Oct. 12--YUZHNO-SAKHALINSK, Russia -- A major Sakhalin oil and gas project being led by ExxonMobil Corp. has achieved its first major goal -- recovery of initial capital costs -- and is now gearing up for a significant expansion.

Recovery of capital costs is a key milestone in Sakhalin I's project agreement with the Russian government because it triggers and expansion of revenues paid to the federal government and the local Sakhalin Oblast regional government, James Taylor, president of ExxonMobil's Russian subsidiary, said during an oil and gas conference in Sakhalin Oct. 3 and 4.

Sakhalin I has been producing oil and gas since October 2005, with oil being shipped to export markets from an oil terminal on the Tartar Strait, which separates Sakhalin Island from Russia's mainland.

Natural gas also produced is sold to communities on the Russian mainland, Taylor told the 12th Sakhalin Oil and Gas Conference.

Meanwhile, construction is essentially complete on Sakhalin II, a second major project on Sakhalin being led by Shell Oil and Gazprom, Russia's state-owned gas company. The project is set to begin year-round oil exports later this year and exports of liquefied natural gas, or LNG, in early 2009, said Ian Craig, president of Sakhalin Energy Investment Co.

Sakhalin Energy is the company managing the Sakhalin II project.

The LNG plant was built at Prigorodnoye, the port city on Sakhalin's southern coast. It is one of the world's largest LNG projects.

Sakhalin is emerging as one of the world's major new oil and gas producing areas. ExxonMobil and Shell, with their Russian, Japanese and Indian partners, have established the initial infrastructure and now other discoveries are being made, mainly by Russian-owned state companies. One of these, Roseneft, announced another major gas and condensate discovery at the Sakhalin conference Oct. 3.

Craig said Sakhalin Energy would begin filling a newly completed 800-kilometer oil pipeline later this month from the offshore Molipaq platform, one of three platforms in the project. Molipaq, which was brought to Sakhalin from the Alaska Beaufort Sea, has been producing oil and loading directly to tankers during ice-free months since 1999.

"Oil from the Molipaq platform will be introduced into the northern section of the (onshore) pipeline system later this month," Craig told the Sakhalin conference. "At this point the offshore export of oil will cease."

It will take several weeks for oil from Molipaq and Piltun-Astokhskoye-B, a second platform nearing completion, to fill the newly completed Trans-Sakhalin oil pipeline, he said.

Delivery of gas to a gas pipeline from the two platforms, as well as LUN-A, a third platform, is also on schedule, Craig said.