Gazprom Eyeing Stake in Sakhalin-2

Dow Jones Newswires

MOSCOW, Nov 7, 2006 (Dow Jones Newswires)

Alexander Medvedev, deputy chief executive of Russian natural gas monopoly Gazprom OAO (GSPBEX.RS) Tuesday confirmed the company was interested in participating in the Sakhalin-2 oil and gas project, news agency Prime Tass reported Tuesday.

Gazprom will resume its talks on securing a stake in the project once all problems arising from a proposed increase in the project's spending and claims from environmental authorities have been settled, Medvedev said.

Russian authorities have accused Sakhalin Energy, the project's operator, of violating Russia's environmental laws during the construction of facilities for the Sakhalin-2 project and threatened to stop parts of the project. They also criticized Sakhalin Energy's proposal to increase the project's spending, which would reduce the Russian government's profit from the project. Under the production sharing agreement that regulates the development of the Sakhalin-2 fields, the Russian government is expected to compensate for Sakhalin Energy's costs by giving the company part of its share of oil until the project breaks even.

The government plans to make a final decision on the future of the Sakhalin-2 project sometime in the second half of November, Natural Resources Minister Yury Trutnev said last week.

The shareholders of the Sakhalin-2 project are Shell Sakhalin Holdings BV, a subsidiary of Royal Dutch/Shell (RDSA), with a 55% stake; Mitsui Sakhalin Holdings, a subsidiary of Japan's Mitsui & Co. Ltd. (MITSY), with a 25% stake, and Diamond Gas Sakhalin, a subsidiary of Japan's Mitsubishi Co. Ltd. (5820.JA), with a 20% stake.

The Sakhalin-2 project area is located near Sakhalin Island and has oil reserves of 150 million metric tons and gas reserves of 500 billion cubic meters.

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