Royal Dutch Shell plc .com Rotating Header Image

Posts on ‘September 18th, 2006’

Daily Telegraph: Russia turns the screw on Royal Dutch Shell

By Christopher Hope, Industry Editor
(Filed: 19/09/2006)

Shell moved last night to reassure its investors after Russia tried to stop the development of its biggest gas project, the $20bn (£10.6bn) Sakhalin II scheme in eastern Siberia. The move by the Putin administration was seen by some as an attempt to tighten the Kremlin’s grip on the country’s energy resources after the part re-nationalisation of oil company Yukos.

Russia’s natural resources ministry said in a statement yesterday that it had asked the country’s oil and gas development agency to cancel Shell’s environmental licence. Without a licence it cannot produce hydrocarbons. Shell, which owns 55pc of Sakhalin II, is already trying to persuade the Kremlin to agree to cost over-runs, which have seen the budget jump from $10bn to $20bn.

read more

The Independent: BG lit up by talk that Royal Dutch Shell will pounce on it

Market Report
By Michael Jivkov
Published: 19 September 2006

It may be one of the oldest rumours in the stock market, but talk of a bid for BG Group once again got punters piling into the company yesterday. Shares in BG finished 10p higher at 650p as dealing rooms were set alight by speculation that Royal Dutch Shell is about to pounce on its smaller rival and is willing to pay up to 720p a share to win control of it.

Such a move would value BG at £24bn. Although that is a punchy figure, analysts believe Shell, which has a market capitalisation of £113bn, will certainly be able to manage it. The oil giant is known to be keen to secure new reserves, and BG’s portfolio is an exciting one. At the end of the last month, Shell, which was 10p higher at 1,793p yesterday, was also rumoured to be running the slide rule over Premier Oil.

read more

The New York Times: Kremlin revokes oil project approval

By Andrew E. Kramer
Published: September 18, 2006
 
MOSCOW Citing damage to salmon- bearing rivers on Sakhalin Island, the Russian government on Monday withdrew environmental approval for the largest private energy investment here, the Royal Dutch Shell-operated Sakhalin-II liquefied natural gas project.
 
The complex development straddles the coastline on the northern rim of the island, with offshore platforms, a liquefied natural gas plant and hundreds of miles of pipeline snaking toward an ice- free port in the south, and it has had its share of critics among conservationists.
 
Still, the decision Monday came amid a tense business dispute between Shell, the English-Dutch oil major, and Russia’s state-owned natural gas monopoly, Gazprom, which is trying to join the consortium that Shell now controls.

 
Oil analysts said the ruling looked like a ploy by the Russian government to renegotiate terms or force Shell to concede to Gazprom’s demands in the $20 billion production sharing deal rather than close it down on environmental grounds.
 
Sakhalin Island, a ribbon of sub-Arctic land off Russia’s east coast, and the 
surrounding seas, hold more oil than the remaining deposits in the North Sea. Nearly untapped now, the island’s resources could help shape energy markets in Japan, Korea and China in the decades to come. Sakhalin-II is also the world’s largest combined oil and natural gas development.
 
Liquefied natural gas, a fuel that is gaining in popularity, has already been sold into markets as far away as California in futures contracts beginning in 2008, according to Shell, which vowed in a statement to fight the Russian government’s decision.
 
The ruling by Rosprirodnadzor, the environmental watchdog, revoked a 2003 environmental approval for the Sakhalin-II project, according to a posting on the agency’s Web site; before it takes effect, the decision must be cleared by a second Russian government agency, according to the statement.
 
The Russian authorities cited damage to salmon-bearing rivers and excessive logging along a pipeline route.
 
“Dozens of hectares of forest were destroyed and a large number of fish died because of improper river crossings,” Oleg Mitvol, deputy director of Rosprirodnadzor, said by telephone.
 
“Nobody will lose their license,” he said. “The talk now is about the environmental problems that have occurred.” Mitvol said that he understood approval had been revoked only for the pipeline construction, not the project, though a Shell spokesman said it appeared the agency statement referred to approvals for the entire onshore and offshore development.
 
