December 21st, 2006:

Friday, December 22, 2006. Issue 3567. Page 1.
By Miriam Elder
Staff Writer

Shell and its Japanese partners agreed on Thursday to sell a controlling stake in Sakhalin-2 to Gazprom for $7.45 billion, ending an era in which foreign energy companies were able to pursue huge projects without Russian partners.

The deal marks a big blow to Shell and is a powerful reaffirmation of the way business now takes place in Russia. According to the rules of the game, all major natural resource deals must now include a domestic firm with close ties to the Kremlin. read more

By Ed Crooks and Arkady Ostrovsky
Published: December 21 2006 22:34 | Last updated: December 21 2006 22:34

As he heads home from chilly Moscow, Jeroen van der Veer, Royal Dutch Shell’s chief executive, can reflect ruefully that things might have been worse.

He is coming away with $4.1bn (£2.1bn) in cash, a 27.5 per cent stake in an important project that now seems likely to proceed without much further trouble, and the consoling prospect that once the wounds have healed, he may be able to develop profitable opportunities in Russia. read more

21.12.2006, 20.10 
 
MOSCOW, December 21 (Itar-Tass) – Russian President Vladimir Putin said on Thursday that ecological problems on the Sakhalin-2 project were as good as settled.

“I am very glad that Russia’s ecological departments and investors have agreed on the order of solving problems,” the president said at a meeting with leaders of energy companies.

“I know that you will have one more meeting at the Russian Ministry for Natural Resources, but issues of principal importance are already as good as settled, while approaches to their solution – coordinated,” the president added. read more

By CHIP CUMMINS in London and GUY CHAZAN in Moscow
December 21, 2006 1:58 p.m.

Royal Dutch Shell PLC’s decision to relinquish control of a massive oil and natural-gas project on the far eastern Russian island of Sakhalin significantly crimps the Anglo-Dutch oil giant’s future production and reserve-replacement prospects.

But it also solidifies Kremlin support for the project, removing short-term questions over its timing and greatly improving Shell’s longer-term chances of remaining a big player in Russia. read more

By Lucian Kim and Torrey Clark

Dec. 21 (Bloomberg) — OAO Gazprom agreed to buy 50 percent plus one share of Royal Dutch Shell Plc’s Sakhalin-2 oil and natural-gas project for $7.45 billion, handing President Vladimir Putin another victory in his campaign to control Russia’s energy industry.

Shell, Mitsui Co. and Mitsubishi Corp. will each sell half of their stakes in the project to Moscow-based Gazprom, Shell and Gazprom said in a joint statement today. Shell, based in the Hague, and its partners have invested $12 billion in the venture, Russia’s first project to produce liquefied natural gas. read more

By Lucian Kim and Torrey Clark

Dec. 21 (Bloomberg) — OAO Gazprom agreed to buy 50 percent plus one share in Royal Dutch Shell Plc’s Sakhalin-2 oil and gas project for $7.45 billion, cementing President Vladimir Putin’s control over Russia’s energy industry.

Shell, Mitsui Co. and Mitsubishi Corp. will each sell half of their stakes in the project to Gazprom, Shell said in a statement today. The partners have invested about $12 billion in the venture. Shell’s stake will fall to 27.5 percent, with Mitsubishi retaining a 12.5 percent holding and Mitsui holding 10 percent. read more

State-owned Russian energy giant Gazprom has wrested control of a massive oil and gas field from Anglo-Dutch rival Shell.

Gazprom will pay $7.5bn (£3.8bn) for a 50%-plus-one-share stake in the Sakhalin-2 project after Shell was accused of breaking environmental laws.

The deal was signed by President Vladimir Putin and top executives from Royal Dutch Shell and Gazprom.

Analysts said the deal was better than expected for Shell.

Shell and Japanese companies Mitsui and Mitsubishi will see their stakes in the $22bn project on the Pacific island halved. read more

LONDON, December 21 /PRNewswire-FirstCall/ — On December 21, 2006 OAO
Gazprom (Gazprom), Royal Dutch Shell plc (NYSE: RDS.A , NYSE: RDS.B)
(Shell), Mitsui &Co., Ltd (Mitsui) and Mitsubishi Corporation (Mitsubishi) have signed a protocol to bring Gazprom into the Sakhalin Energy Investment Company Ltd. (SEIC) as a leading shareholder.

Under the terms of the protocol, Gazprom will acquire a 50% stake plus one share in SEIC for a total cash purchase price of $7.45 billion. The current SEIC partners will each dilute their stakes by 50% to accommodate this transaction, with a proportionate share of the purchase price. Shell will retain a 27.5% stake, with Mitsui and Mitsubishi holding 12.5% and 10% stakes, respectively. read more

December 21, 2006
From Agencies
 
Gazprom, the Russian state-owned gas giant, will 50 per cent plus one share in the Sakhalin-2 oil and gas project from Royal Dutch Shell, Mitsui and Mitsubishi, for $7.45 billion (£3.8bn).
 
