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RIA Novosti: No plans to revoke Sakhalin II license-FM Lavrov

17:46 | 23/ 10/ 2006 

MOSCOW, October 23 (RIA Novosti) – Russia does not seek to revoke the license of the Sakhalin II oil and gas project in Russia’s Far East, the Russian foreign minister said Monday.

Russia signed the Sakhalin II production-sharing agreement in 1994 with Sakhalin Energy, an investment company controlled by oil major Royal Dutch Shell. The company recently raised its cost estimate for the project, thereby putting off the date by which the Russian government will receive a share of the profits.

Sakhalin II has also come under attack from Russia’s environmental authorities for the large-scale destruction of the island’s ecology.

“We are not pondering the revocation of the license of the Sakhalin II operator,” Sergei Lavrov said at a meeting with representatives of EU business circles in Moscow.

He said he met earlier with top executives of Sakhalin II who acknowledged violations and the need to rectify them.

Devised in the 1990s, when oil prices were much lower, production-sharing agreements such as Sakhalin II offer investors major tax benefits. Under such agreements, Russia begins receiving its share of profits only after investors have recovered their costs.

On September 18, the Natural Resources Ministry annulled its own 2003 Sakhalin Environmental Expert Review (SEER), which gave the project a positive evaluation, following action from prosecutors. However, it has yet not formally implemented its decision.

Yury Trutnev, Russia’s natural resources minister, said earlier that the results of the investigation into violations of environmental laws will be made public October 25, during his visit to Sakhalin.

The Sakhalin II project comprises an oil field with associated gas, a natural gas field with associated condensate production, a pipeline, a liquefied natural gas plant and an LNG export terminal. The two fields hold reserves totaling 150 million metric tons of oil, and 500 billion cubic meters of natural gas.

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