Shell, Marathon sign Sakhalin swap agreement

Royal Dutch/Shell Group subsidiary Shell Sakhalin Holdings has agreed to acquire Marathon Sakhalin Ltd. a 37.5% interest in Sakhalin Energy Investment Co. in exchange for Shell's 28% interest in the Foinaven field off the Shetland Islands in the UK.

Shell Sakhalin Holdings BV said Friday it's swapping its 28% interest in the BP-operated Foinaven field to acquire from Marathon Sakhalin Ltd. a 37.5% interest in Sakhalin Energy Investment Co. Ltd, which operates the Sakhalin project off Russia.

Shell already holds a 25% interest in Sakhalin Energy. The agreement implements the letter of intent signed June 1 (OGJ Online, June 7, 2000). The agreement and actual hand-over of operations are scheduled to take place in December, pending approval of the UK Department of Trade and Industry.

Foinaven is located in the Atlantic Margin west of the UK's Shetland Islands.

The interest also includes Shell UK's interest in discoveries and prospects adjacent to the Foinaven field, and a 3.5% overriding royalty, payable from Shell's working interest, on the production from an eight-block area in the Gulf of Mexico. That gulf area includes the producing Ursa field and the recently announced Princess discovery.

In addition, Marathon will be reimbursed for expenditures on the Sakhalin project for the year 2000.

Other Sakhalin Energy shareholders�Mitsui & Co. Ltd., Mitsui Sakhalin Holdings BV, which holds a 25% interest, and Mitsubishi Corp. Diamond Gas Sakhalin BV, 12.5%�also have agreed to the contents of a revised shareholder agreement. Under that agreement, Sakhalin Energy would become an integrated project operator. Shell will provide both upstream and LNG services to the venture.

Sakhalin Energy was established in April 1994 to carry out the implementation and development of the Sakhalin II project, Russia's first project to be realized under the terms of a production sharing agreement. The project covers two fields, Piltun-Astokhskoye, primarily an oil field, and Lunskoye, a field containing mostly gas.

Under the agreement, entered into by the Sakhalin Oblast, the Russian Federation and Sakhalin Energy in 1994, direct investment in the project will amount to about $10 billion. First oil was produced in July 1999, from the Piltun-Astokhskoye field, with the first export of crude in September 1999. The project will now move to gas field development and LNG plant construction phase, once gas sales agreements are in place.

Marathon Sakhalin Ltd. is a subsidiary of Marathon Oil Co., which is part of the USX-Marathon Group.

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