The move means that Gazprom, world’s largest gas producer, becomes the leader of the $22 billion project while Shell, Mitsui and Mitsubishi will each dilute their stakes. Shell, the former head of the project, will be left with a 27.5 per cent holding.

The news followed the publication of first-half figures from Gazprom, which revealed a 116 per cent rise in net profit in the first half of 2006 on the back of greater sales and higher gas export prices. read more

Published Thursday December 21 2006

MOSCOW (AP) – Russian state-controlled natural gas giant OAO Gazprom will take a 50 percent-plus-one share stake in the Shell-operated Sakhalin-2 energy project for $7.45 billion, a Shell spokesman said.

Royal Dutch Shell PLC spokesman Maxim Shoop said the deal was signed at a Kremlin meeting between President Vladimir Putin and top executives from Shell and Gazprom along with officials from the project’s Japanese shareholders.

The deal came after months of mounting pressure from Russian regulators on the $22 billion liquefied natural gas project on the Pacific island of Sakhalin – Russia’s largest single foreign investment.
read more

WORLD EXCLUSIVE

Click on link below to view series of photographs graphically showing the extensive damage caused by a bombing attack in the Shell compound at Port Harcourt in Nigeria by terrorists…

Bombing attack at Shell Compound in Port Harcourt Nigeria

By Lucian Kim

Dec. 21 (Bloomberg) — OAO Gazprom and Royal Dutch Shell Plc will meet with Russia’s Natural Resources Ministry today to discuss environmental problems at Shell’s Sakhalin-2 oil and gas project, in which Gazprom is seeking a stake.

The meeting with Natural Resources Minister Yury Trutnev will take place at 7:30 p.m. in Moscow, the ministry said in an e-mailed statement.

The companies are in talks to give Gazprom a stake in the project, the only major oil and gas project in the country with no Russian partners. The Natural Resources Ministry has hounded Shell for environmental problems at the project since the summer. read more

21 Dec 2006 10:41:54 GMT

Background: Nigeria violence

Dec 21 (Reuters) – Royal Dutch Shell began evacuating hundreds of expatriate staff dependants on Thursday after militants planted a car bomb in a residential compound, the company said.

Following is a chronology of some major attacks on the Nigerian oil industry in the last three months.

— Aug. 3 – German Guido Schiffarth, an employee of Bilfinger and Berger, kidnapped in Port Harcourt, is released on Aug. 19.

— Aug. 4 – Gunmen abduct three Filipino oil workers from a bus near Port Harcourt. They are released 10 days later. read more

POSTED: 4:49 a.m. EST, December 21, 2006

LAGOS, Nigeria (Reuters) — The largest oil operator in Nigeria, Royal Dutch Shell, began evacuating hundreds of expatriate staff dependants from the Niger Delta on Thursday after militants planted a car bomb in a residential compound, the company said.

The withdrawal began hours after armed militants stormed an oil facility operated by France’s Total in the delta’s Rivers state, killing three people, police said.

Shell’s pullout involves about 400 foreign family members from residential compounds in Port Harcourt, Warri and Bonny Island. Staff will stay put and oil and gas production will not be affected, officials said. read more

Militants in Nigeria’s oil-rich Niger Delta region have attacked a pumping station, killing three security guards.

A spokesman for the oil giant Total says the station, which produces some 35,000 barrels of oil a day, has shut.

Meanwhile, Shell is evacuating its family staff members after a car bomb on Monday exploded inside a residential compound in the city of Port Harcourt.

Both militants and local criminals have attacked oil facilities and kidnapped oil workers to obtain ransom money. read more

By REUTERS
Published: December 21, 2006
Filed at 5:41 a.m. ET

LAGOS (Reuters) – The largest oil operator in Nigeria, Royal Dutch Shell, evacuated expatriate staff dependants from the Niger Delta on Thursday after militants planted a car bomb in a residential compound, the company said.

The withdrawal began hours after armed militants stormed an oil facility operated by France’s Total in the delta’s Rivers state, killing three police officers.

Shell’s pullout involves about 400 foreign family members from residential compounds in Port Harcourt, Warri and Bonny Island. Staff will stay put and oil and gas production will not be affected, officials said. read more

By Kim Zigfeld

RIA Novosti recently reported that from January through September of this year Russia received about $17.4 billion in foreign direct investment (FDI) and slightly more, about $17.9 billion, in the form of international financial organizations’ loans and trade credits.

At about $2 billion per month, we can project that Russia will have no more than $24 billion in FDI by year’s end. Russia is a nation of about 140 million people. That means that Russia has an annual per capita FDI of roughly $170 per person. read more

Last Updated: 12:39am GMT 21/12/2006

A round-up of headlines from across the financial sectors, provided by Bloomberg News

ENERGY

• British Energy delayed the restart of four reactors by more than two months for further repairs.

