1. Message from the Chairman
of the Committee of Executive
Directors and Chief
Executive Officer

Dear colleagues and friends,

We are pleased to present you with Sakhalin Energy’s 2018 Sustainable Development Report. This is our tenth, anniversary report, prepared in compliance with the Global Reporting Initiative (GRI) standards. In the previous three years, each of Sakhalin Energy’s Sustainable Development Reports was devoted to a specific theme: safety, environment protection, and human rights. This year we are continuing this trend, and the key topic of the 2018 report is innovation.

In 2019, Sakhalin Energy celebrates its 25th anniversary. Over the years of successful operations, the company has steadily increased its production potential while demonstrating high performance. The energy community rightly considers our project to be a unique historic example of technological and innovative breakthrough, a successful combination of Russian and international experience. This is evidenced by Russia’s first Production Sharing Agreement (PSA), the installation of the country’s first ice-resistant offshore oil and gas platforms, the use of innovative technologies, and the implementation of integrated cutting-edge business solutions. The Sakhalin-2 project was the starting point for a new promising trend in the development of the Russian oil and gas industry: we were the first in the country to produce and export LNG.

Thanks to the adopted technical concept, Sakhalin-2 became one of the global leaders in LNG production: in 2018, it supplied about 4% of the world’s LNG, and covered about 5% of the LNG market in the Asia-Pacific region. Today, we sell oil and LNG to 19 countries, attracting new customers and expanding our supply portfolio year after year.

In addition to the external market, the Sakhalin-2 project plays an important role in the economy of the Sakhalin Oblast and Russia in general. Over the 25 years of operation, the company has made a significant contribution to the development of the region, as well as to a number of sectors of Russian economy. Sakhalin Energy has paid more than US$ 25 bln in taxes and other payments to federal, regional and local governments since the launch of the project, and has also made a commitment to supply entitlement gas to domestic consumers. The share of Russian content has noticeably increased, which has promoted localisation of equipment and component manufacturing in Russia. For instance, in 2018 a total of three Russian companies were awarded contracts for the supply of electrical equipment to Sakhalin Energy. The company has also completed the renewal of its fleet, supplementing it with best-in-class vessels built under a long-term agreement with Sovcomflot. The economic sanctions imposed on Russia significantly boosted our import substitution efforts. Sakhalin Energy, in cooperation with TMK, was the first in Russia to use Russian-manufactured premium threaded connection pipes at an offshore field.

In 2018, the company produced 61.7 cargoes of oil and 175.5 cargoes of LNG. Since project launch, we have shipped more than 1,500 cargoes of LNG and 600 cargoes of oil. It has been 20 years since the Molikpaq oil platform was installed at the Piltun-Astokhskoye field and 10 years since we commenced year-round oil loading operations at Prigorodnoye. Our LNG plant was recognised as the best integrated gas facility in Shell’s 2018 Rankings, while the onshore processing facility (OPF) was certified by Shell as MIE Proactive. Moreover, all three Sakhalin Energy offshore platforms topped the ranking of Shell offshore drilling platforms in terms of HSE. Pursuing its priority development area — resource base expansion — Sakhalin Energy has successfully carried out four-dimensional seismic surveys. This gives the company an opportunity to update its recoverable reserves estimates. The use of the most advanced technologies allowed us to drill a record ERD well from the LUN-A platform, thereby extracting hard-to-reach hydrocarbons and increasing the project’s reserves.

Another large-scale integrated project currently undertaken by Sakhalin Energy is Sakhalin Industrial Park, which is designed to serve as a technical competence hub for oil and gas sector on the island.

Our impressive production performance was achieved without any HSE incidents or violations. This is undoubtedly the effect of our Goal Zero journey that has become a core value for all company`s employees. This initiative has already gone far beyond the area of production. The company has made a transition to a new, proactive phase of the Goal Zero programme, aimed at expanding its scope, diversifying and improving personnel skills, and engaging contractors in Goal Zero activities. For example, Sakhalin Energy’s offshore production platforms have reached an important milestone — two years without recordable injuries, which is especially significant given the increased complexity and hazards associated with working at offshore production facilities.

Social policy and environmental protection are essential components that are conducive to effective operations of Sakhalin Energy. From day one, the company has been focusing on occupational safety and health of its employees and the general population. The company runs industrial environmental monitoring activities and implements a number of programmes in the fields of education, volunteering, and development of Sakhalin Indigenous Minorities. Many of our corporate social responsibility practices have been recognised as the best not only in the Russian Federation, but also on the global scale. We are the only Russian company to be selected by the UN to participate in the new Global Compact LEAD initiative. One of the company’s ongoing priorities is to contribute to the achievement of the UN Sustainable Development Goals (SDGs).

As a result of its integrated approach to environmental safety, Sakhalin Energy has topped the environmental responsibility rating of Russian oil and gas companies for the third year in a row.

Dear friends,

In 2019, we will celebrate a number of significant milestones: the 20th anniversary of the start of Russia’s first offshore oil production, the 10th anniversary of the launch of Russia’s first LNG plant and the debut of Russian liquefied natural gas on the global market, and our most important milestone — the company’s 25th anniversary.

A powerful industrial complex with all the required infrastructure was built as a greenfield project in the severe climate and harsh natural environment of the Russian Far East. We were trailblazers in the development of Russian offshore oil and gas field, and we pioneered LNG production in our country.

Adherence to sustainable development principles is an integral part of Sakhalin Energy’s strategy for strengthening its leading position in the global LNG market. The company aims to improve its performance across the range of its activities and looks into the future with confidence.

Roman Dashkov