Russ Oil-Gas

04–19–2007 Kommersant – Nearly two-year effort of Russia’s gas monopoly to grab control over Sakhalin-2 has ended in success. Gazprom, Shell, Mitsui and Mitsubishi have inked a purchase and sale agreement for stocks of Sakhalin Energy. The deal was expected to be clinched Monday but was delayed by the Russian bureaucrats opposing extending the project budget to the detriment of the state one. The sources said Industry and Energy Ministry didn't surrender completely. It sanctioned the budget growth to $19.4 billion but refused to compensate $3.6 billion to participants. Gazprom Deputy Chief Executive Alexander Medvedev, head of Shell in Russia Chris Finlayson, Mitsui Vice President Hiroshi Tada and Mitsubishi Senior Executive Hisonori Yoshimura signed a deal in Moscow April 18, authorizing Gazprom to take 50 percent plus a stock in the Sakhalin-2 oil and gas project formally led by Royal Dutch Shell until very recently. Shell’s stake narrows from 50 percent to 27.5 percent, Mitsui sinks from 25 percent to 12.5 percent and Mitsubishi has to confine to 10 percent instead of 25 percent. In the next move, Gazprom will promote two executives to Sakhalin Energy, which will be taken over by a representative of Russian monopoly in 2008 once the contract of Ian Craig expires and a liquefied gas works is put into operation. The deal was expected to be clinched on Monday but was delayed on the need to settle environmental claims and agree on the project budget, Medvedev said. A few sources close to Gazprom, Shell and Industry and Energy Ministry explained that the state and the holders finally agreed to step up the budget to $19.4 billion till 2014 (the figure has been officially confirmed by Industry and Energy Ministry) in line with the actual desire of private holders. But the budget extension coupled with pro-rata growth in amount of state compensation will delay the revenues flow to government's budget. The sources said it was decided against adding $3.6 billion to the budget costs to be indemnified by the state. So, the amount paid by Gazprom to control Sakhalin-2 ($7.45 billion) may go up. At the same time, the chances that $3.6 billion will be for account of previous participants exclusively are very strong.