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New-Europe.info: Shell aims for asset exchange with Gazprom by year-end

Royal Dutch Shell hopes to complete a deal by the end of the year, which will result in Gazprom receiving 25 percent, plus one share in the Sakhalin-2 project, and the Anglo-Dutch company receiving 50 percent plus one share in the Zapolyarnoye-Neocomian project, reported Interfax.

“I hope that by the end of 2006 the exchange will be completed. It is already July,” Shell CEO Jeroen van der Veer said in an interview with the Russian daily Vedomosti. However, he noted that talks on the exchange with Gazprom would not be simple.

“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,” he said. He said that a deal is not a train – that always arrives in the station on schedule.

The Sakhalin-2 project involves the development of the Piltun-Astokhsky and Lunskoye fields off the Sakhalin coast. Total reserves of oil and gas at these deposits amount to 150 million tonnes and 500 billion cubic metres respectively.

The operator of the project is Sakhalin Energy, founded by Shell (55 percent,) Mitsui (25 percent) and Mitsubishi (20 percent.) In July last year Gazprom and Shell agreed to exchange Sakhalin-2 and Zapolyarnoye-Neocomian assets, which means that Gazprom will receive 25 percent plus one share in Sakhalin 2 and Shell – a 50 percent stake in the Zapolyarnoye – Neocomian project.

Almost immediately after this, Royal Dutch Shell announced that investment in the second phase of the Sakhalin-2 project would amount to about 20 billion Euro, for the entire programme of work, including drilling, in the period to 2014, and supplies of liquefied natural gas would begin in summer 2008. It was previously planned to start supplies in November 2007, and the total cost of the second phase was estimated at 12 billion Euro. In response, Gazprom announced that it is analysing how the increase in Sakhalin-2 expenditure would influence the asset exchange deal. 

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