Today the shareholders of Sakhalin Energy Investment Company Ltd. (being operator of the Sakhalin-2 project) and Gazprom signed a Purchase and Sale Agreement. In accordance with the Agreement the parties will end up the process of share transfer to Sakhalin Energy.

The said deal was made in pursuance with the Protocol signed between the companies on December 21, 2006 in Moscow. In accordance with the Protocol terms, Gazprom will purchase a 50 per cent stake plus 1 share in Sakhalin Energy for US$ 7.45 bln. Each of Sakhalin Energy’s shareholders (Royal Dutch Shell plc, Mitsui &Co., Ltd. and Mitsubishi Corporation) will decrease its stake by 50 per cent with recompense to be allocated on a proportional basis.

As a result, Gazprom will own a 50 per cent stake plus 1 share, Shell, Mitsui and Mitsubishi - 27.5 per cent stake, 12.5 per cent and 10 per cent of shares, respectively.

In the frames of the project due to the contracted LNG volumes, Sakhalin-2 provides stable position of new and reliable energy supplier on energy map of the world. Additionally, the accord achieved in relation to the Area of Mutual Interest would embrace opportunities to further Sakhalin-2 project expansion due to construction of additional technological lines for LNG plant.

On April 16, the Ministry of Natural Resources of the Russian Federation approved the amended Plan on Environmental Measures prepared by Sakhalin Energy due to participation of all shareholders. The Plan stipulates measures and tasks to maintain biological diversity of the Sakhalin Island including fish population as well as exotic species of flora and fauna.

“Joining the Sakhalin-2 project provides a powerful impetus for accomplishing a large-scale project in the energy supply sector to Asia Pacific countries and North America. It will stimulate implementing a stage-by-stage entering strategy on the world LNG market,” said Alexander Medvedev, Deputy Chairman of the Gazprom Management Committee.

“We are happy to have Gazprom in the Sakhalin-2 project. This event along with the approval of the Plan on Environmental Measures by the state authorities is an important step towards successful implementation of the project. The accord achieved in relation to the Area of Mutual Interest will provide further growth opportunities,” stipulated Malcolm Brinded, the Executive Director of Exploration & Production of Shell.

“Mitsui is happy to have Gazprom in the Sakhalin-2 project. I am confident that within Gazprom’s joining Sakhalin Energy as the main shareholder, the new shareholding structure in cooperation with the Russian Federation authorities will provide implementation of the first Russian LNG project in compliance with the schedule supplying LNG to Japanese, Korean and American consumers. Today’s event will stipulate further strengthening of cooperation between Russia and Japan as well as further development of the Sakhalin region,” said Hiroshi Tada, Executive Managing Officer and Executive Vice President of Mitsui.

“Mitsubishi is happy to have Gazprom as the main shareholder in the project. I am sure that the new shareholding structure is an optimal to provide a timely start for LNG deliveries for Japan and Korea as well as the West Coast of North America. This important step will enable Sakhalin Energy to become a major LNG supplier on Asia Pacific market,” underlined Hisanori Yoshimura, Executive Vice President of Mitsubishi.

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Sakhalin is a new world-class oil & gas province with the reserves valued at 45 bln barrels of oil equivalent. The Sakhalin-2 project is the world’s largest comprehensive oil & gas project with the licensed reserves averaging 4 bln barrels of oil equivalent.

The present-day production potential of Sakhalin-2 is 80 thousand barrels of oil equivalent per day. Thanks to Development Phase 2, the project production potential will grow to 340 thousand barrels of oil equivalent per day, taking account of 9.6 mln tons of LNG to be produced per annum.

The work scheduled for Phase 2 has been completed by nearly 80 per cent, with some US$ 12 bln so far invested. At present 17 thousand people are involved in the construction work, with 70 per cent being the Russian Federation citizens. Under the contracts with customers from Asia Pacific, the project partners have so far sold the amount of LNG equal to the projected capacity of an LNG plant.

The Sakhalin-2 project is regulated by a Production Sharing Agreement (PSA); the project shareholders finance construction expenses, undertake the project related risks and offset these expenses by oil and gas sales. As of today, the total project revenues of the Russian Federation in the form of royalties, bonuses and taxes have accounted for almost US$ 600 mln.

The Sakhalin-2 project covers:

• Three marine production platforms: Molikpak (Piltun-Astokhskaya - A), Piltun-Astokhskaya - B and Lunskaya as well as an offshore pipeline system with a total length of 300 km;
• An integrated coastal technology compound designed for the receipt and treatment of gas and oil produced in both fields;
• Onshore 800-km-long oil and gas pipelines running to the South of the Island;
• An oil exporting terminal with the all-the-year-round operating capacity;
• Russia’s first LNG plant and LNG exporting installations;
• Upgrading activities for onshore infrastructure: motor and rail roads, bridges, sea ports and airports, health care facilities.

On December 21, 2006 OAO Gazprom, Royal Dutch Shell plc (Shell), Mitsui &Co., Ltd. (Mitsui) and Mitsubishi Corporation (Mitsubishi) have signed a Protocol on Gazprom’s joining Sakhalin Energy Investment Company Ltd. (Sakhalin Energy) as the main shareholder.

The amended budget of the project’s second stage for the period up to 2014 was presented to the Russian side in terms of the PSA in 2005 and was precisely studied by the relevant Russian governmental and expert organizations. On April 16, 2007 the budget was approved at the Supervisory Board meeting of the Sakhalin-2 project.