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Shell thought Gazprom would just be a junior partner in Sakhalin II

FROM OUR SHELL NEWS ARCHIVE SEPT 2005

MarketWatch: Shell CEO says no Gazprom asset swap delay, seen finalized 2006

“In July, Shell announced a preliminary swap deal with Gazprom that would give the Russian gas giant up to 25% in the Sakhalin II project in exchange for a 50% interest in its massive Zapolyarnoye-Neocomian gas field in northern Russia. But one week later, Shell, that operates the Sakhalin oil and gas project in Russia’s Far East, said it expected costs to double to $20 billion.”

Thursday 29 Sept 2005

JOHANNESBURG (MarketWatch) — The head of Royal Dutch Shell PLC (RDSB.LN) Thursday denied talks with OAO Gazprom (GSPBEX.RS) on a Russian asset swap involving the Sakhalin II project had been delayed and said he hoped to finalize the deal in 2006.

Speaking on the sidelines of a Johannesburg oil conference, he said: “Discussions have started on time, on the schedule that we announced. It will take many months and we hope to get to a result in 2006.”

In July, Shell announced a preliminary swap deal with Gazprom that would give the Russian gas giant up to 25% in the Sakhalin II project in exchange for a 50% interest in its massive Zapolyarnoye-Neocomian gas field in northern Russia.

But one week later, Shell, that operates the Sakhalin oil and gas project in Russia’s Far East, said it expected costs to double to $20 billion.

Van der Veer, however said Thursday that $20 billion was still an “indicated” figure, not a final decision.

Asked if Shell was discussing the overruns with the Russian government that is party to a production-sharing agreement in the Sakhalin project, van der Veer said: “Of course, we are now discussing with all our partners on what it means.”

PSAs signed with governments generally imply that the company operating a project recoup its costs first before increasing the share of revenue it pays to the state.

Regarding who will bear the overruns, he said: “Everybody has to pay for their equity share or you have to get funding from the banks – that’s how it works.”

Shell currently owns 55% in the project. Japanese companies Mitsui (MITSY) and Mitsubishi Corp. (8058.TO) respectively control 25% and 20%.

Company Web site: http://www.shell.com

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