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Bloomberg: Russia Delays Shell Cancellation Threat to Oct. 20 (Update1)

By Torrey Clark

Sept. 26 (Bloomberg) — Russia gave Royal Dutch Shell Plc almost a month to remedy violations at the $22 billion Sakhalin-2 oil and gas project, before the government decides whether to cancel a key permit for the development.

Shell must respond to government requests for proposals on fixing environmental and safety problems, Natural Resources Minister Yuri Trutnev said today in Moscow. His ministry yesterday started a review of Sakhalin-2 that will conclude on Oct. 20, after which it will decide whether Shell can finish building pipelines and a plant to liquefy natural gas.

“We will do everything in our power not to stop the project,” Trutnev told reporters in Moscow today. “But everything depends on the company.”

Shell, BP Plc, Exxon Mobil Corp., and Total SA face demands from Russia to cede some control of oil and gas fields to state- aligned companies, OAO Gazprom and OAO Rosneft. The foreign-led ventures have become anomalies in Russia as President Vladimir Putin increases state control over the energy industry.

Trutnev’s ministry has sought to cancel Shell’s permit to finish building pipelines and a plant to liquefy natural gas at Sakhalin-2, citing environmental and safety concerns.

The permit “should never have been signed,” Trutnev said. The document, which was approved by a predecessor, had more than 60 matters of concern regarding the environment or safety, he said.

BP Plc’s $18 billion Kovykta gas field will be reviewed late this year, running into the start of next year, after which a decision will be made on that project, Trutnev said.

BP’s OAO TNK-BP Holding operates the Kovykta development.

Valery Pak, the head of TNK-BP unit OAO Rusia Petroleum, was summoned to the Prosecutor General’s Office and “officially warned” his company must fix the problems or face losing its license in the Irkutsk region, according to a statement yesterday posted on the prosecutor’s Web site.

To contact the reporter on this story: Garfield Reynolds in Moscow at [email protected]

Last Updated: September 26, 2006 10:10 EDT

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