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The Times: Gazprom secures Sakhalin control in £3.8bn deal

December 22, 2006
Carl Mortished, International Business Editor
Gazprom has gained control of Russia’s largest energy project with an agreement to buy from Royal Dutch Shell and its Japanese partners, Mitsui and Mitsubishi, half of the Sakhalin-2 liquefied natural gas project for £3.8 billion.

After 17 months of negotiation in an increasingly hostile political environment, Shell has consented to Gazprom taking control “as a leading shareholder” in Sakhalin Energy, a transaction that will force Shell to make a downward adjustment to its proven gas reserves. 
The agreement, which gives Gazprom 50 per cent plus one share in Sakhalin Energy, has the effect of scrapping an asset-swap deal negotiated last year that offered Shell a new opportunity in a half share of Zapolyarnoye, another Siberian gasfield. It also ends a fraught political battle fought by the Kremlin to regain control over a valuable oil and gas asset given to Shell in the early 1990s.

Instead of the asset swap, which would have secured reserves for Shell, yesterday’s protocol states that Gazprom and Shell will enter into an Area of Mutual Interest arrangement covering future exploration opportunities on Sakhalin island.

A Shell spokesman yesterday confirmed that the deal would have implications for Shell’s reserves, requiring a downward adjustment to reflect loss of half its share of Sakhalin barrels.

Separately, the Kremlin yesterday approved Shell’s budget for Sakhalin and reaffirmed support for the production-sharing agreement that governs the project, two items of contention that stymied progress in securing a deal with Gazprom. Shell said yesterday that the project’s budget remained $20 billion, in line with its estimate in July last year.

Highlighting the importance of the deal to the Kremlin, President Putin was present for the signing of the Sakhalin protocol yesterday by Jeroen van der Veer, Shell’s chief executive, and Alexei Miller, the Gazprom chief.

Although the Sakhalin Energy company remains operator of the project, it appears that Shell’s role will be downgraded. “Gazprom will play a leading role as majority shareholder while Shell will continue to significantly contribute to [its] management and remain as a technical adviser,” the parties said.,,13130-2515341.html and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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