Daily Telegraph: Putin scolds Shell over Sakhalin costs: “Russian president Vladimir Putin has given Shell's top executives a dressing down over the spiralling costs on the oil and gas giant's Sakhalin project, reports claimed yesterday.”: “The news is a big blow for Shell.”: “Analysts at Morgan Stanley said if Shell lost the project it would dent production by 4pc by 2009…”: Thursday 3 November 2005
(Filed: 03/11/2005)
Russian president Vladimir Putin has given Shell's top executives a dressing down over the spiralling costs on the oil and gas giant's Sakhalin project, reports claimed yesterday.
President Putin also told Shell during a visit to Amsterdam this week that Russia was not planning to approve plans to increase the project's budget from $11billion (£6.2billion) to $20billion.
Sources at the meeting said the Russian president spent 30 minutes criticising the cost over-runs on the Sakhalin II project, which is 55pc controlled by Shell, according to Kommersant business daily. Other reports suggested the Russian Audit Chamber was calling for the cancellation of the Sakhalin II production sharing agreement with Shell and the appointment of new investors.
The news is a big blow for Shell. Sakhalin is an island off the east coast of Russia and the project is one of the company's biggest. When complete it will be the world's largest liquefied natural gas plant. It is due to deliver its first cargo of LNG in 2008.
Analysts at Morgan Stanley said if Shell lost the project it would dent production by 4pc by 2009, and cut net income by 1pc. They said that either Russia was using the cost over-run to seize "greater control" of the project, or it was a negotiating tactic over whether the government or the contractors should pay the bill for the extra costs.
A Shell spokesman said: "Sakhalin II was discussed in the meeting with President Putin. We were encouraged to work with the relevant authorities, as we are doing, and to continue with the due process."
Shell is working with the Kremlin to approve the new costings. Shell's B shares closed down 19 at £18.19. In July Shell blamed the over-runs on the project's complexity and "frontier" location. It also complained of costs arising from Russian inflation and exchange rates.
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