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MosNews: Russian Authorities Expect Shell to Change PSA Terms for Sakhalin-2 Project

Created: 28.11.2006 10:50 MSK (GMT +3), Updated: 11:05 MSK

Russian state auditor Sergei Abramov said on Monday, Nov. 27, that he expects the Shell-led Sakhalin-2 project to accept a change in the terms of its production sharing agreement to bring a compromise deal soon.

“We are expecting the operator to show goodwill. We want the operator to take the initiative to improve the terms for the Russian Federation. I’m sure a mutually acceptable solution will be found. We believe it will be very soon,” Abramov was quoted by Reuters as telling a briefing in Moscow.

Shell and its partners, Japan’s Mitsui and Mitsubishi, have come under a lot of criticism from the Russian authorities for doubling the cost estimate of the Sakhalin-2 oil and gas project to $22 billion, meaning the Russian state will have to wait longer to see any profit from the venture.

Abramov, a member of Russia’s state Audit Chamber, is charged with drawing up conclusions for an annual submission to the government on production sharing agreements (PSAs).

Russian officials have put pressure all of its three PSAs in the last few months, launching environmental and technical checks on ventures led by Exxon Mobil and Total as well as Sakhalin-2. Ministers have repeatedly said Russia has no plan to scrap the PSAs, but they have not explained how they might find a compromise over the costs, which have been the subject of negotiations since Shell announced its revised budget last year.

Abramov said Russia would not unilaterally revise the PSA, but it would never agree to a budget of $22 billion.

“But we are ready to review their new calculations when they are submitted,” he said, adding that he was confident a deal could be struck. “It’s not mere optimism, it’s common sense. This project is important not only for its operator but for the Russian Federation as a whole.”

He said the terms of the PSA meant Russia would get 10 percent of project revenues regardless of oil prices, but it regarded that as unfair and it wanted a bigger slice of the profits when oil prices were higher.

Russian gas monopoly Gazprom plans to take a stake of 25 percent in Sakhalin-2 by means of an asset swap with Shell, but the doubling of the budget has thrown the proposed swap into disarray.

But Abramov said Gazprom’s inclusion in the group of Sakhalin-2 shareholders could pave the way for a solution to the dispute over the venture’s budget.

A spokesman for Shell in London declined to comment. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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