Decision on Sakhalin License to Follow Audit

MOSCOW Sep 26, 2006 (Dow Jones Newswires)

Russia's Natural Resources Minister Yuri Trutnev Tuesday said a decision on whether to withdraw a key license at the Sakhalin-2 oil and gas development in the country's far east would be taken following an audit of the project.

He said the audit of the Royal Dutch Shell-led (RDSB) project would take around one month.

"There are real violations and they are more than significant," Trutnev told journalists. He added, however, that the ministry would try to avoid halting the project entirely.

"We will do avoid shutting down the project if possible," he said. "Whether or not we're able to do that depends on the company."

Last week, Russia's environmental watchdog decided to revoke the operating consortium Sakhalin Energy's environmental permit for alleged violations.

Japanese pair Mitsubishi Corp. (8058.TO) and Mitsui and Co. Ltd. (8031.TO) own 20% and 25% respectively in Sakhalin Energy. Shell owns the other 55%.

A spokesman for the consortium Tuesday said delays in the project could cost up to $10 billion.

Trutnev denied that the possible withdrawal of the license was related to large cost overruns by the consortium, which would reduce revenue for the Russian state.

He also denied that this was selective application of the rules, stressing that "we fully understand the investment significance of this project."

Separately, Trutnev said there were minor issues at the arctic Kharyaga field, which is being developed by France's Total (TOT).

"We have questions about the implementation of the project but we do not see them as critical," Trutnev said.

He added that the ministry would carry out an audit at Kharyaga at some point in the future.

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