1 Jul 2022 11:29

Sakhalin-2 LNG project to switch from Bermudan to Russian operator

MOSCOW. July 1 (Interfax) - Sakhalin Energy Investment Company Ltd, the Bermuda-based operator of the Sakhalin-2 project being implemented under a production sharing agreement, will be replaced by a Russian LLC, according to a decree from Russian President Vladimir Putin "On the application of special economic measures in the fuel and energy sector due to unfriendly actions of certain foreign states and international organizations."

The document has published on the official legal information website.

A limited liability company is being registered in Russia, to which all rights and obligations of Sakhalin Energy are being transferred. The property of the latter, created under the PSA, is subject to immediate transfer to the ownership of the Russian state (due to proper discharge by the Russian state of its obligations to finance its creation) with its simultaneous transfer to the new LLC for use free of charge for the term of the agreement.

The operating activities of the organization will continue to be carried out in accordance with the terms of the PSA. The LLC manager is obliged to transfer all Sakhalin Energy employees (its Russian branch and representative offices) to the Russian company.

At the first stage, Gazprom Sakhalin Holding will hold a controlling stake in the new company equivalent to 50% plus one share in Sakhalin Energy. The other shareholders of the latter - Anglo-Dutch Shell (SPB: RDS.A) (27.5% minus 1 share), Japanese Mitsui (12.5%) and Mitsubishi (10%) - must agree to take a proportional share in the new Russian LLC within a month and will in the meantime be listed on its balance sheet.

If the share is not received by the foreign partner, it is subject to evaluation and sale by the government to a Russian legal entity. The funds received will be credited to a special "C" account in the name of the foreign shareholder, but he will not receive them until the Russian government has conducted an audit of the foreign legal entities' activities under the PSA, including financial, environmental, and technological audits, determined the extent of the damage caused, and identified the persons who are responsible for its compensation. The funds for its compensation are to be debited from the foreign shareholder's "C" account and only then can the remaining funds be received by them.

The presidential decree designates the Moscow Arbitration Court as the place to resolve disputes under this agreement.

Sakhalin-2 is developing the Piltun-Astokhskoye and Lunskoye fields on the Sakhalin shelf.

The Sakhalin-2 LNG plant in Prigorodnoye (southern Sakhalin) was put into operation in February 2009 and reached its full capacity of 9.6 million tonnes of LNG in 2010. A later optimization program allowed for increasing its capacity by 20% up to 11.5 million tonnes of LNG per year.

Shell, which owns a 27.5% stake in the project, announced in late February that it intended to withdraw from the asset and later recalled its management and technical staff. Mitsui and Mitsubishi reportedly do not intend to withdraw from the project.

Gazprom late last year transferred its stake in Sakhalin Energy from Netherlands-based Gazprom Sakhalin Holdings B.V. to Gazprom Sakhalin Holding.