Reuters: Royal Dutch/Gazprom in Sakhalin-2 asset swap

Reuters: Royal Dutch/Gazprom in Sakhalin-2 asset swap

“Anglo-Dutch energy giant Royal Dutch/Shell signed on Thursday an asset swap deal with Russia’s Gazprom under which Shell will give up part of one of its most valuable oil and gas projects.”

Thursday July 7, 2005

AMSTERDAM (Reuters) – Anglo-Dutch energy giant Royal Dutch/Shell signed on Thursday an asset swap deal with Russia’s Gazprom under which Shell will give up part of one of its most valuable oil and gas projects.

Reuters reported on Wednesday that industry sources said the deal would be announced today.

In a statement Shell said Gazprom will acquire up to 25 percent plus one share in Sakhalin-2, the world’s largest liquified natural gas project, while Shell will obtain a 50 percent stake in the Zapolyarnoye Neocomian field.

The difference in value will be compensated for through a package of cash and other assets. The deal is scheduled to be finalised in 2006.

Zapolyarnoye is a field in West Siberia which produces 100 billion cubic metres of gas a year.

The memorandum was signed in London by Shell’s Chief Executive Jeroen van der Veer and Gazprom’s head Alexey Miller.

Shell, which is recovering from a reserves overstatement scandal, owns 55 percent of Sakhalin-2. Japanese trading houses Mitsui & Co. and Mitsubishi Corp. own 25 percent and 20 percent, respectively.

Involvement in Sakhalin-2 will help Gazprom gain much-desired experience in LNG. LNG is gas supercooled to liquid form so that it can be transported by ships when the distances are too long for pipelines to be economical.

LNG is expected to play an increasing role in world energy supply, and Gazprom sees it as a method by which it can monetise more of its huge gas resources.

MAXIMISING LONG TERM VALUE

“We welcome Gazprom as a great Russian partner in the Sakhalin-2 project and are confident Gazprom will make significant contributions towards maximising the long term value of the project,” Van der Veer was quotes as saying.

“The document signed today opens the way for Gazprom to become in the nearest future a large shareholder of a fast growing project for hydrocarbons development, LNG production and sale to strategic markets in North America and Asia-Pacific Region,” said Miller after the signing ceremony.

Industry sources said recently Gazprom probably needed the technical expertise of an international oil company to extract the lower deposits in the Zapolyarnoye field, suggesting it was getting the better part of the bargain.

However, analysts noted the transaction could be sweetened by Shell receiving good terms in respect to extracting hydrocarbons from Zapolyarnoye, and some rebate from Gazprom in respect to the capital it has already invested in Sakhalin-2.

Last month the European Bank for Reconstruction and Development said it had delayed approval of a financing package for Sakhalin-2 due to environmental concerns.

Also in June Alexander Medvedev, head of Gazprom’s export unit, said the company was considering buying Russian state oil firm Rosneft’s stakes in the Sakhalin-1 project and may join the Sakhalin-3 project.

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