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New York Times: Gazprom to Pay Cash in Deal With Shell

By ANDREW E. KRAMER
December 21, 2006

MOSCOW, Dec. 20 — Gazprom will buy a stake in Royal Dutch Shell’s $22 billion Sakhalin Island energy project for cash, a Russian deputy minister said Wednesday. Shell had considered a swap for another Siberian gas field as payment for a 25 percent share of the Sakhalin 2 project.

Gazprom announced a deal this month, though neither company disclosed the terms or the size of the stake Shell would sell.

If Gazprom offers only cash, it would suggest that relations between Shell and the Kremlin have soured beyond the point where the sides could agree on an offer of a future Russian project to provide a graceful exit for Shell as controlling partner in Sakhalin 2.

A cash settlement could be bad news for Shell, which is struggling internationally to increase its oil and gas reserves. In 2004, Shell’s top executive resigned after the company, based in The Hague, admitted to having overstated the reserves that it presents to stockholders as a measure of potential future output.

Andrei V. Dementyev, a deputy minister of energy and industry, said representatives of the shareholders in the Sakhalin operating company — Shell, Mitsui and Mitsubishi — would meet authorities in Moscow on Thursday or Friday, when a deal is expected.

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