BP and Rosneft halt Sakhalin drilling

BP and Rosneft halt Sakhalin drilling

By Ed Crooks in London

Published: February 12 2008 22:11 | Last updated: February 12 2008 22:11

BP and Rosneft have begun an indefinite “lull” in drilling off Sakhalin island, BP said on Tuesday as it admitted the exploration programme in the region “hasn’t been the huge success that some thought it might be”.

Elvary Neftegaz, the joint venture owned 51 per cent by Rosneft and 49 per cent by BP which is exploring the Sakhalin area off far east Russia, plans to drill no more wells this year.

Instead, its efforts will focus on gathering and evaluating seismic and other data. BP would not say whether or when the drilling programme might resume. Six wells have been drilled in the area so far, three of which led to discoveries.

Andy Inglis, BP’s chief executive of exploration and production, said last week: “Sakhalin is frontier exploration. We had early success in the Kaigansky­-Vasuykansky licence. In 2007, we did not have continuing success as we moved into the Shmidt area. We are continuing with the exploration programme with more seismic [data].”

BP, Europe’s second-biggest oil and gas group, is also cutting back its support office on the island. Support for BP’s side of the Elvary joint venture will now be provided from Moscow, which will be staffed up, with functions transferring from Houston, Texas.

Sakhalin has been considered one of BP’s more promising opportunities. In November 2006, it agreed a deal with Rosneft to expand the joint venture, and said the two companies would invest $700m in the area.

At that time, the cost of exploration was running at about $50m per well, and costs in the industry have since continued to rise sharply.

Steven Dashevsky, a managing director of Unicredit Aton in Moscow, said the Sakhalin 4 and 5 areas where BP has been active remained interesting for the long term.

However, he said they were “not assets for the next four or five years, but maybe in 10 years’ time”.

He pointed out that both BP and Rosneft were busy with other developments. For BP, the immediate issue is the sale by its TNK-BP joint venture of a controlling stake in the vast Kovykta gas field to Gazprom. That deal is expected to be concluded by the end of March.

BP, TNK-BP and Gazprom are also working on plans for further three-way co-operation inside and outside Russia.

However, last week Tony Hayward, BP’s chief executive, said that reaching agreement was “complicated”, and suggested the negotiations could go beyond the end of July, the target date for a deal.