The Daily Telegraph: Shell reviews cost of Siberian project
By Christopher Hope (Filed: 03/04/2004)
Shell, the oil and gas giant, yesterday said that it was experiencing "cost pressures" on its much-vaunted Sakhalin-2 gas project in Eastern Siberia.
The news emerged as a former Securities and Exchange Commission official said more heads were likely to roll in the wake of Shell's admission that it had exaggerated its "proven" oil and gas reserves by one fifth.
Shell said yesterday that it was "reviewing both the cost and execution status" of Sakhalin, which was only given the green light in May last year.
However a Shell spokesman said: "This is normal practice on a large, complex project." He added that Sakhalin was still on course to produce gas in 2007.
Shell declined to comment on claims that the total build cost of Sakhalin was now 20pc more than a $10 billion budget presented to analysts in February.
One newspaper said that an internal review of the project's budget in recent weeks had uncovered additional costs in building the offshore platforms, pipelines and related infrastructure.
The spokesman added: "There are cost pressures on the project from movements in the foreign exchange rate and the growth in the regional economy."
Sakhalin is one of Shell's key investments, slated to contribute more than 200,000 barrels a day of oil and gas.
Shell's former chairman Sir Philip Watts said last May that the project would "reinforce Shell's position as the world's leader in liquefied natural gas".
Sir Philip and his head of exploration and production, Walter van der Vijver, lost their jobs in the wake of the overstatement of Shell's reserves, announced in January.
Shell is facing investigations from regulators in the Netherlands, London and New York, where the SEC launched a probe in February.
Commenting on Shell's situation, Lynn Turner, a former SEC chief accountant, said: "I wouldn't be surprised to see more [Shell executives] go".
The SEC would expect Shell to dismiss any executives suspected of wrongdoing immediately, he said.