was the first Piltun Frac&Pack well, with sand control technology successfully implemented and sand screens installed.

Another oil well was drilled with two appraisal pilot holes that helped to revise the trajectory of main horizontal hole and to obtain the required data for further study of southern part of the area. The logging performed during drilling provided the geophysical data that allowed to revise the structure of layers and their properties. Alongside with drilling, wellhead samples of the layer fluids were analysed and geochemical survey of oils was made on routine basis.

Well intervention was performed to optimise well recovery: gaslift valve change-out, perforation of additional layer, and special studies to identify tubing integrity.

In 2016, the company developed design documentation titled Operational Reserves Update of Oil, Gas and Condensate of Certain Layers of Piltun Area at Piltun-Astokhskoye Oil, Gas and Condensate Field and Addendum to Reservoir Management Plan for Piltun Area at Piltun-Astokhskoye Oil, Gas and Condensate Field. SRC Rosnedra approval was obtained for both of these documents.

The reason for preparing these documents was Piltun geological model revision based on new data on area development history and well drilling results that changed the company’s view on further strategy for Piltun area development.

Lunskoye-A (LUN-A) Platform

In 2016, the LUN-A platform continued to operate in a stable manner, producing an uninterrupted flow of gas from the existing wells. The platform’s average daily gas production rate was 45.68 mln m3.

In 2016, two production wells were drilled and completed. With sand control purpose, the wells were completed as open-hole gravel pack wells.

Prior to completion of both wells, well cleanup unit was installed to protect platform equipment from potential contamination by production wells fluids.

In Q3 and Q4 2016, the upper master gate valves, production wing valves and swab valves were replaced on two gas wells to restore their integrity.

In 2016, alongside with drilling and repair works, cased hole logging was executed, continuous monitoring of reservoir pressure, cutting re-injection and produced water re-injection monitoring were performed as well as core studies and downhole water samples analysis.

Onshore Processing Facility (OPF)

The Onshore Processing Facility (OPF) handles the initial processing of gas and condensate from the Lunskoye field before they are pumped into the pipelines for transportation to the Oil Export Terminal and LNG Plant. The oil and associated gas from the Piltun-Astokhskoye field are also processed at the OPF.

In 2016, OPF daily capacity was 58 mln m3 of gas and 25 thousand tonnes (195 thousand barrels) of oil and condensate.

Trans-Sakhalin Pipeline System, Booster Stations, and Gas Transfer Terminals

The trans-Sakhalin Pipeline System comprises about 300 km of offshore pipelines and onshore multiphase pipelines, over 1,600 km of oil and gas pipelines, as well as 105 block valve stations, five Pipeline Maintenance Depots, two Booster Stations (BS), and two Gas Transfer Terminals (North and South).

Sakhalin Energy and Gazprom transgas Tomsk (contracted by Sakhalin Energy to maintain the trans-Sakhalin Pipeline System) are tasked with maintaining the integrity of the pipeline systems.

Sakhalin Energy has developed and implemented an HSE case for its pipeline systems that identifies all the potential hazards to the integrity of the /assets. These hazards include internal and external surface corrosion, excessive pipe pressure, earthquakes, landslides, soil erosion, seabed gouging, shore scouring, ship traffic, illegal hot taps, and inadvertent or wilful damage. The following measures have been taken to prevent or eliminate these potential hazards:

  • to deal with external surface corrosion, the pipeline has a cathodic protection system;
  • to monitor internal surface corrosion, Sakhalin Energy internally pigs the pipelines using Intelligent Pigs that can detect internal corrosion;
  • the offshore and onshore oil pipelines are pigged on a regular basis to remove water and sediments;
  • to ensure a timely response in case of an earthquake, Sakhalin Energy uses its own seismic monitoring system with detectors located along the entire pipeline and the USGS (United States Geological Services) system;
  • seismic faults are monitored every year to assess movements and displacements;
  • prior to seasonal drops in ambient air temperature, the pipeline is checked for water in the pipeline fault crossing trenches so as to avoid freezing and limiting pipe movement;
  • the pipeline RoW is monitored regularly with helicopter overflights and physical checks of all pipeline features including rivers, fault crossings, swamps, liquefaction areas, road crossings, rail crossings, etc. Also, the entire pipeline RoW is walked every twelve months;
  • space technologies are also used to monitor the vegetation growing on the RoW.

