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Financial Times: Gazprom to pay $7.45bn to control Sakhalin-2

By Arkady Ostrovsky in Moscow
Published: December 22 2006 02:00 | Last updated: December 22 2006 02:00

Gazprom, Russia’s state-backed gas group, yesterday agreed to pay $7.45bn for majority control in Sakhalin-2, the $20bn oil and gas project led by Royal Dutch Shell, cementing the Kremlin’s grip on the country’s energy resources and ending months of pressure on foreign investors.

Shell, which owned 55 per cent of the project, and its two Japanese partners – Mitsui and Mitsubishi – agreed to halve their stakes to put Gazprom in charge and unblock the project, almost stalled by Russian authorities.

The price paid by Gazprom for its control – 50 per cent plus one share – exceeded analysts’ expectations. “It is a fair price and it should reduce the shouting about expropriation [of assets],” said Al Breach, chief strategist at UBS Russia.

Shell will remain the operator of the project, under which offshore oil and gas is brought onshore and pumped through twin pipelines across the length of Sakhalin island to an oil terminal and Russia’s first liquefied natural gas plant.

Three governments helped negotiate the highly politicised deal – the UK, the Netherlands and Japan – which was sealed by Vladimir Putin, Russia’s president. It follows months of threats by Russian officials to withdraw licences from Shell on environmental grounds. In return for the majority holding in Sakhalin, Russia approved an increased budget for the project of $20bn and effectively dropped its environmental complaints.

Mr Putin said: “I am very pleased that our environmental agencies and our investors have agreed about the resolution of the questions which have arisen.” He thanked foreign companies for their “flexibility in the course of negotiations”.

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