Shell denied that it had violated any Russian environmental laws.
 
“Although there have been various environmental challenges on this project, these have been tackled and largely overcome,” Shell said in a statement released in Moscow. “All concerns are being addressed expeditiously in cooperation with the relevant authorities and do not constitute any legal grounds for nullification.”
 
An annulment of the approval “could be damaging for the project and for Russia,” the statement said. “We have no doubts that the government of the Russian Federation will honor its obligations”
 
Shell was nearing completion of the second phase of Sakhalin-II. It owns 55 percent of Sakhalin-II; Mitsui of Japan holds 25 percent and Mitsubishi of Japan has 20 percent. This summer, Shell and its partners employed roughly 17,000 people in construction.
 
The project was an anomaly in Russia as a wholly foreign-owned venture at a time of rising resource nationalism. It operated under a production sharing deal that a Russian government minister said last week he was unhappy with, but that was written into Russian law in the 1990s, approved by Parliament.
 
Also Monday, Sergei Fyodorov, an official at Russia’s Natural Resources Ministry that oversees the three production sharing agreements in force, said all had violated “technical” provisions in the contracts and that their licenses could be revoked, the Interfax news agency reported.
 
Exxon Mobil of the United States and Total of France operate the other two production-sharing fields.
 
Shell’s Sakhalin-II development is unique in Russia also because Shell was marketing the natural gas, a commodity Gazprom has a monopoly on elsewhere in the Russian economy. The Sakhalin concessions were incorporated as an exception to a law formalizing Gazprom’s natural gas monopoly passed this year.
 
To allow Gazprom into the project, Shell agreed in July 2005 to swap a 25 percent stake in Sakhalin-II for a share of an Arctic gas field owned by the Russian company. Days later, however, Shell announced the cost of development at Sakhalin-II had doubled, to an estimated $20 billion from $10 billion.
 
Gazprom subsequently announced that it was displeased that it had not been informed of the higher cost estimate before signing the deal; the companies have been negotiating over the terms of the swap since.
 
Also, the higher cost estimate lowers the initial profit for the Russian government; under the terms of the deal, the operator, Shell, recuperates costs before sharing income with the government. Until the costs are recovered, Russia will receive roughly $300 million a year; afterward, the government share rises to $2 billion annually.
 
Shell executives say soaring steel prices, the appreciation of the Russian ruble and a tight market for oil rig equipment drove up costs.
 
“This is a negotiating technique, like a kick in the shin is a negotiating technique” said Caius Rapanu, an oil and gas analyst at the UralSib brokerage firm in Moscow.
 
The production-sharing agreements “were signed a long time ago,” he said. “In the meantime, the Russian government has woken up, and they say, ‘why can’t we get more, which we deserve. Why does Shell get the oil? What has Shell ever done for me?'”
 
It remained unclear, he said, whether the decision was a limited attempt to force Gazprom into the Sakhalin-II project, or whether it signaled the beginning of a more sweeping revision of the production-sharing deals.
 
The Russian Trading System stock market shrugged off the announcement because investors in Russia now expect such actions by the government. The market closed up 1.1 percent on Monday.
 
It was unclear what effect such tactics would have, if any, on efforts by Chevron and ConocoPhillips of the United States and Statoil of Norway and Total to join a separate international consortium with Gazprom in the Barents Sea.
 
In another sign of the Russian state tightening its grip on oil, Gazprom is in talks to buy into BP’s joint venture in Russia, TNK-BP, the Vedomosti newspaper reported Monday. TNK-BP is now owned by BP and a trio of Russian oligarchs. Gazprom is in talks to buy out the private Russian partners, the paper reported.
 

read more

Bloomberg: Royal Dutch Shell’s Sakhalin Oilfield Permit Annulled by Russia (Update5)

By Lucian Kim

Sept. 18 (Bloomberg) — A Russian government ministry canceled Royal Dutch Shell Plc’s permit for the $20 billion Sakhalin-2 oil and gas development, as President Vladimir Putin tightens his control over the country’s energy industry.

