News & Media releases

Shell announces Sakhalin II project schedule and cost update

14/07/2005

Register for today's webcast, scheduled to start at 14:30 B.S.T (15:30 C.E.S.T. / 09:30 E.D.T.) Shell previously indicated that the Sakhalin II Phase 2 project faces significant further cost and schedule challenges.

Sakhalin Energy Investment Company (SEIC) provisionally anticipates that Phase 2 project investment costs could be of the order of $20 billion, covering all planned development activity including drilling activity through to 2014, with LNG deliveries starting in the summer of 2008. The SEIC estimates are still work in progress and remain subject to shareholder review and confirmation. SEIC currently has over 75% of its LNG capacity sold under long term contracts and is in negotiation with buyers for the balance of production capacity. The recoverable resource base in Sakhalin II is 17.3 TCF of gas and 1 billion barrels of oil which at SEIC’s indicated revised estimates means a project development cost of some $5 to $6 per barrel of oil equivalent and includes the LNG plant.

The project is midway through construction and will provide critical oil and gas infrastructure to Sakhalin Island. Significant milestones have been achieved at the LNG plant, onshore processing facility and the installation of the first gravity based structure offshore. Pipeline construction continues to make good progress and the second gravity based structure is expected to be installed next month.

The cost and schedule estimates are still under review by SEIC and SEIC shareholders, who are focused on aggressively pursuing mitigation actions.  SEIC will be working closely with Russian authorities and state experts to review revised plans and budgets.

Looking beyond Sakhalin II, Shell’s overall capital investment programme will reflect its recently announced new project opportunities such as Qatar LNG, Nigeria LNG and Libya, as well as market inflation specific to large construction projects and foreign exchange rate movements.  The overall Shell investment programme, including these projects and Sakhalin II, will be subject to review, consideration and approval by its Board later in 2005. The latest estimate for Shell’s 2005 total capital investment, across all its business activities, remains in the order of some $15 billion (excluding the 45% minority share of Sakhalin II held by Mitsui Sakhalin Holdings BV (25%) and Diamond Gas Sakhalin BV - a subsidiary of Mitsubishi Corporation - (20%)).

Malcolm Brinded, Executive Director for Shell’s Exploration and Production business, commented, ‘We are taking immediate action to address these issues - and consulting and discussing with appropriate stakeholders to enable this critical and challenging frontier project to come to an acceptable completion. The Exploration and Production executive team, and the SEIC management, always recognised the massive challenges of this project. We are committed to deliver the project  - and to deliver value to shareholders and to Russia’.

This press release contains forward-looking statements that are subject to risk factors associated with the oil and gas business. It is believed that the expectations reflected in these statements are reasonable, but may be affected by a variety of variables which could cause actual results, trends or reserves replacement to differ materially, including, but not limited to: price fluctuations, actual demand, currency fluctuations, drilling and production results, reserve estimates, loss of market, industry competition, environmental risks, physical risks, the successful negotiation and consummation of transactions, the risk of doing business in certain countries, legislative, fiscal and regulatory developments including potential litigation and regulatory effects, economic and financial market conditions in various countries and regions, political risks, project delay or advancement, approvals and cost estimates.

Please refer to the Annual Report on Form 20-F/A (amendment no. 1) for the year ended December 31, 2004 for a description of certain important factors, risks and uncertainties that may affect the Companies' businesses.  Neither of the Companies undertake any obligation to publicly update or revise any of these forward-looking statements, whether to reflect new information, future events or otherwise.

Cautionary Note to US Investors:
The United States Securities and Exchange Commission (‘SEC’) permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions.  We use the term “recoverable resource” in this release that the SEC’s guidelines strictly prohibit us from including in filings with the SEC.

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