Gazprom: No Sakhalin Talks Progress with Shell in Over a Year

MOSCOW Sep 19, 2006 (AP)

Talks aimed at bringing state-controlled gas monopoly OAO Gazprom (GSPBEX.RS) into a Royal Dutch Shell PLC-led (RDSB.LN) liquefied natural gas project on the Far East island of Sakhalin have made no progress since the company announced costs would double over a year ago, Gazprom said Tuesday.

The comments by spokesman Sergei Kuprianov came a day after the Natural Resources Ministry said it would pull the environmental permit at the project. Observers have called the move a hardball tactic by the government to force a better deal for Gazprom's entry.

The company dismissed those suggestions Tuesday as "suppositions," and said the delay was due to "uncertainties" in structuring the deal after Shell announced in July 2005 that its costs would double to $20 billion.

Gazprom is offering Shell access to the far northern Zapolyarnoye-Neocomian field, the world's fifth largest gas deposit, in exchange for a 25 percent-plus one share stake in Sakhalin-2.

"There should have been an audit and due diligence - this couldn't be conducted due to uncertainty around the economic parameters of the project," said Kuprianov. "The Natural Resources Ministry's decision can't affect negotiations with Shell because they haven't been progressing for completely different reasons for more than a year."

Copyright (c) 2006 Dow Jones & Company, Inc.