Exxon Ramps Sakhalin-1 Production – Analyst Blog

ExxonMobil Corp. (XOM) announced the start-up of production in Odoptu field at the Sakhalin-1 project offshore northeastern Russia. This field is expected to add approximately 11 million barrels of oil to the total oil production of Sakhalin-1 in 2011. The company said that commencement of the field is on schedule and cost is per expectations.
 
The Sakhalin-1 Project is treated as one of Exxon’s attractive investments in Russia. Exxon’s subsidiary, Exxon Neftegas Limited has the operatorship with 30% interest in the five-company Sakhalin-1 Consortium.
 
The consortium includes other players such as Sakhalin Oil and Gas Development Co. Ltd. (30%), affiliate of Rosneft, the Russian state-owned oil company, RN-Astra (8.5%), Sakhalinmorneftegas-Shelf (11.5%) and Oil and Natural Gas Corporation (“ONGC”) Videsh Ltd. (20%).
 
The Sakhalin-1 Project consists of fields like Chayvo, Odoptu and Arkutun-Dagi. Total resource potential for this project was estimated at 2.3 billion barrels of oil and 17 trillion cubic feet of natural gas. The first field came online in 2005 and Odoptu field is the second in this row. Since inception, the Sakhalin-1 project has produced over 270 million barrels of oil.
 
The start-up of the second field at a world class development project like Sakhalin-1 demonstrates Exxon’s global approach to the identification and pursuit of quality hydrocarbon resources and exploration opportunities.
 
Exxon has solid exposure in several large hydrocarbon resources around the globe. While Sakhalin-1 is a prominent name in this space, it has other notable projects in Qatar, the Caspian region and West Africa.
 
As Exxon is the largest publicly traded oil company, achieving growth in oil and natural gas production has been a challenge for it. Given Russia is a well-established oil producing region; we believe that production in this area has been sturdy. However, Exxon’s growing presence in riskier regions such as Qatar and West Africa to cope with the company’s lackluster production and headwinds in replacing its reserve is our concern. We remain Neutral on Exxon with the Zacks #3 Rank (Hold).