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The Wall Street Journal: Energy Firm to Miss Target For Drilling Offshore Russia

December 13, 2006 1:06 p.m.

International energy consortium Sakhalin Energy said it will probably miss a January target to start drilling for natural gas at the Lunskoye gas field offshore Russia.

The delay comes because the Russian state environmental regulatory agency Rosprirodnadzor, which has criticized the company in recent months over its environmental record, hasn’t given its approval.

Sakhalin Energy spokesman Ivan Chernyakhovsky said the company has already installed an offshore drilling platform at the field but couldn’t begin drilling without express approval from Rosprirodnadzor.

“Drilling was scheduled for January, but now it doesn’t seem feasible,” Mr. Chernyakhovsky said.

Sakhalin Energy, 55%-owned by Royal Dutch Shell PLC, has come under intense regulatory pressure from Russian officials who have accused it of a wide array of environmental violations and at times threatened to pull key production permits. Many observers believe, however, that the pressure is part of a Kremlin effort to raise its influence over Russia’s vast natural-resources sector.

Sakhalin Energy was scheduled to begin exports of liquefied natural gas to Pacific rim countries in the summer of 2008, but the inability to begin drilling at the Lunskoye gas field calls that target date into question, Mr. Chernyakhovsky said.

“The project requires cooperation from regulatory agencies if it is to be delivered on schedule successfully,” Mr. Chernyakhovsky said.

Japan’s Mitsui & Co. and Mitsubishi Corp. are also partners in Sakhalin Energy.

Russia’s minister of industry and energy, Viktor Khristenko, called on Shell to resolve the issues surrounding Sakhalin Energy through dialogue with officials. On the same day, however, Rosprirodnadzor increased the pressure by saying it would take Sakhalin Energy to court as early as March for its environmental abuses.

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