Shell makes Gazprom offer on Sakhalin-2 oil and gas project

Dec 11, 2006, 13:26 GMT

Moscow - Royal Dutch Shell chairman Jeroen van der Veer has proposed new terms to Russian natural gas monopoly Gazprom to enter the 20-billion-US-dollar Sakhalin-2 oil and gas development, a Gazprom spokesman said Monday.

Spokesman Sergei Kupriyanov said in remarks carried by the news agency Interfax that Shell had offered a 'number of proposals' concerning Sakhalin-2, a massive venture extracting oil and gas off the coast of Russia's Pacific Sakhalin Island.

'We are thinking (the proposals) over, knowing the project has a number of objective problems, including ecological,' Kupriyanov said.

Neither Kupriyanov nor Shell Russia spokesman Mikhail Shub elaborated on what exactly Shell's conditions were or how large a stake Gazprom could hope to get.

Shell owns 55 per cent of the project, and Japanese companies Mitsui and Mitsubishi control 25 and 20 per cent, respectively.

Gazprom, meanwhile, has been in talks with Shell for more than two years to get a foothold in Russia's largest energy project.

In July of last year, Shell agreed to exchange a 25-per cent stake in Sakhalin-2 for 50 per cent in the Nepolyarnoe-Neocom gas field in Russia's Far North. What the new terms might be was unclear.

Shub told Interfax the meeting was 'constructive' and 'positive.'

Shell subsidiary Sakhalin Energy, which is the project's developer, has run into a host of problems this autumn as Russian environmental officials threaten to revoke licenses for ecological violations on the site.

Rosprirodnadzor, the country's environmental watchdog, has cited Sakhalin Energy for allegedly damaging the seabed around Sakhalin, harming native whale populations and illegal felling of trees on the island.

Russia has also expressed its irritation with cost overruns at Shell that have pushed Sakhalin's construction price tag past 20 billion dollars, from earlier estimates of 10 billion dollars.

The so-called production-sharing agreements (PSAs) under which foreign energy majors undertook development projects in Russia stipulated the firms would begin paying Moscow proceeds from sales of oil and gas only after recouping all construction costs.

Sakhalin-2 controls an estimated 500 cubic metres of gas, and the area around the island is thought to hold 45 billion barrels of oil.