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Shell to pay Russia ?50m dividend for Sakhalin

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Shell is being forced to pay the Russian Government an annual dividend of about $100 million (?50 million) to keep its stake in the lucrative Sakhalin II offshore project.

The Anglo-Dutch group and its partners admitted yesterday they had agreed to "minor adjustments to the fiscal terms" of the project. The change was pushed through last week when Shell formally handed over a majority stake in Sakhalin II to Gazprom, the Kremlin-controlled gas group.

Analysts said that although the sum would not be material to Shell, it was yet another sign of the Kremlin's power over Western energy firms desperate to find and exploit new oil and gas reserves.

Peter Hitchens, analyst for Teather & Greenwood, said: "I don't think Shell is happy, but it has no choice. It is stuck between a rock and a hard place."

The "priority dividend" comes after months of wrangling over cost overruns on the Sakhalin II project, which have infuriated the Kremlin. Two years ago Shell doubled the cost estimates for the field to $20 billion and said gas might not be produced until 2008, delaying the first revenue for the Russian authorities.

Industry experts said that the "priority dividend" was effectively a way in which the Russian authorities could change the terms of the production-sharing agreement on Sakhalin II and take more revenue without a formal revision.

Sources in Russia initially said that the dividend could cost all the partners nearly $1 billion a year, but experts in the UK said that the total was nearer to "a few hundred million". This would hand Shell a bill of about $100 million.

A Shell spokesman said: "Whilst keeping the production share agreement intact the minor adjustments have given the Russian Federal Government more access to revenues when oil and gas prices are high."

Alongside Gazprom and Shell, Japan's Mitsui and Mit-subishi both own a 12.5 per cent stake in the project.

© The Times

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