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Financial Times: Sakhalin-2 stake sale to cost Shell 400m boe from reserves

By Ed Crooks
Published: February 2 2007 02:00 | Last updated: February 2 2007 02:00

The sale under duress of half its stake in Sakhalin-2, the $22bn (£11bn) oil and liquefied natural gas project off the far-east coast of Russia, is expected to cost Shell about 400m barrels of oil equivalent from its reserves, writes Ed Crooks.

The effect of the deal, agreed just before Christmas, on Shell’s reserves was a fresh jab in a spot that is still sore after the scandal of 2004, when the reserves were found to have been overstated.

However. the impact has been smaller than many analysts expected.

Shell sold half its share in the project to reduce its holding to 27.5 per cent, as Gazprom took just over 50 per cent.

That has removed about half of Shell’s booked reserves from the project.

Shell said that, taken together with the effect of buying out the minority 22 per cent shareholdings in Shell Canada, which it has bid to do, there would be a net loss of only 100m barrels of oil equivalent: just 1 per cent of the total.

It is offering $7.4bn for the shares in Shell Canada, and receiving just $4.1bn for its stake in Sakhalin-2.

However, Shell said yesterday that the deal with Gazprom opened up the possibility of further development in the Sakhalin region, including the construction of a third LNG plant to join the two now being built.

“We have realised already that in Russia it is good to have a strong Russian partner, in the shape of Gazprom,” Jeroen Van der Veer, Shell chief executive, said.

After the deal with Gazprom had been announced last year, it emerged that the Russian government was proposing to reduce the costs that Shell and its consortium partners would be able to recover under the production sharing agreement for the project.

However, the net effect of that on Shell is unlikely to be significant.

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