Business

Gazprom takes over Sakhalin-2

Deal gives Russian gas giant majority stake in joint venture

MOSCOW (Kyodo) Russian gas monopoly Gazprom has taken over the Sakhalin-2 oil and natural gas development project as Japanese trading houses Mitsui & Co. and Mitsubishi Corp. and the Royal Dutch/Shell group of Europe ceded a majority stake in their joint project to the state-affiliated Russian firm.

An agreement on the deal was signed Wednesday by Gazprom Deputy CEO Alexander Medvedev and executives of the three foreign companies in line with a basic accord reached last December.

In Tokyo on Thursday, Mitsubishi Corp. Chairman Mikio Sasaki accepted the signing of the deal, telling reporters he hopes a new framework of cooperation will develop further.

The agreement calls for Gazprom, the world’s largest gas company, to hold a 50 percent stake plus one share in Sakhalin Energy Investment Co. for a cash purchase price of $7.45 billion.

Currently, Sakhalin Energy is owned 55 percent by Royal Dutch/Shell, 25 percent by Mitsui and 20 percent by Mitsubishi.

Medvedev told a news conference following the signing that Gazprom intends to name the new president of Sakhalin Energy, who will succeed Ian Craig, the current president sent from Shell.

Gazprom plans to double projected overall costs for the project through the year 2014 to $19.4 billion from the initially estimated $10 billion. Of the $19.4 billion, $3.6 billion will be supplied by Mitsui, Mitsubishi and the Royal Dutch/Shell group, according to a Russian newspaper.

Sakhalin Energy has already completed 80 percent of the phase 2 construction work of the Sakhalin-2 project. The project began in 1986. Shipments of natural gas to Japan are planned to begin in 2008. Gazprom has expressed willingness to strive for a stable natural gas supply to Japan.

Under the terms of the agreement, Royal Dutch/Shell’s stake will be reduced to 27.5 percent minus one share, while Mitsui’s stake will go down to 12.5 percent and Mitsubishi will be lowered 10.0 percent.

Royal Dutch/Shell, Mitsui and Mitsubishi spent a combined $12 billion, or about 60 percent of their estimated total costs, on the project Gazprom took over.

“More than 60 percent of the products will be shipped to Japan. Japanese customers are requesting a stable supply and the participation by Gazprom will contribute to that end,” Mitsui Executive Vice President Hiroshi Tada told the news conference. The move “will also help strengthen the relations between Japan and Russia.”

The Russian Industry and Energy Ministry and participants in the Sakhalin-2 project “have approved the costs of its second stage at $19.4 billion until 2014,” the ministry said in a statement Wednesday.

Since last fall, the Russian government has been increasing its say over the project, on grounds of environmental concerns, in an alleged attempt to help Gazprom participate in it under favorable terms.

Sakhalin-2 is the largest integrated oil and gas project in the world, with estimated resources of about 4 billion barrels of oil.

The project has a current production capacity equivalent to 80,000 barrels of oil a day. The next phase of development is aimed at raising the production capacity to 170,000 barrels of oil a day and 9.6 million tons per year of liquefied natural gas.

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