Natural Gas Producer Novatek Expected to Win Big from Shell's Sakhalin-2 Stake

(Reuters) — Russian natural gas producer Novatek has scooped a lucrative deal with its purchase of Shell's stake in the Sakhalin-2 energy project, analysts said on Thursday.

Sakhalin-2's operating company was transformed into a Russian entity via a presidential decree in June amid Western sanctions against Moscow over its actions in Ukraine. Shell and Japanese trading firms Mitsui and Mitsubishi were asked to apply to keep their stakes if they wanted to.

Shell quit Sakhalin-2 as one of the many Western firms that pulled out of Russia after Moscow launched what it dubbed its "special military operation", while Mitsui and Mitsubishi agreed to move into the new entity.

The Japanese companies hold a combined 22.5% stake, while Kremlin-owned Gazprom has 50%.

On Wednesday, the Russian government approved the sale of Shell's 27.5% stake to Novatek for 94.8 billion rubles ($1.16 billion).

Renaissance Capital called the deal "attractive" for Novatek.

"According to our estimates, the share in the project's net profit would have raised Novatek's net income in 2022 by more than 10%," they said. The project's net income almost doubled to $4 billion last year.

The price-tag also compares to the $7.45 billion Gazprom paid for its 50% plus one share in the project in 2006.

Novatek, which has not disclosed its shareholders for a few years, is headed by Leonid Mikhelson, the fourth-richest Russian businessman, according to Forbes.

Gennady Timchenko, a long-time ally of Russian President Vladimir Putin, resigned from Novatek's board in March 2022 after he was targeted by sanctions.

Timchenko has said he owned a few trading companies in and near St Petersburg in the 1990s, when Putin worked in the office of the city's mayor. He had been listed among Novatek's largest shareholders, before the company stopped disclosing them.

His spokesperson declined to comment on whether he remained a Novatek shareholder.

"We think the deal will be a value-additive for Novatek's shareholders," Moscow-based brokerage BCS said on Thursday.

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