The media is tackling prospects of the Sakhalin 2 project following its recent takeover by Russia’s Sakhalin Energy LLC (June 30 saw President Vladimir Putin sign a decree on special economic measures in the fuel and energy sector over unfriendly actions by foreign states. The document stipulates a new legal entity to run the major Sakhalin 2 oil and gas project and get all the Sakhalin Energy’s assets).
On August 19, the new operator "began active work", as announced in a press release by the company itself.
Interest allocation in Sakhalin Energy is as follows: Gazprom owns 50% plus one share, Shell — 27.5% minus one share, Mitsui & Co. Ltd — 12.5%, Mitsubishi Corporation — 10%.
Japanese parties (Mitsui and Mitsubishi) intend to preserve the same share ratio. Their country announced that by September 4, the companies will send their official position to the LLC for a new contract. And Shell will most likely neither get a share in the Russian company, nor sell the previous one, as a special permit is now required from the Russian authorities. Apart from the abovementioned decree, Vladimir Putin signed another one on August 5 to prevent non-residents from leaving Russian projects by selling their shares (special permits for one-time transactions are allowed, still). A real head-scratcher for Shell.
Under the decree, Gazprom will get an LLC share proportional to the number of Sakhalin Energy shares it owns. And the rest of shareholders are given a month starting the moment the new company was established to announce consent to accept their shares in the new operator. In case of refusal, the Russian cabinet should evaluate their shares and sell them within another four months to a Russian legal entity only. Along with the sale, the government will conduct "financial, environmental, technological and other" audits of the investor’s activities and staff. If any damage is disclosed, its amount will be deducted from the share value. Settling disputes will be up to the Moscow Arbitration Court. The decree came into force upon signature.
There are various rumors about the Shell stake’s future. It is allegedly claimed by Chinese actors, which puts Japan on guard. In case of such a deal, gas shipments from Sakhalin 2 will be "diverted" to the Celestial Empire.
The project itself is attractive and successful, especially amid present-day demand for LNG and the established favorable pricing environment in the global gas market. Through a business prism, Shell doesn’t probably mind further cooperation with Gazprom, but political pressure from the West prevents its management from acting rationally. However, the moment of truth won't be long in coming.
Shell’s equity stake deal will be multiphase, if any. For instance, the company needs special permission to sell its share first. If successful, it will enter in the LLC 's books. After that, Sakhalin Energy will consider the contenders, with an auction to decide the equity stake’s fate, if both Japan and China find it attractive.
The pattern described is feasible, unless Shell suddenly “swaps horses in mid-stream” and decides to stay in Sakhalin 2 under the new operator. After all, there are examples of reconsidered willingness to leave Russian assets even after making public statements. The most perfect one in the oil and gas sphere is the BP case. The British group, as you know, still has a considerable stake in Rosneft, even though it was one of the first to announce withdrawal from our country’s fuel and energy complex after the special military operation began.
Western "escapists" should bear in mind Vladimir Putin's decree of August 5 prohibiting transactions with shares in Russian strategic companies for holders from unfriendly states until the end of 2022.
