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AFX News Limited: London shares open lower as Shell’s Russian woes add to weak Wall St

EXTRACT: In a note to clients, the broker said the deal is not financially favourable to Shell — Gazprom is not paying the current net present value for its stake in Sakhalin-2.

THE ARTICLE

12.22.06, 3:36 AM ET

LONDON (AFX) – Leading share edged lower at open, mirroring a a weak close on Wall Street, with oil heavyweights under the cosh on news Royal Dutch Shell has cut its stake in Russia’s Sakhalin-2 project, dealers said.

At 8.15 am, the FTSE 100 was down 7.7 points at 6,176.0, with the broader indices mixed.

Shell helped to drag blue chips lower, down 3 pence at 686, on news late yesterday Russian gas monopoly Gazprom is paying nearly 7.5 bln usd to acquire 50 pct plus one share in the 20 bln usd Sakhalin-2 project, which is being developed by a consortium led by the UK oil major.

In response, Credit Suisse cut its price target on Shell to 2,212 pence from 2,273p and reduced its 2008 and 2009 EPS estimates by 2.4 pct and 3.6 pct respectively to 188.6p per share.

In a note to clients, the broker said the deal is not financially favourable to Shell — Gazprom is not paying the current net present value for its stake in Sakhalin-2.

Gazprom is paying 7.4 bln usd for equity in the project Credit Suisse values at around 11 bln, it added.

Under the protocol agreement, Shell will have its 55 pct stake reduced to 27.5 pct with partners Mitsui & Co Ltd and Mitsubishi Corp halving their interests to 12.5 pct and 10 pct respectively.

Meanwhile, Wall Street fell back last night after economic data pointed to weakness in regional manufacturing and a slowing US economy.

The Philadelphia Federal Reserve’s December business index, which gauges regional manufacturing activity, came in at a negative 4.3 compared with a positive reading of 5.1 in November — its weakest showing since 2003.

The DJIA lost 42.62 to 12,421.25, the S&P 500 slipped 5.22 to 1,418.31, and the Nasdaq ended down 11.76 to 2,415.85.

And today US investors will scrutinise a flurry of data including Michigan consumer sentiment and durable goods orders but all these will be released after the London market closes at 12.30pm.

Meanwhile, over in Asia, the Nikkei 225 index closed up 57.13 at 17,104.96 while the Hang Seng was 50.86 higher at 19,273.70 by midday.

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