Sakhalin-2 Foreign Holders Foot $3.6B Shortfall - Vedomosti

MOSCOW Dec 28, 2006 (Dow Jones Newswires)

The original shareholders of the Sakhalin-2 oil and gas project will have to meet $3.6 billion of additional costs themselves under the terms of a deal struck with the Russian government last week, the newspaper Vedomosti reported Thursday.

Vedomosti said the Russian government has in principle agreed to approve an increase in the project's development costs to $15.6 billion, but that this is some $3.6 billion short of what the Sakhalin Energy Ltd. consortium - consisting of Royal Dutch Shell PLC (RDSA), Mitsui & Co. (MITSY) and Mitsubishi Corp. (8058.TO) - had estimated.

The paper said the original shareholders have agreed to meet the $3.6 billion extra cost themselves. They have also agreed that OAO Gazprom (GSPBEX.RS), which last week agreed to buy a 50% plus one share stake in the project for $7.45 billion, won't be asked to share in meeting this cost, the paper said.

Shell Chief Executive Jeroen van der Veer told Dow Jones Newswires after meeting with the government last Thursday that he still considered the project's budget as $20 billion, and that there would be no "carrying" of Gazprom through the investment period.

Vedomosti cited Deputy Industry Minister Andrei Dementyev as saying that the $3.6 billion figure was derived from preliminary estimates made by state-controlled hydrocarbons company Zarubezhneft as to how much of the requested budget increase was justified.

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

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