The Natural Resources Ministry said today in a statement it asked the Russian agency responsible for authorizing oil and gas development to annul Shell’s license. The ministry may also revoke operating permits for Exxon Mobil Corp. and Total SA, Interfax reported earlier, citing an official from the same ministry.

read more

International Herald Tribune: Russia revokes approval for Royal Dutch Shell-run Sakhalin project

By Andrew E. Kramer Bloomberg News, Reuters
Published: September 18, 2006
 
MOSCOW: A Russian government agency on Monday withdrew environmental approval for the world’s largest combined oil and natural gas development, a project led by Royal Dutch Shell on Sakhalin Island in the Pacific Ocean that will eventually supply Japan, Korea and the United States.
 
The project with offshore platforms, a liquefied natural gas plant on shore, and hundreds of miles of pipeline snaking toward an ice-free port in the south, has had its share of critics among conservationists.
 
But the decision came amid a tense business dispute between Shell and Russia’s state-owned natural gas monopoly Gazprom, which is trying to buy or swap assets to join the consortium.

 
Energy analysts in Moscow, where the government has tightened its grip on the oil industry in recent years, interpreted the environmental ruling as a form of pressure on Shell to sell to Gazprom. If so, it would serve as a blunt display of the close intertwining of power and business in Russian energy politics.
 
The ruling by Rosprirodnadzor, the environmental agency, revoked a 2003 environmental approval for the Sakhalin-2 project, according to a posting on the agency’s Web site; before it takes effect, the decision must be cleared by a second Russian government agency, according to the statement.
 
Russian authorities cited damage to salmon-bearing rivers and excessive logging along a pipeline route.
 
“Dozens of hectares of forest were destroyed and a large number of fish died because of improper river crossings,” Oleg Mitvol, deputy director of Rosprirodnadzor, said by telephone.
 
“Nobody will lose their license,” he said. “The talk now is about the environmental problems that have occurred.”
 
Mitvol said he understood approval had been revoked only for the pipeline construction, not the project, though a Shell spokesman said that it appeared the statement referred to approvals for the entire onshore and offshore development. Shell denied it had violated any Russian environmental laws.
 
Shell, an English-Dutch company, was nearing completion of the second phase of Sakhalin-2. That phase is estimated to cost $20 billion. The liquefied natural gas that will come online in the summer of 2008 has already been sold in futures contracts to companies serving Japan, Korea and the U.S. West Coast.
 
This summer, Shell and its partners employed roughly 17,000 people in construction; it was unclear whether they would be idled by the revocation.
 
The project was an anomaly in Russia as a wholly foreign-owned venture at a time of rising resource nationalism. It operated under a production sharing deal that the Russian government was believed to be unhappy with, but that was written into Russian law from the 1990s, approved by Parliament.
 
Also Monday, Sergei Fyodorov, an official at Russia’s Natural Resources Ministry that oversees the three production sharing agreements in force, said all had violated “technical” provisions in the contracts and their licenses could be revoked, the Interfax news agency reported.
 
Exxon Mobil of the United States and Total of France operate the other two production sharing fields.
 
Shell’s Sakhalin-2 development is anomalous in Russia also because Shell was marketing the natural gas, a commodity Gazprom has a monopoly on elsewhere in the Russian economy. The Sakhalin concessions were incorporated as an exception to a law formalizing Gazprom’s natural gas monopoly passed this year.
 
To allow Gazprom into the project, Shell in July 2005 agreed to swap a 25 percent stake in Sakhalin-2 for a share of an Arctic gas field owned by the Russian company. Days later, however, Shell announced the cost of development at Sakhalin-2 had doubled, to an estimated $20 billion from $10 billion.
 
Gazprom has formally announced it was displeased it had not been informed of the higher cost estimate before signing the deal; the companies have been negotiating over the terms of the swap since.
 
