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Friday, April 17, 2009

Russia's Sakhalin-1 2009 budget totals $2 bln

April 16, 2009 - (Reuters by Vladimir Soldatkin) - MOSCOW, A group led by U.S. energy giant ExxonMobil (XOM.N) will invest about $2 billion into Russia's Sakhalin-1 oil and gas project this year, the Sakhalin regional government said on Thursday. Russia approved the Sakhalin-1 budget last week after a prolonged delay which analysts linked to disagreements between Exxon and Russian state gas monopoly Gazprom (GAZP.MM) over the sale of Sakhalin gas. Gazprom has long said it needs the gas produced at Sakahlin-1 to cover domestic needs, while Exxon plans to export the fuel to China. The Sakhalin regional government announced the approved budget figure in a statement on Thursday. "The governor... has pointed out several important details: additional spending for 2008 was approved at $480 million and 2009 spending at about $2 billion," it said. A source close to the commission made up of government and company officials that had reviewed the budget told Reuters the exact figure for 2009 was $1.978 billion. Extra spending for 2008 was approved at $404 million, lower than the $627 million Exxon had asked for, the source said. Exxon operates the $12 billion project along with Russian state oil firm Rosneft (ROSN.MM), Japan's Itochu (8001.T), Marubeni (8002.T), Japan National Oil and India's ONGC. Exxon had threatened to suspend the future phases of Sakhalin-1 during the bitter budget standoff. But analysts say the financial crisis and a fall in global gas demand might have made the issue less acute. Sakhalin-1 works under a production sharing agreement (PSA), which gives investors tax stability but makes it subject to special regulations. Any increase in spending delays and reduces the government's income from the project. The project has been producing oil for several years and reached peak production of 11.2 million tonnes in 2007. It has been producing gas since 2005 and shipping small volumes to continental Russia. It signed a separate deal to supply China with 8 billion cubic metres of gas a year and hoped to start supplies next decade. Gazprom, the world's largest gas producer, itself has a rival plan to supply China from East Siberia via two links. It wants to buy gas from Sakhalin-1 at market prices but talks have been stalled for over a year due to a price disagreement. Gazprom co-leads Sakhalin-2, a neighbouring project from Sakhalin-1, and liquefies all of the gas produced there.

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