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Reuters: UPDATE 2-Mitsui,M’bishi eye cash for Sakhalin-2-sources

Mon Dec 18, 2006 12:52am ET
By Mayumi Negishi

TOKYO, Dec 18 (Reuters) – Japan’s Mitsui & Co. Ltd. (8031.T: Quote, NEWS , Research) and Mitsubishi Corp. (8058.T: Quote, NEWS , Research) are seeking cash from Russia’s state gas monopoly Gazprom (GAZP.MM: Quote, Profile , Research) in exchange for part of their stakes in the $22 billion Sakhalin-2 project, sources close to the talks said on Monday.

The two Japanese partners, who together hold a 45 percent stake in Sakhalin-2, are in talks with majority stake holder Royal Dutch Shell (RDSa.L: Quote, Profile , Research) about ceding control of the world’s biggest LNG project to Russian ownership, the sources said.

“We’re not all that sure we want a stake elsewhere,” an industry source said about exchanging shares in the Sakhalin-2 project for assets in other projects in Russia.

The Japanese stakeholders are also demanding a guarantee that Gazprom will deliver a steady supply of gas to Japanese electricity and gas companies, another source said.

Mitsui President Shoei Utsuda and Mitsubishi President Yorihiko Kojima met with Shell CEO Jeroen van der Veer in Moscow and Russian officials over the weekend to discuss the project, due to come onstream in 2008 and supply 9.6 million tonnes per year of gas to Japan, South Korea and North America.

Resource-poor Japan has been promised over half that supply. 

Talks now hinge on how to value the project, the sources said, with Shell and Gazprom expected to reach an agreement within the week.

Spokesmen from Mitsui and Mitsubishi both said they could not disclose the details of the talks. Mitsui added that the talks were progressing constructively.

The operating company Sakhalin Energy is 55 percent-owned by Shell, with a Mitsui subsidiary holding a 25 percent stake and a Mitsubishi unit holding 20 percent.

Negotiations on the Sakhalin project turned bitter after Shell doubled its cost estimate for Sakhalin-2 last year, angering the Russian government, which will have to wait longer for royalties from the project.

The project has since been under attack from threats of sanctions, withdrawal of permits and damages claims.

Mitsui shares rose 2.7 percent at 1,730 yen at 0526 GMT, while Mitsubishi rose 1.3 percent to 2,275 yen, both outperforming the benchmark Nikkei average < .N225>, which rose 0.25 percent. (Additional reporting by Osamu Tsukimori)

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