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Last Updated: Thursday, 21 December 2006, 17:50 GMT
Gazprom grabs Sakhalin gas stake
Map illustrating location of Sakhalin island
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.

Holdings cut

Shell will now be left with a 27.5% stake, after it had been widely expected to see its holding reduced to 25%.

"They (Shell) seem to be receiving cash upfront which is positive and the purchase price is a little better than expected. Gazprom is effectively paying cost," said MAN Securities oil analyst Niell Morton.

However it still remains unclear whether Shell will continue to lead theSakhalin-2 project.

A statement from the firm said it would "continue to significantly contribute to the (consortium's) management and remain as technical adviser".

Legal wrangle

In October, Russia's environment agency, RosProdNadzor, had asked for more time to investigate the project saying it differed significantly from the original plans.

The country's environmental minister later claimed it had broken five criminal laws.

Shell has always denied the claims, while some analysts said the way the Sakhalin issue had been handled was designed to strengthen the government's position in renegotiating the development of the field.

After the deal was signed, President Putin said he was "glad" the issue had been resolved.

"Issues of principal importance are already as good as settled, while approaches to their solution - coordinated," he added.

Due to be finished in 2008, Sakhalin-2 will be the largest integrated oil and gas field in the world.

President Putin's role in the Sakhalin deal

Shell yields to Gazprom pressure
12 Dec 06 |  Business
Russia ups pressure on Sakhalin
07 Dec 06 |  Business
Sakhalin operator 'breaking law'
25 Oct 06 |  Business
Shell counters Sakhalin concerns
16 Oct 06 |  Business
New deadline for Sakhalin project
26 Sep 06 |  Business
Russia's Sakhalin stance queried
25 Sep 06 |  Business

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