Also, the higher cost estimate lowers the initial profits for the Russian government; under the terms of the deal, the operator, Shell, recuperates costs before sharing income with the government. Until the costs are recovered, Russia will receive roughly $300 million a year; afterward, the government share rises to $2 billion annually.
 
Shell executives say soaring steel prices, the appreciation of the Russian ruble and a tight market for oil rig equipment drove up costs.
 
“We assume there is a connection,” between the environmental ruling and Gazprom’s business dispute, said Aleksei Kormshchikov, an oil and gas analysts at UralSib brokerage in Moscow. “There is no direct connection, of course, but all of a sudden they deny ecological approval on the back of these negotiations.”
 
“Everyone understands why this is going on,” he said. “Nobody is surprised to see the state pursue a hard line to get better leverage for Gazprom.”
 
The Russian Trading System stock market shrugged off the announcement because investors in Russia anticipate such actions by the government, Kormshchkiov said. The market closed up.
 
In another sign of the Russian state tightening its grip on oil, Gazprom is in talks to buy into BP’s joint venture in Russia, TNK-PB, a leading oil company in the country, the Vedomosti newspaper reported Monday. TNK-BP is now owned 50-50 by BP and a trio of Russian oligarchs. Gazprom is in talks to buy out the private Russian partners, the paper reported.

read more

Bloomberg: Royal Dutch Shell’s Sakhalin Oilfield Permit Annulled by Russia (Update3)

By Lucian Kim

Sept. 18 (Bloomberg) — Russia’s Natural Resources Ministry canceled Royal Dutch Shell Plc’s permit for the $20 billion Sakhalin-2 oil and gas development, as President Vladimir Putin expands his control over the country’s energy industry.

The Natural Resources Ministry said in a statement it had asked the Russian agency responsible for authorizing oil and gas development to annul Shell’s license, which would bring the cancellation into force. The ministry may also revoke similar operating permits for Exxon Mobil Corp. and Total SA, Interfax reported today, citing an official from the same ministry.

read more

RIA Novosti: Natural Resources Ministry annuls Sakhalin II probe approval

17:32 | 18/ 09/ 2006 

MOSCOW, September 18 (RIA Novosti) – Russia’s Natural Resources Ministry said Monday it had decided to annul its approval of the results of a 2003 state probe into the Sakhalin II energy project off the country’s Pacific coast.

This decision was made after First Deputy Prosecutor General Alexander Buksman protested the original endorsement and against the backdrop of a recent move from Russia’s environmental watchdog against the project.

The Sakhalin II project, which is run by the Sakhalin Energy Investment Company and operated by Royal Dutch Shell, has encountered a series of problems. The Federal Service for the Oversight of Natural Resources said in the beginning of September that it was taking legal action to overturn the conclusions of a state ecological probe into the project off the country’s Pacific coast, conducted in 2003.

read more

Reuters: Russia cancels Royal Dutch Shell’s Sakhalin ecological approval

Mon Sep 18, 2006 2:11 PM BST
 
MOSCOW (Reuters) – Russia’s resources ministry said on Monday it had cancelled its own ecological approvals for Royal Dutch Shell’s Sakhalin-2 project but this did not mean the $20 billion development would close.

The cancellation follows weeks of wrangling between the ministry and the company over ecological compliance and the ministry promised last week to sue Shell in courts to withdraw all permissions.

