Monday, May 08, 2006

Sakhalin: The cost of doing business

Business Week Online has an interesting article on Sakhalin Energy and developing the Sakhalin fields.

One part of the article stands out however.

Considering the billions that Shell stands to gain from Sakhalin II, the indigenous peoples and Zlivko are minor worries. The bigger issue is the Kremlin. Everyone from President Vladimir V. Putin on down is complaining about cost overruns. That's because under the production sharing contract, signed in 1994, Russia will start making serious money only after Sakhalin Energy recovers its costs. Up to then, the company pays just a 6% royalty on revenues. After that, Sakhalin Energy will get 90% of the profits until the project shows a 17.5% return. Income taxes will be 32%. "If they can't develop the project at the original costs, perhaps we should bring in another operator," gripes Vladimir Efremov, chairman of the Sakhalin parliament.

While the State of Alaska wrangels over taxes, the Legislators need to get an idea of what is taking place in the world markets.

Meanwhile Gazprom still has not picked its partners in the Shtokman field.

MOSCOW, May 2 (UPI) -- Gazprom said Tuesday it will announce partners for development of its Shtokman gas field in the next few days.

Company spokesman Sergei Kupriyanov told Ekho Moskvy radio the process, which was scheduled to end in April, was extended because the five bidding proposals were distinctive and detailed.

"The bids submitted are all very different ... in terms of structure," he said, adding that there were "a large number of points" to each.

The shortlist of companies includes: Norway's Statoil and Norsk Hydro, France's Total, and U.S. giants Chevron and ConocoPhillips.

The Shtokman deposit, off Russia's Arctic coast, holds an estimated 3.2 trillion cubic meters of natural gas and 31 million metric tons of gas condensate, the RIA-Novosti news agency reported.

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