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Putin slams Shell’s Sakhalin costs – paper

From our Shell News Archive 2 November 2005

Reuters: Putin slams Shell’s Sakhalin costs – paper

“President Vladimir Putin told executives of major oil company Royal Dutch Shell Russia would not approve Shell’s request to let it double costs at its huge Sakhalin project to $20 billion”: “…Putin had spent more than 30 minutes criticising the cost overruns at the Shell-led Sakhalin-2. Putin’s criticisms come as a big blow for Shell…”

“…the oil company’s chief executive was harangued by President Putin…”

Wednesday Nov 2, 2005 7:20 AM GMT

MOSCOW (Reuters) – President Vladimir Putin told executives of major oil company Royal Dutch Shell (RDSa.L: Quote, Profile, Research) Russia would not approve Shell’s request to let it double costs at its huge Sakhalin project to $20 billion (11 billion pounds), a newspaper reported on Wednesday.

Kommersant business daily quoted sources, who attended a meeting between Dutch businessmen and Putin during his visit to Amsterdam, as saying Putin had spent more than 30 minutes criticising the cost overruns at the Shell-led Sakhalin-2.

Putin’s criticisms come as a big blow for Shell, which wants the government to approve a new budget for its project, which has been producing oil since 1999 and is building the world’s largest liquefied natural gas (LNG) plant.

The government is reluctant to allow any production-sharing deal to boost costs as it automatically delays the moment when the project becomes profitable and the state starts receiving its share of revenues.

On Tuesday, Russia’s Energy Ministry asked Shell to provide more information about the increased spending plans, saying that so far all requests for changes were poorly grounded.

Shell announced the cost increases days after signing a preliminary deal under which Russia’s gas monopoly Gazprom would take 25 percent in Sakhalin-2 in return for giving Shell access to a Siberian gas field.

Gazprom later said Shell might have to pay it cash as part of the planned asset swap since the revision diminished the value of Sakhalin.

Other shareholders of Sakhalin-2 are Japanese trading houses Mitsui & Co. (8031.T: Quote, Profile, Research) and Mitsubishi Corp. (8058.T: Quote, Profile, Research).

Related articles

The Times: Putin may force Shell to carry cost of Sakhalin overruns: “CONCERN is mounting that Royal Dutch/Shell may be forced to take a $10 billion hit (£5.6 billion) after the oil company’s chief executive was harangued by President Putin about cost overruns at the Sakhalin gas project in Siberia.”: November 03, 2005

The Independent (UK): Putin savages Shell over soaring Sakhalin bill: “Shell has acknowledged a conversation with Mr Putin took place on Tuesday.”: Thursday November 03, 2005: READ

Daily Telegraph: Putin scolds Shell over Sakhalin costs: “Russian president Vladimir Putin has given Shell’s top executives a dressing down over the spiralling costs on the oil and gas giant’s Sakhalin project, reports claimed yesterday.”: “The news is a big blow for Shell.”: “Analysts at Morgan Stanley said if Shell lost the project it would dent production by 4pc by 2009…”: Thursday 3 November 2005: READ

Kommersant: Russian President Did Not Bow for Queen: “However, the main intrigue of that day was opened during the meeting with business circles of the Netherlands — the head of Shell raised the question about the participation of this company in the project Sakhalin-2.”: Shell sometime ago signed an agreement with Gasprom, and now Mr. Van Der Veer offered to reconsider the conditions.”: Wednesday 2 November 2005: READ

Kommersant (Russia): Shell Doesn’t Reach $20 Bln: “Visiting the Netherlands, Russian President Vladimir Putin lambasted the efforts of Shell to drive the budget of the Sakhlin-2 project up to $20 billion from $12 billion.”: Wednesday 2 November 2005: READ

MosNews: Putin Slams Sakhalin-2 Operators for Project Cost Overruns — Paper: “Putin’s criticisms come as a big blow for Shell…“: Wednesday 2 November 2005: READ

Energy Intelligence Group: Sakhalin-2 Comes Under New Pressure: “The Royal Dutch Shell-led Sakhalin-2 project on the Russian Pacific shelf has run into fresh controversy.”: Russia’s Audit Chamber, a parliamentary watchdog, supported by Sakhalin deputies, has called for cancellation of the scheme’s production sharing agreement (PSA) and the appointment of new investors.”: Posted Wednesday 2 November 2005: READ

Moscow Times: President Talks Trade in Holland: “Royal Dutch Shell has invested heavily in developing oil and gas fields around Sakhalin Island, a project that has been plagued by cost overruns. “: Wednesday, November 2, 2005. Issue 3287. Page 1.: READ

Financial Times: Elusive skills that give Shell hope: “Royal Dutch Shell, once considered one of the best managed companies in the world, has had a seriously bad patch lately.”: “At the moment, Shell is a long way from becoming the company that would beat its rivals in the environment Mr Van der Veer outlines.”: Wednesday 2 November 2005: READ

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