THE WALL STREET JOURNAL: Sakhalin-2 CEO: Cost Overruns Not Serious;1st Cargo End-07: “LONDON -- Cost overruns at the Sakhalin-2 project led by Shell won't have a long-term impact on the massive oil and gas development, with the first shipment of liquified natural gas on schedule for delivery in three years time, the operator said Tuesday. Posted 17 Nov 04
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LONDON -- Cost overruns at the Sakhalin-2 project led by Shell (RD, SC) won't have a long-term impact on the massive oil and gas development, with the first shipment of liquified natural gas on schedule for delivery in three years time, the operator said Tuesday.
"We acknowledge that the project has been exposed to cost pressures," said Ian Craig, chief executive of the Sakhalin Energy Investment Co. Ltd., speaking at a conference here.
"We're not satisfied with progress in all areas but remain confident that the first cargo of LNG will be delivered at the end of 2007," Craig said.
The CEO attributes the cost pressure partly to a fall in the dollar, an increase in contractors' rates, and general uncertainties surrounding developments in the Far East.
Shell owns 55% of the $12 billion Sakhalin-2 project in Russia's far east. Other shareholders include Japan's Mitsui & Co. (MITSY) and Mitsubishi Corp. (8058.TO).
Craig also said on the issue of cost overruns that Sakhalin Energy has prepared revised estimates, submitted these to the Russian authorities and that this is now under discussion.
By the end of 2004, Sakhalin Energy will have spent around $5 billion on Phase 2, out of the $10 billion originally committed, Craig said.
He also said that over 40% of phase 2 of the project is complete.
"We have secured our first sales to North America, we've committed to three ice-class LNG ships - momentum is building," Craig said. The operator has already sold out on gas supplies from its first LNG train and is well on the way to selling out on gas from the second train, Craig said.
The two trains jointly supply 9.6 million metric tons of natural gas a year.
Commenting on the desire of Russian natural gas giant OAO Gazprom (GSPBEX.RS) to join Phase 2 of the project, Craig said: "There is no agreement today; it's something the shareholders will resolve in due course. However, I would see benefits of having a Russian partner because of the knowledge and expertise they can bring to the project," he said.
Separately, Sakhalin Energy announced Monday the award of three long-term LNG ship charters to a Japanese-Russian consortium.
Sakhalin-2 is one of three existing projects being developed under production-sharing agreements in Russia. These agreements provide for stable tax terms over the life of the project, as well as extensive government oversight.
Company Web site: http://www.sakhalinenergy.com
-By Selina Williams, Dow Jones Newswires; 44-(0)207-842-9282; selina.williams@dowjones.com