No. 1, 2004

The uniqueness of the Caspian Sea's ecosystem and the value of its biological resources demand that every effort be made to sustain its ecological safety. The LUKOIL management realizes the danger of man's impact on the fragile balance of the biosphere – the marine, in particular. For five years now, LUKOIL-Shelf Ltd. has been operating the Astra ecologically safe floating drilling rig in the protected sturgeon - rich area of the Caspian Sea.

The zero discharge strategy

Russia's Northern Caspian shelf segment is of strategic importance for LUKOIL. By now, seven oil- and gas-bearing structures have been discovered in the Severny section that LUKOIL is licensed to develop, and six exploratory wells have been drilled into three of them. At a preliminary estimate, the section's recoverable hydrocarbon reserves amount to 450 million tons of crude oil equivalent. By the year 2010, the Company is expected to bring hydrocarbon production there up to 16 million tons.

The Caspian Sea's unique ecosystem and valuable biological resources call for harsh environmental protection measures. That is why LUKOIL's ecological policy on the Caspian shelf is based on the zero discharge principle.

That means that production is organized in a way ruling out the discharge of any pollutants into the environment. Waste materials are sorted out, collected into special containers, taken ashore and recycled into other uses.

The Astra jack-up floating drilling rig is intended for the development of offshore oil fields in the Northern Caspian. The rig is a three-leg platform, each of its jacket legs being 66 m tall. The Astra, designed for the maximum sea depth of 45 m, is capable of drilling wells down to 6,000 m deep.

Following environment-oriented reconstruction carried out by the Krasniye Barrikady shipbuilding association in Astrakhan, the Astra, purchased by JSC LUKOIL-Reserve Invest in June 1997, was launched on May 6, 1999, and tugged to the drilling site

This is the operating principle of the Astra jack-up floating drilling rig (JFDR) working 250 km off the Caspian seashore. The rig is a three-leg platform, and each of its jacket legs is 66 m tall. It is designed for the maximum sea depth of 45 m, and is capable of drilling wells down to 6,000 m deep.

Built in Japan in 1983 and originally called the Marawah, this unique drilling unit, the only one in the Caspian to operate on the zero discharge principle, was purchased by LUKOIL in 1997. Following environment-oriented reconstruction, conducted at the Krasniye Barrikady plant in Astrakhan, to a design by the Finnish company Aker Rauma Offshore and under a strict supervision of the American Bureau of Shipping, the floating rig received a new name – Astra (the word comes from the Greek astron – a star) and was launched on May 6, 1999.

Oil tankers and tugboats, helicopters, spill skimmers, the Epron emergency response and rehabilitation vessel were purchased and rented, and onshore facilities modernized, in strict conformity with the accepted environment safety standards.

The Astra rig carries a regular workforce of about 60 plus visiting inspectors and maintenance men sent in by the service company. Drilling rig operators work on a two-week rotation basis.

Every precaution is taken to prevent drilling operations from damaging the marine ecosystem. The Astra rig is equipped with a drilling mud circulating system, a contaminated process water drain and a sewage sump. In the Northern Caspian, wells are drilled using oil-free muds, therefore excess sludge and mud contain no naphthenes. A closed drilling mud circulating system recycles mud after treatment. Drilled solids go to metal containers to be reclaimed by means of an onshore drilling waste treatment unit. Even rainwater is processed. Right now the Company is developing a new waste decontamination process jointly with the JSC Yug-Tanker and JSC LUKOIL-Astrakhannefteprodukt.

A continuous monitoring and measurement of whatever needs monitoring and measuring is in progress on board the Astra rig. The Petroalliance service company which has installed its equipment on the rig is responsible for that. Its experts' duties are to supervise drilling parameters, set optimum drilling regimes, and forecast anomalous reservoir pressures. Also kept under continuous control are pump pressure, penetration rate, specific mud weight and temperature. Numerous sensors provide information in real time. All data are instantly transmitted to Moscow via a satellite telecom system.

All-round approach to environmental protection

The zero discharge principle is a very important but by no means the only link in the system of actions to assure environmental and industrial safety. At all stages of offshore oil fields exploration and development, LUKOIL-Shelf monitored environmental quality and the state of biological resources, and assessed the efficacy of nature conservation measures. It keeps a close eye on the condition of a 30,000 km² of sea area. In order to assess the impact of drilling and oil production operations on the marine environment, the Company's experts conduct comprehensive toxicological studies, measure the rate of seawater self-purification and pollutant biodegradation, establish the marine ecosystem's assimilation capacity, build up mathematical models of likely emergency situations and their consequences and propose ways of dealing with the latter.

The record of such marine environment health monitoring goes to show that throughout the period of the Company's operations in the Caspian, the seawater pollution level has never exceeded the permissible limit. Notably, an environment impact assessment report is drawn up on each newly-completed well.

Speaking of oil spills, LUKOIL experts say that environmental accidents are highly unlikely. Bearing it in mind, however, that God helps those who help themselves, they have developed an efficient accident prevention and suppression system and are completing an operation monitoring program. Naturally, the Company's Caspian project has been insured against serious accidents in accordance with standard world practice. This means hundreds of millions of dollars to be spent on minimizing any damage to the environment should it ever be done, after all.

From drilling to fish farming

LUKOIL does not ignore the need for fish protection, either. Commercial whitefishing has been done in the Caspian from time immemorial. An analysis of the environmental situation in the Caspian has revealed that keeping the unique Caspian ecosystem intact will be possible only given generous financial support for the whitefish reproduction work.

Within the framework of the environmental improvement project for the Northern Caspian, the BIOS Research Production Center (RPC) drew up a program in 1999 entitled the “Biological feasibility report on the designing and building of a sturgeon farming complex for reproduction purposes.” The fulfillment of this program will permit the Company to reproduce up to 10 million head of sturgeon young a year, to obtain 100-150 tons of sturgeon flesh and about two tons of sturgeon caviar annually, to form and maintain sturgeon brood stock as a source of caviar in the event of a catastrophic decline in the natural sturgeon fish population.

The sturgeon farm modernization project is now nearing completion. It provides for the use of biotechnologies unparalleled in world fish farming practice.

It is safe to predict that the Northern Caspian environment protection program will be a success – after all, as it launched its program of geological and environmental exploration in the Northern Caspian, LUKOIL undertook to allocate up to 10% of its overall capital investment in oil and gas development project to the marine ecosystem protection and improvement.

The position of LUKOIL which has set itself superior environmental standards is praiseworthy indeed. The Company management refers to its own policy toward the Northern Caspian as plain common sense because “there is no other Caspian and will never be.”