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The Wall Street Journal: Sakhalin Output May Be Banned

September 4, 2006

MOSCOW — Russian authorities may order the Sakhalin Energy international energy consortium to stop pumping oil if it doesn’t correct environmental violations registered over the past year.

Russian officials said they are still several steps away from actually halting production at the venture. Analysts called the possible move an attempt to increase pressure on Royal Dutch Shell PLC, which is at loggerheads with Russian state-owned natural-gas concern OAO Gazprom over an asset swap involving Sakhalin Energy. Shell owns 55% of the consortium, while Japan’s Mitsui & Co. Ltd. holds a 25% stake and Japan’s Mitsubishi Corp., holds 20%.

Last year, Shell announced a preliminary swap deal to give Gazprom as much as 25% in Sakhalin Energy in exchange for a 50% interest in Gazprom’s massive Zapolyarnoye gas field in northern Russia.

But only days later, Shell said it expected costs to double at the Sakhalin Energy project to $20 billion, prompting Gazprom to say it would reassess the planned swap. Shell said it is still in talks on the exchange.

Gazprom said it had nothing to do with the decision-making process of the Ministry of Natural Resources.

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