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RIA Novosti: Sakhalin PSA gives Russia 10% max. share – Audit Chamber

20:00 | 06/ 10/ 2006 

MOSCOW, October 6 (RIA Novosti) – Russia will receive no more than 10% of hydrocarbon output under the Shell-led Sakhalin II project off Russia’s Pacific coast given the way the project has been implemented in 2005 and 2006, Russia’s financial watchdog said Friday.

Sakhalin II is being run under a 1994 product-sharing agreement by a consortium led by the Anglo-Dutch oil major, but has met with strong opposition from environmental groups and authorities. The Ministry of Natural Resources withdrew its own ecological approval for the project in September, jeopardizing crucial liquefied natural gas supplies slated for 2008.

And the Audit Chamber, which is looking into the economic efficiency of the project, said the agreement “is continuing to be implemented on terms and conditions that fail to benefit Russia.”

The Audit Chamber said the project operator had underestimated expected returns on future oil sales.

The expected returns are based on the oil price of $34 per barrel and a 3% increase until 2045, whereas current prices stand at around $60 per barrel. And the operator, Sakhalin Energy, has said project costs will increase from $12.04 billion to $22.2 billion by 2010.

The chamber also said the Lunsk gas deposit was still the subject of a geological survey, but the prospecting of its oil fringe and the deep oil-bearing horizons in the Piltun-Astokhsk deposit on the northwest shelf of Sakhalin had not been conducted.

The chamber also accused the consortium of ignoring a program to maintain reservoir pressure at the Astokhsk field, which could result in the loss of oil deposits.

The watchdog said the federal budget could face additional expenses under the project as the PSA agreement did not provide for the decommissioning of production facilities after their operating life expired

The Audit Chamber’s findings will be used in a government report on progress of the PSA in 2005, and the relevant documents will be sent to parliament and Sakhalin Energy.

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