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Unified Shell fails to fire investors on LSE debut

Financial Times: Unified Shell fails to fire investors on LSE debut

“Shell shocked the market last week by disclosing that its Russian gas project, Sakhalin-2, was at least eight months behind schedule and $10bn (£5.75bn) over budget.”: ”Gazprom, Russia’s state-controlled gas monopoly, recently indicated that it was seeking to improve the terms of an asset swap agreed with Shell this month, under which it would take a 25 per cent stake in Sakhalin-2.”

By Thomas Catan

Published: Thursday July 21 2005

Shares in the newly unified Royal Dutch Shell fell on their first day of trading yesterday, as investors turned their attention from the reorganisation of the Anglo-Dutch energy group to the health of its business.

Moody’s Investor Service, the international ratings agency, said it was maintaining a negative outlook on Shell as it studied the company’s exploration and production business. It also promised to assess the “implications of rising capital costs and its ability to show improved capital returns on long-term investments”.

Shell shocked the market last week by disclosing that its Russian gas project, Sakhalin-2, was at least eight months behind schedule and $10bn (£5.75bn) over budget.

Yesterday, a coalition of environmental groups stepped up pressure on the company by calling for it to halt the project, which they said endangered the ecosystem around Sakhalin island, off eastern Russia.

Shell has delayed the project by several months to reroute a pipeline to avoid whale feeding grounds.

Rick Steiner, a former member of a panel convened by Shell to assess the environmental impact of the project, said Sakhalin-2 posed “extraordinary environmental risk” to the area. “In my view, it’s not if, but when there will be a major catastrophic spill off north-east Sakhalin,” the University of Alaska professor said.

A report commissioned by environmental groups and conducted by Seris, a UK oil consultancy, found in November that under the production sharing agreement, the Russian state carried the bulk of the financial risks of the project.

Shell has said it has worked hard to minimise the environmental risk and listened to residents of Sakhalin Island. It has said that despite the delays and cost overruns, the project is still worthwhile and will deliver more than $36bn in benefits to Russia and thousands of jobs for local residents.

Gazprom, Russia’s state-controlled gas monopoly, recently indicated that it was seeking to improve the terms of an asset swap agreed with Shell this month, under which it would take a 25 per cent stake in Sakhalin-2.

Shell’s new A shares – the former Dutch listing – closed down 3 per cent at £17.66½. The B shares, from the former UK parent, closed down 2 per cent at £18.06½.

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