On September 10-12 Gazprom delegation chaired by Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee paid a visit to Yuzhno-Sakhalinsk.

The participants visited the Sakhalin-2 production facilities, particularly, the first LNG plant in Russia including the Piltun-Astokhskoye-B platform and drilling technological complex.

Project specialists informed the participants of the characteristics and progress with the installation & adjustment work and HSE requirements compliance.

The Gazprom delegation also met with Alexander Khoroshavin, Governor of the Sakhalin Oblast.

The visit was followed by a meeting involving Sakhalin Energy executive directors. The meeting discussed the issues related to the Saklahin-2 project execution and relevant actions necessary for timely commissioning of the project production capacities.

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Sakhalin is a new world-class oil & gas province with the reserves valued at 45 bln barrels of oil equivalent. The Sakhalin-2 project is the world’s largest comprehensive oil & gas project with the licensed reserves averaging 4 bln barrels of oil equivalent.

The present-day production potential of Sakhalin-2 is 80 thousand barrels of oil equivalent per day. Thanks to Development Phase 2, the project production potential will grow to 340 thousand barrels of oil equivalent per day, taking account of 9.6 mln tons of LNG to be produced per annum.

The work scheduled for Phase 2 has been completed by nearly 80 per cent, with some US$ 12 bln so far invested. At present 17 thousand people are involved in the construction work, with 70 per cent being the Russian Federation citizens. Under the contracts with customers from Asia Pacific, the project partners have so far sold the amount of LNG equal to the projected capacity of an LNG plant.

The Sakhalin-2 project is regulated by a Production Sharing Agreement (PSA); the project shareholders finance construction expenses, undertake the project related risks and offset these expenses by oil and gas sales. As of today, the total project revenues of the Russian Federation in the form of royalties, bonuses and taxes have accounted for almost US$ 600 mln.

The Sakhalin-2 project covers:

·                     Three marine production platforms: Molikpak (Piltun-Astokhskoye-A), Piltun-Astokhskoye-B and Lunskoye as well as an offshore pipeline system with a total length of 300 km;

·                     An integrated coastal technology compound designed for the receipt and treatment of gas and oil produced in both fields;

·                     Onshore 800-km-long oil and gas pipelines running to the South of the Island;

·                     An oil exporting terminal with the all-the-year-round operating capacity;

·                     Russia’s first LNG plant and LNG exporting installations;

·                     Upgrading activities for onshore infrastructure: motor and rail roads, bridges, sea ports and airports, health care facilities.

On April 18, 2007, Gazprom and Sakhalin Energy shareholders (Royal Dutch Shell plc, Mitsui & Co. Ltd and Mitsubishi Corporation) where Sakhalin Energy is the Sakhalin-2 project operator signed Purchase and Sale Agreement, which stipulates Gazprom acquisition of a 50 per cent plus one share stake in Sakhalin Energy.

On April 16, 2007 the Board of Directors considered it expedient to set up a Gazprom’s Representative Office in the Sakhalin Oblast.