• BP is considering creating the post of chief operating officer to ease the transition for a successor to Chief Executive Officer John Browne, a spokesman said.

• The government will announce plans next year to develop 17pc of the oil and gas reserves in the North Sea west of Shetland, in a bid to curb reliance on imports. read more

By Russell Hotten
Last Updated: 12:38am GMT 21/12/2006

The chief executive of Royal Dutch Shell is due to meet Russia’s energy minister today in an attempt to conclude the sale of a stake in the company’s Sakhalin-2 oilfield to Gazprom. An agreement, expected to be announced imminently, will involve Shell relinquishing majority control in the $20bn (£10.2bn) Sakhalin project in return for cash. However, Shell is unlikely to receive much-needed assets as part of a deal.

Shell boss Jeroen van der Veer is flying to Moscow for his third meeting in three weeks with energy minister Viktor Khristenko and Gazprom’s chief executive, Alexei Miller. Shell, which owns 55pc of Sakhalin-2, is expected to give up about 30pc. The company’s two Japanese partners, Mitsui and Mitsubishi, are each to give up about 10pc. read more

12.21.06, 2:08 AM ET
 
LONDON (AFX) – Royal Dutch Shell PLC is due to meet Russia’s energy minister today to try to conclude the sale of a stake in the 20 bln usd Russian gas project Sakhalin-2, The Times and Daily Telegraph reported.

The agreement is expected to see Shell relinquish control for cash, which would be disappointing for the British oil group, which needs to bolster its reserves.

[email protected]

ab/vb

Copyright AFX News Limited 2006. All rights reserved.

By ANDREW E. KRAMER
December 21, 2006

MOSCOW, Dec. 20 — Gazprom will buy a stake in Royal Dutch Shell’s $22 billion Sakhalin Island energy project for cash, a Russian deputy minister said Wednesday. Shell had considered a swap for another Siberian gas field as payment for a 25 percent share of the Sakhalin 2 project.

Gazprom announced a deal this month, though neither company disclosed the terms or the size of the stake Shell would sell.

If Gazprom offers only cash, it would suggest that relations between Shell and the Kremlin have soured beyond the point where the sides could agree on an offer of a future Russian project to provide a graceful exit for Shell as controlling partner in Sakhalin 2. read more

21 Dec 2006 08:08:15 GMT

More  LAGOS, Dec 21 (Reuters) – The largest oil operator in Nigeria, Royal Dutch Shell , began evacuating all staff dependants from the Niger Delta on Thursday after militants planted a car bomb in a residential compound, industry sources said.

The evacuation involves about 400 family members from company compounds in Port Harcourt, Warri and Bonny Island, but staff will stay put and oil and gas production will not be affected, the sources said.

Violence and corruption plague a vast nation read more

December 21, 2006
Carl Mortished, International Business Editor
 
Royal Dutch Shell faces a potential loss of oil and gas reserves from the cash sale to Gazprom of a stake in the Sakhalin-2 gas project.

Viktor Khristenko, the Industry and Energy Minister, is due to meet Shell today or tomorrow to discuss a cash transaction, Andrei Dementyev, Russia’s deputy industry and energy minister, said. 
 
A cash deal would be a disappointment for Shell, analysts suggested, because it is cash rich but opportunity poor. The vast reserves in the Sakhalin-2 project represented a significant boost to its portfolio. read more

EXTRACT: Once a problem has erupted, it is often the legal response that determines whether and how quickly a company recovers, as in the skillfully handled crises at Tyco, Marsh & McLennan, Royal Dutch Shell and others.

By BRUNO COVA and LEIGH DANCE
December 20, 2006

The short-term risk most likely to influence a company’s future today is legal risk and its consequences. Just look at the crises that hit ABB in 2003, Marsh & McLennan in 2004 or Hewlett Packard late this year. Several factors are driving legal risks to the forefront: aggressive development and enforcement of regulations in the U.S. and Europe; more cooperation and communication among regulatory authorities world-wide; and a public and media happy to punish companies that appear to “misbehave” or break their promises. read more

Crude-oil futures rose to nearly $64 a barrel on the New York Mercantile Exchange after the Energy Department reported a fourth-weekly decline in U.S. crude supplies, but price gains were capped as traders factored in the first distillate-inventory climb in 11 weeks and the first gasoline supply rise in four weeks.

Here is Wednesday’s roundup of oil and energy news:

* * *
DEFENDING THE KREMLIN: Roman Abramovich, a longtime Kremlin insider who last year sold energy producer OAO Sibneft to state-run gas giant OAO Gazprom, endorsed the Kremlin’s expansion of control over the country’s energy sector and dismissed rising Western criticism of President Vladimir Putin’s rule. read more