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. Last Updated: 07/27/2016

Shell May Take Cash for Sakhalin-2 Stake

Shell and its partners in the $22 billion Sakhalin-2 project have accepted cash and a promise of future cooperation with Gazprom in a deal to let the Russian firm into the venture, a source close to talks between the companies said Tuesday.

Shell and Gazprom have both signaled that their negotiations may yield a deal later this week, with Shell CEO Jeroen van der Veer expected to make a third visit to Moscow in as many weeks on Thursday or Friday.

"I hope it will be this week ... there are no differences remaining, work is under way on the final documents," Gazprom deputy CEO Alexander Medvedev said.

He said the deal would be on market terms but did not give details.

Gazprom originally offered Shell a share of its Zapolyarnoye field as a swap for 25 percent of Sakhalin-2, the world's largest liquefied natural gas project.

Gazprom's chairman has said it wants around 50 percent in Sakhalin-2 and sources have said that Shell is likely to give up a 30 percent stake out of its 55 percent, although Shell-backed project operator Sakhalin Energy would remain.

Shell needs to add to its energy reserves, since it has one of the worst records in its peer group at finding new resources.

Ratings agency Fitch warned Tuesday that its plan to give Gazprom 30 percent of Sakhalin-2 could have an adverse impact on its reserve replacement strategy.

"Any significant loss of future production volumes and reserves could be detrimental to Shell's efforts to catch up with its peers in respect of reserve replacement and reserve life, an important parameter to evaluate an oil major's long-term growth prospects," Fitch said in a statement.

Gazprom's financial health is unlikely to suffer from a deal to get into Sakhalin-2, although analysts have estimated it might have to pay anything from $4 billion to $10 billion.

"The general expectation is that they're not likely to pay much," said Okan Akin, a credit analyst at Bear Stearns. "They have the capacity to borrow and it won't have much impact [unless] they finance everything through new issues."

Analysts have said the deal is more important for Shell than for Gazprom, which has grown into a $270 billion giant in the last two years.

Its entry into Sakhalin-2 will help cement the Kremlin's grip on the country's energy sector, since the venture -- the biggest single foreign investment in the country -- is the only big project without any domestic involvement.