It was not clear whether the first hearing will still take place on September 21 or the ministry’s decision required no court approval. The ministry said the hearing was cancelled while Sakhalin-2 and Shell declined immediate comment.

read more

Catastrophic news for Royal Dutch Shell Plc?: Russia calls a halt to Sakhalin II

Comments from a Shell insider on viewing the situation from the Russian perspective

EXTRACT: Gas fields and production facilities do not last forever, and by the time Shell have amortised the currently estimated development costs the Sakhalin fields will be starting to decline, and the production facilities will be reaching the end of their design life. So the Russians will have provided the gas, and received little or nothing in return, other than a depleted field, extinct whales, a damaged environment and some rusting facilities. Who can blame the Russians for being somewhat angered that a key national asset is being squandered?

read more

CNN.com: Royal Dutch Shell Plc setback in Russia project

CNN Sakhalin pik 

MOSCOW, Russia (Reuters) — Russia’s resources ministry said on Monday it had canceled its own ecological approvals for Royal Dutch Shell’s Sakhalin-2 project, which could effectively halt the $20 billion project.

The move follows weeks of wrangling between the ministry and the company over ecological compliance and the ministry promised last week to sue Shell in courts to withdraw all permissions.

It was not clear whether the first hearing will still take place on September 21 or the ministry’s decision required no court approval.
 
Find this article at:
http://edition.cnn.com/2006/BUSINESS/09/18/shell.russia.reut 

read more

AFX News Limited: Russian ministry cancels permits for Shell’s Sakhalin-2

BBC News: Royal Dutch Shell Plc faces Russia legal pressure

BBC Sakhalin article Sept 2006

Russian prosecutors have said that Royal Dutch Shell’s giant oil and gas project off the island of Sakhalin was illegally given environmental approval.

The statement comes after a Russian environmental group called for the Pacific Ocean scheme to be blocked.

Western analysts say the move by the Russian Prosecutor General’s Office is the latest attempt to pressure Shell to open up the field to Russian firms.

Shell said it could not comment until it had seen the prosecutors’ documents.

read more

Associated Press: Russia Stops Shell Gas Project

MOSCOW — The Russian Natural Resources Ministry said Monday that it has decided to revoke the environmental approval of a Shell-led liquefied natural gas project on the Far East island of Sakhalin.

The statement came after prosecutors alleged over the weekend that permission to develop the second phase of the $20 billion project had been granted illegally.

Sakhalin Energy, the consortium company that Shell leads, had already halted some pipeline construction work in August after complaints by the Natural Resources Ministry that it presented a risk of mudslides. And on Monday, environmental groups called on the European Bank for Reconstruction and Development, which is involved in funding the project, to stop working with the consortium over environmental concerns.

read more

An email to Royal Dutch Shell General Counsel regarding Sakhalin II crisis

18 September 2006

EMAIL SENT TO RICHARD WISEMAN AND COPIED TO JEROEN VAN DER VEER AND MALCOLM BRINDED OBE

Dear Mr Wiseman

I know you are probably busy with the BG bid, but I just wanted to let you know as a matter of courtesy that we have posted a couple of hopefully inoffensive and amusing items relating to the current situation on the Sakhalin II project in Russia.  It seemed appropriate to inject some harmless humour at what must be a sensitive moment for Shell executives. 

Item 1: Who is going to screw who?

read more

MarketWatch: speculation of BG bid by Royal Dutch Shell Plc lead London

By Donna Haddaway
Last Update: 3:10 AM ET Sep 18, 2006

Bid speculation in the oil sector provided early interest in London on Monday. BG Group rose 1.6 per cent to 650½p amid talk of a 720p per share bid from Royal Dutch Shell, up 0.1 per cent at £17.85.

Elsewhere, BP rose 0.7 per cent at 577½p as Brent rose rose 21 cents to $63.54 a barrel.

 

Wall Street Journal Cease and Desist Notice against this website

TheBusinessOnline: Saudi Arabia lays plans to cover Opec shortfalls

By Nawaf Obaid in Riyadh

17 September 2006
* Iran and Venezuela ready to withhold oil * Iraq and Nigeria hampered by saboteurs

 
As Iran seems likely to flout any United Nation Security Council resolution regarding its uranium enrichment program, sanctions against Tehran could soon become a reality. And even if they aren’t initially applied to the country’s oil exports, they will have a major effect on energy markets, because Iran has threatened to cut oil supplies in retaliation.