According to statistics, 70% of pipeline incidents in the world are caused by unintentional damage from human activity. Sakhalin Energy has been proactively educating the community about how to identify the pipeline system and its importance. Local authorities, contractors, and land users are regularly informed about land use limitations within the RoW and are provided with the contact information and telephone numbers of the company. Additionally, special notice boards are located along the RoW with free telephone numbers in case of questions or concerns.

Sakhalin Energy continues to route gas condensate from the Sakhalin-3 Project Complex Gas Treatment Plant (Kirinskoye field) into the Sakhalin Energy oil pipeline system as per the agreement between Gazprom Export and Sakhalin Energy. This gas condensate is transported to the Oil Export Terminal (OET) along with Sakhalin Energy’s oil.

The Prigorodnoye Production Complex

The Prigorodnoye Production Complex is situated in the south of Sakhalin on the shore of Aniva Bay, which stays ice-free nearly year-round. It incorporates the LNG Plant with the LNG Jetty and the Oil Export Terminal (OET) with the Tanker Loading Unit (TLU) installed 5 km away from the shore. The plant covers 490 ha and has two trains, each with a design capacity of 4.8 mln tonnes of LNG per year. Over the years, efficiency and reliability enhancement programmes have significantly increased the plant's capacity.

In the middle of July 2016, Sakhalin Energy completed a major planned shutdown of Sakhalin-2 gas system. The LNG Train 2 and the associated upstream facilities were closed in. The company drew from its previous experience and was able to complete the work in time and safely. Upon completion, the work was discussed and analysed in order to optimise future shutdowns.

Gas supply to Southern Gas Transfer Terminal was not interrupted. This allowed the Central Heating and Power Plant of Yuzhno-Sakhalinsk to keep running on gas and save the environment instead of reverting to coal.

An important event for the Prigorodnoye Production Complex in August 2016 was achieving more than 11 mln man-hours without a lost time injury (LTI) for eight years. The countdown for these eight years started in August 2008, even before the commencement of LNG production. The Prigorodnoye Production Complex successfully maintains ISO 9001 for its Quality Management System (QMS).

Development Projects

OPF Front-End Compression Project

Manufacturing of three gas compressor units by REP Holding was continued in 2016. In addition, contracts for manufacturing of tanks and vessels were awarded to Russian and foreign companies over the year.

In 2016, the company signed a contract with ZapolyarPromGrajdanStroy for OPF compression site preparation activities. The works commenced in August 2016, with completion expected at the end of 2017.

Preparations for EPC (engineering, procurement, and construction) contract have been initiated in 2016. Contract award and start of operations are scheduled for 2017.

South Piltun Area Development Project

The decision whether to develop the South Piltun area will be based on the depletion of the Lunskoye field, the construction of LNG Train 3, the macroeconomic situation, and the situation on the energy market.

Sakhalin Energy is updating information on the geological structure and geological and recoverable reserves at the Piltun-Astokhskoye field, including the South Piltun area, and is planning to submit an integrated reservoir management plan to the State Reserves Committee of Rosnedra.

LNG Train 3 Construction Project

In 2016, Sakhalin Energy started the development of Design Documentation for the Sakhalin-2 LNG Train 3 Project.

Shell Global Solutions International and Giprogaztsentr, a Russian design institute, lead development of the design, in which a number of other companies, including local, are involved. In addition, a large number of Sakhalin companies perform engineering and environmental baseline surveys.

The Sakhalin-2 LNG expansion project is the optimum and economically sound way to strengthen Russia’s presence on the world LNG market.

Hydrocarbon Production and Export


Liquefied natural gas (LNG) is a colourless and odourless liquid with a density half that of water. It consists mainly (up to 90%) of methane (СН4), the simplest natural gas in the group of gaseous hydrocarbons. When cooled to approximately -160°C (-250°F) at standard atmospheric pressure, natural gas liquefies and contracts to 1/600th of its initial volume, becoming suitable for collection, storage, and sea shipment.

