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Daily Telegraph: Shell seeks to wrap up sale of stake in Russia’s Sakhalin field

By Russell Hotten
Last Updated: 12:38am GMT 21/12/2006

The chief executive of Royal Dutch Shell is due to meet Russia’s energy minister today in an attempt to conclude the sale of a stake in the company’s Sakhalin-2 oilfield to Gazprom. An agreement, expected to be announced imminently, will involve Shell relinquishing majority control in the $20bn (£10.2bn) Sakhalin project in return for cash. However, Shell is unlikely to receive much-needed assets as part of a deal.

Shell boss Jeroen van der Veer is flying to Moscow for his third meeting in three weeks with energy minister Viktor Khristenko and Gazprom’s chief executive, Alexei Miller. Shell, which owns 55pc of Sakhalin-2, is expected to give up about 30pc. The company’s two Japanese partners, Mitsui and Mitsubishi, are each to give up about 10pc.

The companies’ joint venture, Sakhalin Energy, has been under pressure to cede majority control in the world’s biggest liquefied natural gas development to state-owned Gazprom.

Although Shell will get cash compensation, analysts said the company needed assets, not money. “Shell has a poor reserves replacement record,” said one. “It needs oil and gas assets, and it looks like these will not be part of any deal.”

When Gazprom started negotiating for a 25pc stake in Sakhalin last year, Shell was to get part of the Zapolyarnoye field. This offer is now off the table, say sources.

Moscow is thought to have been angered when Shell doubled the investment cost of developing Sakhalin to $20bn. This pushed back the date when Moscow was due to receive revenues because Sakhalin first had to cover their investments.

Shell is estimated to have invested between $5bn and $8bn in Sakhalin so far. The company may get some sort of guarantee about working with Gazprom on any future development projects as part of the deal.

Gazprom declined to comment and Shell did not return telephone calls.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/12/21/cnshell21.xml

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