UPDATE 1-Exxon's Sakhalin output to fall sharply in 2008

By Vladimir Soldatkin

MOSCOW, Feb 6 (Reuters) - Exxon Mobil's (XOM.N) Sakhalin-1 project will cut oil output sharply this year, a project partner said on Wednesday amid a gloomy outlook for Russia's overall production this year due to stagnation in West Siberia.

Sakhalin-1, which reported peak production of 250,000 barrels per day early last year, will cut annual average production by over 25 percent this year - much steeper than expected - as the field is getting depleted.

"Peak production of 11.2 million tonnes (225,000 barrels per day), which we saw last year, has passed," said Lev Brodsky, the head of Sakhalin projects at Russian state oil major Rosneft (ROSN.MM). Exxon was not immediately available for comments.

Brodsky said production was expected to fall to 7.9-8.2 million tonnes in 2008. Russian officials have previously said the field would produce around 10 million tonnes this year.

Russia, the world's second-largest oil exporter, increased output by 2.3 percent last year to 9.87 million bpd with the growth coming mainly on the back of higher Sakhalin-1 production.

But January output fell by almost 1 percent to 9.78 million bpd due to lower production in West Siberia and a 22 percent slump in output from production sharing agreements (PSA), of which Sakhalin-1 is the biggest by far.

The neighbouring Sakhalin-2 project, co-led by Gazprom (GAZP.MM) and Royal Dutch Shell (RDSa.L), last year postponed the launch of year-round production in a move further souring the outlook for Russian output.

"We view the disappointing January output as a result of problems that continue to pile up in the Russian oil sector," Troika Dialog brokerage's Valery Nesterov said in a note.

"These include swelling production costs, the deteriorating quality of Western Siberia's reserve base, a lack of large greenfield project launches last year and, more importantly, a very tough tax regime."

"The only positive spin that we can make out of this sad operating performance is that a further freefall in production may potentially force the government to review its stance on taxation in the industry," he added.

Sakhalin-1 as a PSA deal is subject to special regulations, when its tax status is fixed for a long term. (Reporting by Vladimir Soldatkin; writing by Dmitry Zhdannikov; editing James Jukwey)