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Reuters: Shell inks secret protocol with Russia on Sakhalin

Thu Dec 28, 2006 7:26 AM GMT

MOSCOW (Reuters) – Royal Dutch Shell signed a secret protocol with the Russian government as part of its deal to sell half of the Sakhalin-2 project to Gazprom, allowing Shell to boost spending but not as much as it wanted, a newspaper said on Thursday.

Shell (RDSa.L: Quote, Profile , Research) is now allowed to boost spending in the giant Sakhalin project to $15.8 billion (8.1 billion pounds) from the previously approved $12 billion, the Vedomosti daily said.

Shell’s spokesman in Moscow Maxim Shub said the protocol was confidential and he would not comment on it. He said details of project costs would be discussed in February at a meeting with the Russian government.

The oil major had initially asked the government to allow it to spend $22 billion. But the government opposed the idea, saying the extra expenditure would delay the moment when the state starts getting its profits from the production sharing agreement (PSA).

Under PSA legislation, all costs can be reimbursed.

The paper said Shell would spend an additional $3.6 billion on top of the approved $15.8 billion and this extra cost would not be reimbursed under the secret protocol.

Earlier this month Shell and its partners in the project, Japan’s Mitsui (8031.T: Quote, NEWS , Research) and Mitsubishi (8058.T: Quote, NEWS , Research) agreed to sell Gazprom (GAZP.MM: Quote, Profile , Research) half of the project for $7.45 billion.

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