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The Times: Russians give Shell Sakhalin-2 ultimatum: Kremlin says renegotiate PSA terms, or sell up and go

October 05, 2006
By Julian Evans in Moscow, and Michael Binyon
 
THE Kremlin yesterday gave an ultimatum to Shell and ExxonMobil over their multibillion- dollar cost overruns on the $20 billion (£10.6 billion) Sakhalin-2 oil and gasfield project.

Russia is demanding that Shell and Exxon either stick to original cost agreements, return to the Kremlin and renegotiate the deal’s terms, or sell up and go. 
 
Arkadi Dvorkovich, adviser to President Putin, told The Times: “As far as Sakhalin-2 goes, you know which side started changing the terms and who asked for expenditure to be doubled. It was clear . . . that the Russian side would never agree to this.”

Last year Shell doubled the projected costs of Sakhalin-2 from $10 billion to $20 billion. Under the project’s production-sharing agreement (PSA), that meant the Russian state would get no profit for many years, until project costs were paid off.

Mr Dvorkovich said: “If it’s more beneficial to work under the PSA, (Shell) should do that, rather than switch to a new legal regime. If neither of those options are acceptable, it may be more beneficial to sell their interest to a third party.”

Mr Dvorkovich said that renegotiating the PSA was possible, but the Government would not initiate such a renegotiation. 

http://business.timesonline.co.uk/article/0,,9072-2389291,00.html

Related articles from The Times: same date:

The Times: Money at the root of Kremlin’s dislike of Shell deal

The Times: Shell needs to oil its Kremlin diplomacy

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