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Dow Jones Newswires: Environment Watchdog Sues To Annul Sakhalin-2 Plan -2-

Friday August 4th, 2006 / 16h58  

Thursday, Rosprirodnadzor had called for pipe-laying work on the island to be halted due to mudslide risks.

Sakhalin-2 is one of two projects in Russia’s Pacific offshore being developed by Western oil companies under production-sharing agreements signed in the early 1990s, and is due to come online in 2008. The other is Exxon Mobil Corp.’s Sakhalin-1 oil project, which has state-controlled oil company OAO Rosneft as a partner.

Gazprom has offered access to the far northern Zapolyarnoye-Neocomian field, the world’s fifth-largest gas deposit, in exchange for a 25%-plus one share stake in Sakhalin-2.

But last July, Royal Dutch Shell PLC said the expected cost of developing Sakhalin-2 had doubled to around US$20 billion, blaming the increase on currency swings and rising prices of commodities such as steel.

Gazprom now argues that the cost increase has diminished the value of the stake it wants to take and wants to reduce the assets it is offering in the swap deal.

A spokeswoman for Sakhalin Energy declined comment.

-By Geoffrey T. Smith, Dow Jones Newswires; (+7 495) 974 8055; [email protected]

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