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Russia okays Shell’s 2006 $2 bln Sakhalin budget

The $2 billion 2006 budget for the Shell-led Sakhalin Energy project in Russia's Far East has been approved by the project's oversight committee, the Russian Energy Ministry said on Thursday.

Sakhalin Energy operates the Sakhalin-2 field on the Russian island of Sakhalin off Russia's Pacific coast. It is Russia's biggest foreign investment project and the world's largest liquefied natural gas development.

The project is a production sharing agreement (PSA), so delays and overspends affect government revenues from it.

Sakhalin Energy's longer-term budget is still subject to negotiation with the Russian government after the firm doubled its estimate of total costs last year to $20 billion.

But the 2006 budget approval is a positive sign for Shell after criticism a week ago from the Natural Resources Ministry, which gave its backing to a report that recommended turning Sakhalin Energy and two other PSAs over to Russian owners.

Royal Dutch Shell has 55 percent of Sakhalin Energy. The other shareholders are Japan's Mitsui and Mitsubishi .

Russia's gas giant Gazprom has signed a memorandum of understanding to take a 25 percent stake in an asset swap with Shell, but last year's cost hike has put that deal on hold.

© Reuters

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