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. Last Updated: 07/27/2016

Shell Sees Sakhalin-2 in Black by 2013

APThe Shell-run LNG terminal on Sakhalin Island. Shell said it would report on its talks with Gazprom by year's end.
LONDON -- Royal Dutch Shell said Thursday that it expected to recover by 2013 the costs incurred under a production-sharing agreement governing its Sakhalin-2 project.

Shell is in talks with Russian authorities and is still negotiating an asset swap that would bring Gazprom into the venture, chief executive Jeroen van der Veer said in a conference call.

"We are in contact with the authorities; I assume that by sitting down and having discussion, we will have solutions that are acceptable to both parties,'' Van der Veer said. "The win-win situation is that we get it up and running and fulfill all the permits as soon as possible. If the project is up and running, we'll have year-round LNG sales."

Shell expects the project's cost recovery to be completed by 2013, which is five years after liquefied natural gas exports are scheduled to start, chief financial officer Peter Voser said during the conference call.

Over time, Russia's share of the proceeds will amount to $80 billion, assuming oil prices are about $50 per barrel, Van der Veer said.

He declined to say whether Shell would have to cede more control of the project to Gazprom than the 25 percent originally earmarked. Talks with Gazprom are "ongoing" and Shell will report on progress by the end of this year, he said.

Authorities have accused the Shell-led oil and gas project of environmental violations and lashed out at it for doubling the cost of the project's second phase to $20 billion. The second phase is Russia's first LNG export terminal.

The Natural Resources Ministry said Wednesday that the Sakhalin-2 venture faced criminal charges and might be forced to halt some construction as the ministry investigates possible violations, including environmental damage and illegal logging by contractors.

The overall cost of the project, including the first phase, which is already in production, and the larger second phase, which is due to begin LNG exports in 2008, is now estimated by Shell to be $22 billion.