Shell has confirmed speculation that projected costs for its major Russian oil and gas procurement project in Sakhalin have increased significantly, while the schedule for first production has also been pushed back.
Anglo/Dutch energy titan Shell has again been hit with bad news. Following last year’s reserve estimate debacle and news just days ago of a multi million dollar out of court settlement with a group of employees, Shell has now been forced to admit that the cost of its Sakhalin project has doubled from original forecasts to $20 billion.
Shell, which has also put back its schedule for first deliveries of liquefied natural gas from Sakhalin II by over six months from November 2007 to the summer of 2008, blamed currency changes, increased commodity costs and construction complications as the reasons for the hike in the bill for the project.
The recoverable resource base in Sakhalin II is 17.3 trillion cubic feet of gas and 1 billion barrels of oil which at the revised estimates means a project development cost of some $5 to $6 per barrel of oil equivalent.