Due to successful debottlenecking and equipment adjustment, the LNG plant exceeds its design output (9.6 mln t per year). In 2016, Sakhalin Energy produced 10.93 mln t of liquefied natural gas.

Sakhalin LNG is transported in spherical-hold customer vessels and in Grand-series LNG tankers (Grand Elena, Grand Aniva, and Grand Mereya) that were constructed specially for this project and provided to the company under long-term charters by two Russian-Japanese consortiums. It is also transported by the Amur River and Ob River vessels chartered on a short-term basis. Thus, the company's fleet consists of five LNG tankers.

In 2016, Sakhalin Energy shipped LNG to Japan, South Korea, China, and Taiwan. CPC Corporation (Taiwan) increased its share of consumption of LNG produced under the Sakhalin-2 project due to the increased domestic demand and the shutdown of the nuclear power plants that had been used to produce electricity.

Sakhalin's share of LNG in the Asia-Pacific region was about 6%, and they had about 4.5% of the global market in 2016.

Sakhalin LNG Sales Market Structure in 2016, %

Structure of Oil Blend Sales Market in 2016, %



Sakhalin Blend is an oil grade introduced by Sakhalin Energy to the Asia-Pacific region. It is a light, low-sulphur oil blend.

In 2016, Sakhalin Energy received 3.90 mln t (28.75 mln barrels) of oil grade and 1.61 mln t (14.17 mln barrels) of condensate. In 2016, Sakhalin Energy exported 5.48 mln t (42.82 mln barrels) of oil grade from the Prigorodnoye production complex.

In total, 14 companies from six countries purchased the oil blend in 2016. Sakhalin Blend was delivered through 18 transit and destination ports in Japan, China, South Korea, Malaysia, the Philippines and Singapore.

Historically, the main markets for Sakhalin Blend are Japan, South Korea, and China. These are strategically important markets because of their geographical proximity and their stable demand for light sweet crude oil. In 2016, the shares of these countries were consistently high. Japan and China became the largest Sakhalin-2 oil customers in 2016 (68% of total volume).

About 7.2% of the oil produced was sold and successfully delivered to Malaysia, the Philippines and Singapore. That shows there is stable demand from Asia-Pacific refineries for Sakhalin Energy crude oil, even in an oversupplied market.

Natural Gas

Since 2011, Sakhalin Energy has been supplying natural gas to the gas main line system of Gazprom to pay royalties payable in kind to the Russian party. The gas is transferred via two terminals in the northern and southern parts of Sakhalin Island. Since the commencement of natural gas delivery, about 6.5 bln m3 of gas have been delivered to the Russian party, including 2.8 bln m3 of natural gas transported via the Southern Gas Transfer Terminal to Yuzhno-Sakhalinsk Heat and Power Plant-1 and other Sakhalin infrastructure /assets (the figure includes 671 mln m3 delivered in 2016). In 2016, over 427 mln m3 of natural gas were delivered via the Northern Gas Transfer Terminal to the Sakhalin – Khabarovsk – Vladivostok gas main line for further usage as part of the Far East and Primorye fuel and energy sector development programmes. In total, about 1.1 bln m3 of gas were supplied to the Russian party in 2016

Continuous Improvement Programme

In 2016, the Operational Excellence Programme was renamed Continuous Improvement, making it clear that the focus is across every area of our business

Sakhalin Energy continued implementing improvements of all processes using key success factors:

  • management making commitments on the basis of understanding: leaders and managers are personally convinced, involved, and engaged with staff;
  • linked to the business imperative: improvement is linked to a few (2-4) performance/strategic imperatives;
  • detailed, in-depth approach: management and work processes are supported and engaged at all levels;
  • expertise and organisational capability: leadership creates an environment where “continuous improvement” is part of who we are.

In 2016, Sakhalin Energy demonstrated continuous improvements across the company, including cross-directorate campaigns such as:

  • Robust@ 35, which generated substantial cost savings;
  • Well and Reservoir Facility Management (WRFM) work that realised significant additional barrels thanks to production system optimisation improvements;