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Repercussions for Shell from the loss of its majority stake in Sakhalin-2

By John Donovan

We now have the information on which The Observers appears to have based its calculation of a loss by Shell of 1.1 billion boe reserves resulting from the Gazprom take over of Shell’s majority stake in the Sakhalin-2 project. 

SOME EXTRACTS FROM THE SHELL 2007 ANNUAL REPORT PUBLISHED TODAY (pages 17 & 18)

On April 18, 2007, Royal Dutch Shell completed the divestment to OAO Gazprom of 50% of its shares in Sakhalin Energy Investment Company Ltd (SEIC), representing 27.5% of the total outstanding shares, for a sales price of $4.1 billion. Gazprom acquired a 50% interest plus one share, while Shell retains a 27.5% interest, with Mitsui and Mitsubishi holding a 12.5% and 10% interest, respectively. In addition, the Ministry of Natural Resources of the Russian Federation announced its approval of the revised Environmental Action Plan. Additional agreements were also signed with the Russian government, addressing the economic balance of the project.

These portfolio actions had the following impact on Shell’s reserves. As a result of the Sakhalin II divestment, minority interests were reduced by 658 million boe and 402 million boe of proved reserves were transferred from Shell subsidiaries to the Shell share of equity-accounted investments.

From Page 23

In addition, earnings were impacted by our reduced share in the profits from the Sakhalin II project, as a consequence of the partial divestment in the second quarter 2007.

From Page 27…

In April 2007, Shell along with its partners, completed the divestment to OAO Gazprom of a 50% interest (plus one share) in the Sakhalin II project in Russia. Royal Dutch Shell diluted its stake in the project from 55% to 27.5%. As a result of this divestment, proved developed and undeveloped reserves associated with minority interests reduced by a total of 658 million boe and 402 million boe of proved developed and undeveloped reserves were moved from Shell subsidiaries to equity-accounted investments.

 

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