Royal Dutch Shell Group .com

Forbes/AFX News Limited: STOCKWATCH: Shell slumps on Sakhalin cost woes: Posted Thursday 3 November 2005


LONDON (AFX) - Shares in Royal Dutch Shell PLC have fallen after Russian president Vladimir Putin reportedly criticised the cost overruns suffered by the Anglo-Dutch oil group at the mammoth Sakhalin gas project.


The Russian daily, Kommersant, claimed that Putin, who is in Amsterdam to meet with Dutch businessmen, 'lambasted' Shell for the 10 bln usd cost overruns and told the group's chief executive, Jeroen van der Veer, that his government will not sanction the increased budget at Sakhalin.


Putin, according to sources quoted by the newspaper, described Sakhalin's revised budget 'economically unfounded.'


Shell in July announced that the project, known as Sakhalin-II, is 10 bln usd overbudget, taking its total cost to 20 bln usd and delaying its start up to 2008 from 2007.


A government of a country hosting a major resource project like Sakhalin will normally share in the cost rise.


Shell's B shares closed down 19 at 1,819 pence in London.


Analysts were unnerved by the report, which added to the increased uncertainty on the future of the giant gas project.


'This means that Shell will have to bear the cost overruns itself... which will mean 5 bln usd discounted over 10 years,' said one analyst.


Shell declined to comment.


Shell has entered into a preliminary asset swap agreement with Russian gas monopoly Gazprom days before it announced the cost inflation at Sakhalin.


Under the pact, Gazprom will take a 25 pct stake in Sakhalin. Shell, in return, will get a 50 pct interest in Gazprom's Zapolyarnoye field in Siberia, the world's fifth largest gas deposit.




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