To confront this challenge – as well as that from potential disruptions elsewhere – Saudi Arabia has embarked on a strategic energy initiative with the explicit objective of maintaining enough spare oil capacity to compensate for the loss of oil from two of Opec’s major oil exporting countries.

read more

The Wall Street Journal: Woodside Petroleum Encounters Growing Pains

Australian Energy Player
Is Learning Tough Lesson
In Bid for Global Presence
By PATRICK BARTA
September 18, 2006; Page C3

PERTH, Australia — For years, Woodside Petroleum Ltd. was a relatively small regional energy company with good natural-gas assets off the coast of western Australia — and little else.

Then, Woodside went on a world-wide investment spree to diversify. It scooped up assets in the U.S., Libya and Mauritania, and dabbled in places like Kenya and Algeria. Late last month, Woodside offered $883 million for Energy Partners Ltd., a New Orleans company active in the Gulf of Mexico.

read more

Asia Pulse: AUSTRALIAN GOVT AWARDS 12 NEW OFFSHORE OIL PERMITS

CANBERRA, Sept 18 Asia Pulse – The federal government has awarded 12 new permits for offshore oil exploration in Australia.

Resources Minister Ian Macfarlane said today the permits would boost investment in offshore exploration by more than $A270 million ($US202.7 million).

“These latest permits cover areas off Western and South Australia, as well as the Northern Territory, bringing the number of permits in Australian offshore waters to a record total of 190,” Mr Macfarlane said in a statement.

read more

Financial Times: US falters in bid to press Sudan on Darfur killings

EXTRACTS: Tens of billions of dollars in equity are at stake, mostly of non-US companies and including two listed Chinese energy giants involved in Sudan’s rapidly growing oil industry which fuels the military with arms and other supplies.

Companies affected by the divestment campaign include PetroChina, Sinopec, ABB, Alstom, Siemens, Schlumberger, Tatneft of Russia, Italy’s Finmeccanica, Weir Group of the UK, and Shell.

THE ARTICLE

By Guy Dinmore in Washington
Published: September 18 2006 03:00 | Last updated: September 18 2006 03:00

read more

Financial Times: $20bn Royal Dutch Shell project faces Russian snag

By Neil Buckley in Moscow
Published: September 18 2006 03:00 | Last updated: September 18 2006 03:00

Russian officials vowed to step up efforts to remove a key environmental permit for a $20bn natural gas project led by Royal Dutch Shell in the Russian fareast after the country’s prosecutor-general said the permit did not comply with the law.

The prosecutor’s statement, released on its website on Saturday, could significantly strengthen the hand of Russia’s environmental watchdog as it attempts to halt work on the massive Sakhalin-2 project, alleging abuses of environmental laws.

read more

The Financial Times: BP orders worldwide overhaul after blast

By Carola Hoyos and Ed Crooks in London
Published: September 17 2006 22:02 | Last updated: September 17 2006 22:02

BP, Europe’s second-biggest listed energy group, is set to launch a root and branch review of its global operations in response to last year’s Texas City refinery blast, in which 15 people died.

The revamp, to be led by John Mogford, vice-president of safety and operations, is likely to take 5-10 years and is on a scale similar to the overhaul Exxon began after its huge oil tanker spill at Alaska’s port of Valdez in 1989.

read more

The Economist: Top companies by market capitalisation

Sep 14th 2006

From The Economist print edition

TheEdgeDaily (Malaysia): Saw wants all locals running Shell Malaysia

Saw Choo Boon

Shell Malaysia chairman Saw Choo Boon) 

By Alfean Hardy

Shell Malaysia chairman Saw Choo Boon sees the main challenge in promoting growth of the company as coming from the development and motivation of its local workforce, and preventing complacency from setting in.

He said among the challenges he faced in ensuring growth was in people and talent development, particularly for Malaysians.

“How fast we can train Malaysians is a concern; we want to do it as fast as possible. I would love to see this whole business run by Malaysians,” he told FinancialDaily.

read more

%d bloggers like this: