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UpstreamOnline: Shell signs ‘secret’ Sakhalin pact

By Upstream staff

Shell has 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, it was reported today.

Shell is now allowed to boost spending in the giant Sakhalin project to $15.8 billion from the previously approved $12 billion, the Vedomosti daily said.

A Shell spokesman in Moscow 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.

Shell had initially asked the government to allow it to spend $22 billion. However, 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.

Under PSA legislation, all costs can be reimbursed.

Vedomosti 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 and Mitsubishi, agreed to sell Gazprom half of the project for $7.45 billion.

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