Sakhalin II Protocol Signing

22 Dec 2006 07:00

Mitsubishi Corporation22 December 2006 Translation of report filed with the Tokyo Stock Exchange on December 22, 2006 Gazprom, Shell, Mitsui, Mitsubishi Sign Sakhalin II Protocol On December 21, 2006 OAO Gazprom (Gazprom), Royal Dutch Shell plc (Shell),Mitsui &Co., Ltd (Mitsui) and Mitsubishi Corporation (Mitsubishi) have signed aprotocol to bring Gazprom into the Sakhalin Energy Investment Company Ltd.(SEIC) as a leading shareholder. Under the terms of the protocol, Gazprom willacquire a 50% stake plus one share in SEIC for a total cash purchase price of$7.45 billion. The current SEIC partners will each dilute their stakes by 50%to accommodate this transaction, with a proportionate share of the purchaseprice. Shell will retain a 27.5% stake, with Mitsui and Mitsubishi holding12.5% and 10% stakes, respectively. SEIC will remain the operator of the Sakhalin II project. Gazprom will play aleading role as majority shareholder while Shell will continue to significantlycontribute to SEIC management and remain as Technical Advisor. The key focusfor SEIC is to complete the project on schedule allowing LNG to be delivered toexisting customers in Japan, Korea and the North American West Coast. Allexisting LNG sales contracts will remain in force and will be honored. Gazprom and existing SEIC shareholders will enter into an Area of MutualInterest arrangement, which will cover both future Sakhalin oil and gasexploration and production opportunities, and building of Sakhalin II into aregional oil and LNG hub. Furthermore, the shareholders and the Ministry of Industry and Energy of Russiaas the authorized state body for the supervision of production sharingagreements have agreed to jointly resolve all outstanding issues. The SakhalinII Amended Development Budget for the phase 2 of the project is expected to beapproved by the Supervisory Board (a special committee which consists of therepresentatives of Russian Federation, Sakhalin Oblast, SEIC and itsshareholders). The Production Sharing Agreement (PSA) of the Sakhalin IIproject will continue. The shareholders now look forward to implementing theproject in line with the current schedule including obtaining all necessarypermits and approvals granted in accordance with applicable Russian legislationand the PSA. This is one of significant milestone in the Sakhalin II project and Mitsui andMitsubishi most welcome Gazprom to join as a new member of our team. We trustthis will farther strengthen the relationship between Russia and Japan and alsogive us an opportunity to continue to developing merit of additional energyresources in Sakhalin Island. Furthermore, we believe that SEIC will become areliable LNG supplier in Asia and Pacific market through the mutual cooperationbetween 4 shareholders in SEIC. Sakhalin II project Sakhalin is a new world-class oil and gas province, with estimated resources ofsome 45 billion barrels oil equivalent. Sakhalin II is the largest integratedoil and gas project in the world, with total resources of some 4 billion barrelsoil equivalent. Sakhalin II today has production capacity of 80,000 barrels oil equivalent perday. The next phase of the development will take the project capacity to 340,000barrels oil equivalent per day, including 9.6 million tones per year of LNGproduction. The second phase of the project is over 80% complete, with some $12 billioninvested to end Q3 2006. Over 17,000 people are currently employed in theconstruction of the project, of which around 70% are Russian nationals. Theplanned LNG production has been sold under contract to customers across theAsia-Pacific region. Shell is a leader in the global LNG industry, and sets thestandard for reliability and cost performance. Sakhalin II is an importantcomponent in Shellfs global LNG portfolio. The Sakhalin II project is governed under a PSA, whereby the project partnersfinance the construction costs of the project, take on the development risk, andrecover these costs from sales of oil and gas. So far, some $600 million ofroyalty, bonuses and taxes have been paid to the Russian government by the endof 2006. Sakhalin II includes the following elements: • Offshore production facilities including the Molikpaq platform (PA-A), the new PA-B and Lun-A platforms and some 300 km of offshore pipelines; • An onshore processing facility to take the gas and crude oil from both fields; • Two 800 km of onshore oil and gas pipelines to the south of the island; • An oil export facility capable of year-round operation; • The first LNG plant and associated export facilities built in Russia; • Island infrastructure upgrades, such as roads, bridges, rail, port, airport, and medical facility upgrades. Forward-Looking Statements The statements included in this release contain forward-looking statements aboutMitsubishi Corporations future plans, strategies, beliefs and performance thatare not historical facts. Such statements are based on the companys assumptionsand beliefs in light of competitive, financial and economic data currentlyavailable and are subject to a number of risks, uncertainties and assumptionsthat, without limitation, relate to world economic conditions, exchange ratesand commodity prices. Accordingly, Mitsubishi Corporation wishes to cautionreaders that actual results may differ materially from those projected in thisrelease. # # # This information is provided by RNS The company news service from the London Stock Exchange