Identifier
Created
Classification
Origin
06MOSCOW13022
2006-12-21 14:22:00
CONFIDENTIAL
Embassy Moscow
Cable title:
RUSSIA ENERGY: GAZPROM SET TO ACQUIRE CONTROLLING
how-toVZCZCXRO1394 OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR DE RUEHMO #3022 3551422 ZNY CCCCC ZZH O 211422Z DEC 06 FM AMEMBASSY MOSCOW TO RUEHC/SECSTATE WASHDC IMMEDIATE 6002 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY RUEHXD/MOSCOW POLITICAL COLLECTIVE PRIORITY RUEHBJ/AMEMBASSY BEIJING PRIORITY 4141 RUEHUL/AMEMBASSY SEOUL PRIORITY 2636 RUEHKO/AMEMBASSY TOKYO PRIORITY 4076 RHEHNSC/NSC WASHDC PRIORITY RHEBAAA/DEPT OF ENERGY WASHDC PRIORITY RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
C O N F I D E N T I A L MOSCOW 013022
SIPDIS
SIPDIS
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/EKIMOFF/PISCITELLI
DOC FOR 4321/IEP/EUR/JBROUGHER
NSC FOR GRAHAM AND MCKIBBON
E.O. 12958: DECL: 12/21/2016
TAGS: ECON ENRG EPET PREL RS
SUBJECT: RUSSIA ENERGY: GAZPROM SET TO ACQUIRE CONTROLLING
STAKE IN SAKHALIN-2
REF: MOSCOW 12930
Classified By: Econ M/C Pamela Quanrud. Reasons 1.4 (b) and (d).
C O N F I D E N T I A L MOSCOW 013022
SIPDIS
SIPDIS
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/EKIMOFF/PISCITELLI
DOC FOR 4321/IEP/EUR/JBROUGHER
NSC FOR GRAHAM AND MCKIBBON
E.O. 12958: DECL: 12/21/2016
TAGS: ECON ENRG EPET PREL RS
SUBJECT: RUSSIA ENERGY: GAZPROM SET TO ACQUIRE CONTROLLING
STAKE IN SAKHALIN-2
REF: MOSCOW 12930
Classified By: Econ M/C Pamela Quanrud. Reasons 1.4 (b) and (d).
1. (C) Summary. The British Economic M/C in Moscow confirmed
December 20 his understanding that agreement is likely by the
end of this week between Sakhalin Energy's partners and
Gazprom on the terms of Gazprom's cash acquisition of a
controlling stake in Sakhalin-2. Agreement would bring to a
close negotiations complicated by Sakhalin Energy's
announcement last summer of significant cost overruns, and
capped by recent GOR threats of huge environmental damage
claims. While the final price Gazprom will pay is unknown,
and will likely be on the low side of Shell's target range,
it must in the end be a price Shell shareholders can live
with. End summary.
2. (C) British Economic M/C in Moscow confirmed December 20
that Sakhalin Energy and Gazprom are poised to announce a
deal, perhaps still this week, giving Gazprom a controlling
50 percent stake in Russia's first liquefied natural gas
(LNG) project. According to the press, Gazprom will acquire
one half of each current partner's stake -- 27.5 percent
from Shell, 12.5 percent from Mitsui, and 10 percent from
Mitsubishi -- in exchange for cash payments. While the price
is unknown, it will certainly be higher than the $2.6 billion
offered by Gazprom and rejected out of hand by Sakhalin
Energy last week (ref). Authorities publicly confirmed
December 20 that the pending deal would not involve any of
the asset swaps that had been at the heart of the previous
Gazprom/Sakhalin Energy deal scuttled by Gazprom in summer
2005 after Sakhalin Energy's announcement of significant cost
overruns. All indications are that Shell will retain
operational control over the project.
3. (C) Comment: Shell undoubtedly obtained a price it can
present to shareholders with a straight face. Still, the
final amount will probably be in the lower range of Shell's
target price, reflecting a position weakened by Kremlin ire
over project cost overruns and threatened environmental
claims assessed by the Natural Resources Ministry at $10
billion. Loss of shares will negatively impact Shell more
than its Japanese partners. While the Japanese are mainly
concerned with securing energy supplies, the loss of Shell's
Sakhalin reserves will affect the company's long-term value,
particularly on top of recent revelations of inflated reserve
estimates. Our British interlocutor's request that third
parties embrace the final deal represents an attempt to shine
the best light on a forced hand. End comment.
RUSSELL
SIPDIS
SIPDIS
DEPT FOR EUR/RUS WARLICK, HOLMAN, AND GUHA
DEPT FOR EB/ESC/IEC GALLOGLY AND GARVERICK
DOE FOR HARBERT/EKIMOFF/PISCITELLI
DOC FOR 4321/IEP/EUR/JBROUGHER
NSC FOR GRAHAM AND MCKIBBON
E.O. 12958: DECL: 12/21/2016
TAGS: ECON ENRG EPET PREL RS
SUBJECT: RUSSIA ENERGY: GAZPROM SET TO ACQUIRE CONTROLLING
STAKE IN SAKHALIN-2
REF: MOSCOW 12930
Classified By: Econ M/C Pamela Quanrud. Reasons 1.4 (b) and (d).
1. (C) Summary. The British Economic M/C in Moscow confirmed
December 20 his understanding that agreement is likely by the
end of this week between Sakhalin Energy's partners and
Gazprom on the terms of Gazprom's cash acquisition of a
controlling stake in Sakhalin-2. Agreement would bring to a
close negotiations complicated by Sakhalin Energy's
announcement last summer of significant cost overruns, and
capped by recent GOR threats of huge environmental damage
claims. While the final price Gazprom will pay is unknown,
and will likely be on the low side of Shell's target range,
it must in the end be a price Shell shareholders can live
with. End summary.
2. (C) British Economic M/C in Moscow confirmed December 20
that Sakhalin Energy and Gazprom are poised to announce a
deal, perhaps still this week, giving Gazprom a controlling
50 percent stake in Russia's first liquefied natural gas
(LNG) project. According to the press, Gazprom will acquire
one half of each current partner's stake -- 27.5 percent
from Shell, 12.5 percent from Mitsui, and 10 percent from
Mitsubishi -- in exchange for cash payments. While the price
is unknown, it will certainly be higher than the $2.6 billion
offered by Gazprom and rejected out of hand by Sakhalin
Energy last week (ref). Authorities publicly confirmed
December 20 that the pending deal would not involve any of
the asset swaps that had been at the heart of the previous
Gazprom/Sakhalin Energy deal scuttled by Gazprom in summer
2005 after Sakhalin Energy's announcement of significant cost
overruns. All indications are that Shell will retain
operational control over the project.
3. (C) Comment: Shell undoubtedly obtained a price it can
present to shareholders with a straight face. Still, the
final amount will probably be in the lower range of Shell's
target price, reflecting a position weakened by Kremlin ire
over project cost overruns and threatened environmental
claims assessed by the Natural Resources Ministry at $10
billion. Loss of shares will negatively impact Shell more
than its Japanese partners. While the Japanese are mainly
concerned with securing energy supplies, the loss of Shell's
Sakhalin reserves will affect the company's long-term value,
particularly on top of recent revelations of inflated reserve
estimates. Our British interlocutor's request that third
parties embrace the final deal represents an attempt to shine
the best light on a forced hand. End comment.
RUSSELL