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Shell says asset swap with Gazprom to proceed despite Sakhalin cost overruns

AFX Asia (Focus): Shell says asset swap with Gazprom to proceed despite Sakhalin cost overruns

“Van der Veer told reporters in a conference call that Shell and Gazprom are currently engaged in “detailed negotiations” on the terms of the swap following the signing of a framework agreement on July 7.”: “He was commenting on newspaper reports that Gazprom felt short-changed with the exchange, given that the cost overruns and delays at Sakhalin have effectively reduced the value of the asset.”

Thursday July 28, 2005

LONDON (AFX) – Royal Dutch Shell PLC and Russian gas monopoly Gazprom are proceeding with plans to exchange major assets in Russia despite the massive cost overruns at the giant Sakhalin II gas project, said Shell chief executive Jeroen van der Veer.

Shell announced that Sakhalin-II was 10 bln usd overbudget a few days after it signed a preliminary agreement giving Gazprom a 25 pct in the project.

Shell, in turn, will get a 50 pct interest in Gazprom’s Zapolyarnoye field in Siberia, the world’s fifth largest gas deposit.

The start up date of the project is also delayed to the summer of 2008, as against its original timetable of late 2007.

Van der Veer told reporters in a conference call that Shell and Gazprom are currently engaged in “detailed negotiations” on the terms of the swap following the signing of a framework agreement on July 7.

Discussions will take “many months” to complete, he added.

“There’s still a lot of work to be done,” he said.

The pair still share the belief that the asset exchange makes “strategic sense,” Van der Veer stressed.

He was commenting on newspaper reports that Gazprom felt short-changed with the exchange, given that the cost overruns and delays at Sakhalin have effectively reduced the value of the asset.

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