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UPI Energy Watch: Shell, Gazprom asset exchange delayed to year’s end

By ANDREA R. MIHAILESCU
UPI Energy Correspondent

British-Dutch venture Royal Dutch Shell said it hopes to complete its asset-swap deal with Russian natural gas behemoth Gazprom by the end of the year despite complications.

“I hope that by the end of 2006 the exchange will be completed. It is already July,” Jeroen van der Veer, head of Shell, said in an interview with the Russian daily Vedomosti.

Under the contract, state-controlled Gazprom, the world’s largest gas company, will receive 25 percent plus one share in the $20 billion Sakhalin-2 liquefied natural gas project located in Russia’s Far East, while Shell will receive 50 percent plus one share in the Zapolyarnoye-Neocomian project.

The contract was inked one year ago, but soon after it was secured, Shell announced project delays and cost overruns would double to approximately $20 billion. Gazprom immediately asked for a renegotiation of the contract, stating it needs to analyze how the increase in Sakhalin-2 expenditures would affect the asset exchange deal.

Van der Veer acknowledged the deal would be complicated.

“This will be a very complicated deal. Complicated because we are talking about exchanging 25 percent in a project which is already 75 percent completed (Sakhalin-2) for a share in a project to develop the Zapolyarnoye field, or to be more precise, to develop part of that very large field. And that development has not yet started,” he said. “We have difficult discussions ahead, but we did not expect anything else.”

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