Japan's Mitsui, Mitsubishi shares fall after Putin decree

A general view of the liquefied natural gas plant operated by Sakhalin Energy in Prigorodnoye on the Pacific island of Sakhalin.

TOKYO Reuters - Shares in Japan's Mitsui Co and Mitsubishi Corp fell about 5% on Friday after Russia moved to create a new firm to take over the Sakhalin 2 oil and gas project in the country's far east. According to a decree signed by Russian President Vladimir Putin, the new firm will take over all rights and obligations of Sakhalin Energy Investment Co, which the two Japanese companies and Shell Plc hold just under a 50% stake.

The 5-sided decree, which comes with Western sanctions on Moscow over the invasion of Ukraine, indicates that it is up to the Kremlin to decide whether foreign shareholders are to remain in the consortium.

Mitsui has a 12.5% stake in the project and Mitsubishi holds a 10% stake, while Shell holds 27.5%, minus one share. Gazprom is a Russian gas giant with a 50% share.

Japan has previously stated that it would not give up its interests in the Sakhalin 2 project, which is important for its energy security, even if asked to leave.

Sakhalin 2 supplies roughly 4% of the world's natural gas LNG market. China, South Korea and Japan are the main customers of oil and LNG exports, according to Shell.

A Japanese industry ministry official said the government was looking into the contents and that the issues of ownership and the supply of liquefied natural gas LNG may be unrelated to Putin's decree. Mitsubishi and Mitsui officials said they were checking the decree and could not comment on it immediately.

The Russian government is expected to ask the Gazprom shareholders for a stake in the new firm within a month, according to the decree. The government will decide whether or not to allow them to keep the stake.

If they are not allowed to keep their stake, the government will sell their stakes and keep the proceeds at a special account of the shareholder.

The decree said that proceeds can be sent to the shareholder or used to repay unspecified damages under the production sharing agreement.

Shell is in talks with a consortium of Indian energy companies to sell its stake in Sakhalin, sources told Reuters in May.

Shell CEO Ben van Beurden told reporters on Wednesday that the company was making good progress in its plan to leave the Sakhalin Energy joint venture.

I can't tell you exactly where we are because it's a commercial process, so I have to respect confidentiality but when I got an update last week I was really pleased with where we are.