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The Moscow Times: Shell, Other Investors to Meet Over Their Sakhalin Troubles

Wednesday, October 4, 2006. Issue 3511. Page 7.
Reuters

TOKYO — Royal Dutch Shell, Mitsui and Mitsubishi will meet this week to discuss how to respond to Moscow after Russia ordered a halt to their $20 billion Sakhalin-2 oil project last month citing environmental concerns, Mitsubishi said Tuesday.

Top executives of the three companies will meet either in London or The Hague later this week, a Mitsubishi spokesman said, without elaborating.

Moscow revoked environmental approvals for the huge Shell-led oil drilling project in mid-September, clouding the future of the project, in which the two Japanese trading companies have so far invested an estimated $4.7 billion.

The project will not be stopped until a full environmental probe has been completed, the Natural Resources Ministry said.

“The move is harsh particularly to Mitsui, which holds a bigger stake in the project but is smaller in company size than Mitsubishi,” said an analyst, who asked not to be identified.

“We’re worried that Shell and its two Japanese partners could be forced to concede to less favorable terms in talks to sell part of their stakes to Gazprom,” he said.

Gazprom is in talks with Shell to take a 25 percent stake in the Sakhalin-2 project. Shell now holds 55 percent of Sakhalin-2. Mitsui and Mitsubishi hold the remaining shares, with 25 percent and 20 percent, respectively. 

Some analysts have viewed the government’s environmental concern as a means to put pressure on foreign companies by a Kremlin that is asserting control over natural resources, as well as showing clout in domestic and international politics.

Shell has come under fire from Russia after conceding that the project would cost $20 billion, twice as much as it originally estimated, complicating talks on a strategic swap of assets with Gazprom.

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