FFC: Sakhalin: Interview with Mr. Stephen Terni

Now that the feasibility study is completed for the construction of a pipeline to Japan, what is next?

We have had an active marketing effort in Japan for some years, and the next step will depend on the demand and willingness of our potential customers.

In the meantime, are you tapping into other potential markets such as China?

Yes. There are talks going on with potential buyers of gas in China and South Korea as well those in Japan.

What is the stage of talks between Exxon and Gazprom for the development of far east gas?

Sakhalin-1 has had no interaction with Gazprom. While we are aware they have announced a merger with Rosneft, all of Sakhalin-1 Project's interactions have been directly with Rosneft.

The Sakhalin-3 project was won through tender by Exxon a few years ago. Why do you believe that the government changed its position and declared that the Sakhalin-3 block would no longer be developed through a PSA [Product Sharing Agreement]?

I have to defer to the head office in Moscow, because they are currently managing this issue.

Yet two years ago, your predecessor was managing both Sakhalin-1 and Sakhalin-3 projects. Do you feel that the change in position by the Russian government was due to a lack of investment in the Sakhalin-3 block?

The terms of the management of this activity has now been passed on to our regional office in Moscow, so I cannot comment on the issue.

In terms of share of market on the island, Exxon is mostly leading in oil sales, while Sakhalin Energy has the strongest position in gas sales. Is this intentional?

We have the resource base for both oil and gas sales, and along with our oil sales we have concluded our first gas sale letter of intent to the customers of Khabarovsk Krai. Therefore it is clear that we are ready to support the sale of both oil and gas resources in conjunction with each other.

Rumours suggest that there might be collaboration in the future with Sakhalin Energy for the sale of LNG gas?

We are still focused on our first option. Every time we review our priorities, we keep returning to the conclusion that the most economic and cost-effective option is a direct pipeline to a tributary market.

Infrastructure is always a major challenge in Sakhalin. What was your greatest challenge so far?

We are dealing with a relatively isolated location which also has a short construction season. Ice limits development every winter, and it is a challenge to schedule around weather changes and limited infrastructure. Yet our experience has helped us plan ahead and manage the elements.

Sakhalin is changing rapidly, with a great deal of foreign investment coming into the island. How do you keep up with the needs of your employees?

It is certainly a boom town scenario. Yet the progress is remarkable - only in a few years I have seen remarkable changes and benefits on the island. I am also very impressed that unemployment is only 1.2% of the island's population.

Exxon Neftegas was taking a very low-key approach two years ago. Has this changed now that production has started?

We have always worked hard to build strong relationships with the community. While we focus on getting the job done of constructing the project, we have continued to sponsor a great deal of programs with the community in order to contribute to the development of the island.