Dec. 21 (Bloomberg) -- OAO Gazprom agreed to buy 50 percent plus one share of Royal Dutch Shell Plc's Sakhalin-2 oil and gas project for $7.45 billion, handing President Vladimir Putin another victory in his drive to control Russia's energy industry.

Shell, Mitsui Co. and Mitsubishi Corp. will each sell half of their stakes in the project to Moscow-based Gazprom, Shell and Gazprom said in a joint statement today. Hague-based Shell and its partners have invested $12 billion in the venture, which will be the first to produce liquefied natural gas in Russia.

``You are never going to have majority control under this regime in Russia,'' said Tim Harris, chief investment strategist for Europe, the Middle East and Africa at J.P. Morgan Private Bank in London, which manages $346 billion. ``That's a fact of life,'' he said. ``The resource opportunity in Russia is vast. The risk is political.''

The deal ends a yearlong campaign in which the government threatened to block Sakhalin-2's investment plans and cancel building permits on environmental grounds. European and Japanese leaders raised concerns that Putin's campaign to restore state dominance of the economy will undermine Russia's reliability as an energy supplier.

``Our first priority is to get Sakhalin-2 up and running,'' Shell Chief Executive Officer Jeroen van der Veer said in the statement.

Putin Comments

Shell and its partners also said they have agreed with Russia's energy ministry to ``jointly resolve all outstanding issues.'' The previous agreement covering project costs and rules for sharing oil and gas output with the state will continue, they said in a separate statement. An amended budget will be sent to a government supervisory board for approval, they said, without disclosing any specifics.

``We'll do everything in our power to make sure this project is realized,'' Putin told the heads of Shell, Mitsui, Mitsubishi and Gazprom at a meeting in the Kremlin today, in remarks broadcast on state-owned Perviy television.

Shell's stake will fall to 27.5 percent, with Mitsui retaining 12.5 percent and Mitsubishi 10 percent.

``There's a new reality in Russia,'' said Michael Bradshaw, a geographer at Britain's University of Leicester who has focused on Sakhalin energy projects. ``Majority foreign-owned investment doesn't work anymore.''

Shell shares were little changed, down 1 pence to 1,790 pence, after dropping as much as 1.1 percent to 1,771 pence before the news.

`Harder for Gazprom'

Gazprom suspended a preliminary agreement to join the venture after Shell in July 2005 doubled its cost estimates for the current phase to $20 billion. The government complained the overruns would yield less revenue under a so-called production sharing agreement and threatened to suspend Sakhalin-2 permits because of environmental violations.

Gazprom is ``losing more on the reputational damage that a compulsory transaction implies than they made on a cheap price,'' said Ian Hague, who manages $2.8 billion in assets for Firebird Management LLC in New York. Hague isn't selling his Gazprom shares. ``It's already made it harder for Gazprom on a diplomatic level to buy into European assets.''

Gazprom, the world's fourth-largest company by market value, is seeking to buy gas-marketing assets in Europe to improve profit margins. The company is looking at entering Japan's retail gas market, NHK news said, citing Chairman Dmitry Medvedev.

Gazprom's acquisition of a controlling stake will allow it to maintain control over Russian gas exports. While Gazprom's export monopoly is enshrined in law, Sakhalin-2 was exempt under its production-sharing agreement.

Japanese Supply Contracts

The venture has committed to sell almost all of its planned LNG output to utilities in Japan, Korea and North America. All the contracts will be honored, the companies said. The project is expected to produce 9.6 million tons a year of LNG, which is gas cooled to liquid for transport by tanker.

The Sakhalin-2 venture is key to Shell's plans to revive output and boost reserves. The sale will probably slow the pace at which Shell adds to its reserves, Fitch Ratings Ltd. said Dec. 19. Shell is still recovering from the 2004 accounting review that forced it to reduce proven reserves by 5.63 billion barrels, or 29 percent.

The attacks on Shell, led by environmental inspector Oleg Mitvol, were similar to the tactics used in the dismantlement of OAO Yukos Oil Co., which was hit with $30 billion in tax claims.

Putin is building Gazprom and state oil company OAO Rosneft into challengers to Shell and Exxon Mobil Corp. using assets from Yukos, once Russia's largest oil producer.

Environmental Concerns

Mitvol, deputy head of the Natural Resources Ministry's environmental agency, toured Shell's Sakhalin project in September and said the company will have to fix damage it has caused to rivers, fishing grounds and forests.

``Nothing has changed,'' Mitvol told reporters today. ``An international court is the last resort, if they don't remedy all the claims we made in September.''

Shell and its partners will have ``more precise discussions'' with the Russian authorities about environmental and budgetary issues, Van der Veer told reporters today before meeting with Natural Resources Minister Yuri Trutnev.

The Natural Resources Ministry in May urged Irving, Texas- based Exxon Mobil, Total SA in Paris and London-based BP Plc to give Russian companies a bigger role in their ventures.

Total's license to extract oil at Kharyaga, its biggest Russian project, will be reviewed tomorrow by the country's resources agency.

Production Agreements

The government has said it's unhappy with the original production-sharing agreements, signed in the 1990s, that cover Sakhalin-2, Exxon Mobil's neighboring Sakhalin-1 project and Total's Kharyaga field in northern Russia. Under the agreements, negotiated when crude was a third of today's price, most of Russia's revenue would be deferred until the companies earned returns on their investments.

Credit default swaps based on Shell's bonds, a measure of investor perceptions about the company's ability to meet its debt obligations, were unchanged.

Shell's 5.25 percent pound-denominated bond maturing in 2010 declined, with the yield widening 2 basis points, or 0.02 percentage point, to 5.51 percent, according to RBC London prices.

Gazprom shares advanced 0.1 percent to $11.56 in Moscow before the announcement of the Sakhalin accord.

To contact the reporter on this story: Lucian Kim in Moscow at lkim3@bloomberg.net; Torrey Clark in Moscow at tclark8@bloomberg.net.

Last Updated: December 21, 2006 18:57 EST