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MosNews: Putin Slams Sakhalin-2 Operators for Project Cost Overruns — Paper: "Putin’s criticisms come as a big blow for Shell...": Wednesday 2 November 2005

Created: 02.11.2005 11:15 MSK (GMT +3), Updated: 11:15 MSK , 30 minutes ago


Russian President Vladimir Putin told executives of major oil company Royal Dutch/Shell that Russia would not approve Shell’s request to let it double costs at its huge Sakhali-2 oil and gas project to $20 billion, Kommersant daily reported on Wednesday, Nov. 2.

The paper quoted sources, who attended a meeting between Dutch businessmen and Putin during his visit to Amsterdam, as saying Putin had spent more than 30 minutes criticizing the cost overruns at the Shell-led Sakhalin-2. Putin’s criticisms come as a big blow for Shell, which wants the government to approve a new budget for its project, which has been producing oil since 1999 and is building the world’s largest liquefied natural gas (LNG) plant.

The government is reluctant to allow any production-sharing deal to boost costs as it automatically delays the moment when the project becomes profitable and the state starts receiving its share of revenues.

On Tuesday, Nov. 1, Russia’s Energy Ministry asked Shell to provide more information about the increased spending plans, saying that so far all requests for changes were poorly grounded.

Shell announced the cost increases days after signing a preliminary deal under which Russia’s natural gas monopoly
Gazprom would take 25 percent in Sakhalin-2 in return for giving Shell access to a Siberian gas field. Gazprom later said Shell might have to pay it cash as part of the planned asset swap since the revision diminished the value of Sakhalin.

Other shareholders of Sakhalin-2 are Japanese trading houses Mitsui & Co. and Mitsubishi Corp.


Russia's Audit Chamber Wants to Reconsider Sakhalin-2 Agreement - Paper

Russia Accuses Sakhalin Energy of Inflicting $2.6Bln Damages - Paper

Shell Announces $10Bln Cost Overruns in Russia Oil Project

Gazprom, Shell Sign Asset Swap Agreement

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