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Platt’s: Gazprom, Shell halt Sakhalin-2 asset swap talks for over a year

Moscow (Platts)–19Sep2006

Talks between Russian Gazprom and Shell over a stake in the Dutch company’s Sakhalin-2 project stalled over a year ago because of economic uncertainties with the project, not the cancellation of an environmental permit Monday, a Gazprom spokesman said Tuesday.

“The decision of the natural resources ministry [to revoke the permit] has not affected the talks with Shell since they have seen no progress for over a year now due to uncertainly over the project’s economics,” the spokesman told Platts.

Shell was not immediately able to comment on the talks with Gazprom over a planned asset swap deal.

In July 2005, Shell agreed to exchange its up to 25% plus one share in the Sakhalin-2 project for 50% of the gas giant’s Zapolyarnoye Neocomian field in July 2005. But a week after the memorandum was signed, Shell said costs of the second stage of the Sakhalin project, which is being developed under a production-sharing agreement, could nearly double from the initial $12 billion to $20 billion.

Gazprom and Shell officials said earlier this year the talks were difficult but expected the deal to be closed by year-end.

The natural resources ministry on Monday revoked the order which approved the state environmental conclusion for Sakhalin-2 Phase 2 in 2003, and required a new permit to be issued before operations under Phase 2 could resume.

Sakhalin Energy, the project operator, Monday said there were no grounds to revoke the ecological permit and warned that the move could delay the project implementation.

On Tuesday a Sakhalin Energy spokesman said the company had not yet received an official notification from the ministry and the work under Phase 2 continued normally.

The project’s second stage envisages the start of full-year oil production from Piltun-Astokhskoye in 2007, and gas production and liquefaction at a new 9.6 million mt/year LNG plant, with LNG shipments set to start in 2008.

Shell holds a 55% stake in Sakhalin Energy, with Mitsui (25%) and Mitsubishi (20%) holding the remaining shares.

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