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Houston Chronicle: BP and Shell Draw Russian Minister’s Ire

July 19, 2006, 11:28AM
© 2006 The Associated Press

MOSCOW — Russia’s natural resources minister on Wednesday warned that BP PLC’s Russian joint venture could see a raft of licenses in Russia revoked, while simultaneously slamming Royal Dutch Shell PLC for cost overruns at its liquefied natural gas project off the far eastern island of Sakhalin.

Yuri Trutnev was cited by the Interfax news agency as saying that his ministry had complaints about low production at 24 of TNK-BP’s facilities. “All grounds exist to submit this issue to the commission for revoking licenses,” he said, according to Interfax.

TNK-BP spokeswoman Marina Dracheva explained that the company had inherited a high number of idle wells, which it was working to reactivate, and insisted that it had a good “working relationship” with Trutnev’s ministry. “From time to time they ask businesses questions, and we can answer all these questions,” she told The Associated Press.

Separately, Trutnev said his ministry would investigate cost overruns that have seen the spending forecast at Shell’s flagship Sakhalin-2 oil and liquefied natural gas project double.

“They propose increasing the volume of investment and consequently reducing the economic effect for the Russian Federation,” Trutnev was quoted as saying by RIA-Novosti. The increased costs mean it would be longer before state coffers see revenues from the project, a violation of the agreement under which the license was originally granted.

In July last year, Shell said the expected cost of developing its oil and gas fields at Sakhalin had doubled to around $20 billion.

The oil company blamed currency swings and rising prices of commodities, such as steel, for driving up the cost of the project.

Shell spokesman Maxim Shupp said that he could not comment on Trutnev’s remarks, but noted that the cost overruns were already in the process of being reviewed by state bodies.

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