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Posts on ‘September 20th, 2006’

Financial Times: TNK-BP gas field development faces suspension

By Arkady Ostrovsky and Carola Hoyos in London
Published: September 21 2006

Russian prosecutors have threatened to suspend an exploration license for TNK-BP, the Anglo-Russian joint venture, to develop Kovykta, the massive gas field in Eastern Siberia.

A source familiar with the situation said prosecutors in Irkutsk, the capital of Eastern Siberia, demanded that a local agency for natural resources suspend TNK-BP’s licence on environmental grounds and for failing to fulfil terms of the licence.

The source close to Rusia Petroleum, a holding company formed to develop Kovykta of which TNK-BP owns over 60 per cent, said prosecutors cited the company’s failure to bring the field on line in accordance with the agreed timetable. read more

Financial Times: Putin makes Shell’s ‘big ears’ flap

By Paul Betts
Published: September 21 2006

A few years ago, Jeroen van der Veer admitted to Stanford MBA students he had “very big ears”. This has proved a useful asset for Shell’s self-effacing boss. After all, he explained, the rule of the game in running a multinational business was quite simple – “politicians speak, entrepreneurs listen”.

His ears are likely to be flapping more than usual on Friday. Vladimir Putin is coming to Paris for talks with Jacques Chirac, French president, and Angela Merkel, Germany’s chancellor. The issue of Russia’s strong-arm energy tactics and its decision to block the massive Shell-led Sakhalin 2 project are expected to feature prominently. read more

Financial Times: Hail to risk managers

21 September 2006

Regulatory risk comes in many sizes and measuring it is notoriously difficult. There is the variety that utilities worry about – the threat, say, that an appointed regulator will tighten the price cap a couple of revolutions more than anticipated – and then there is the scarier sort that puts travelling British executives in jail in the US at the stroke of a judge’s pen.

Capricious and over-zealous application of legislation and regulation – as in the case of the US clampdown on online gaming companies or Russia’s threats to hold up BP and Royal Dutch Shell’s projects there – is worth campaigning against. That is a task for corporate lobbies and, in extreme cases like these, for governments. But companies should not allow their sense of outrage or fear blind them to the opportunities that were the reason they originally pushed into promising but uncertain new territory. By pursuing those opportunities, they also apply strong, if indirect, market pressure to the authorities. read more

Financial Times: Cost of search for energy reserves soars

By Carola Hoyos in London
Published: September 21 2006

The costs of finding additional reserves of oil and gas have soared, an industry study shows, adding to the malaise of international oil companies.

“Reserves replacement costs surged 73 per cent as increased capital spending did not translate into incremental reserve additions,” a study of 200 oil and gas companies found.

The world’s proved reserves of oil and gas rose just 2 per cent to 257.7bn barrels, while production increased 1 per cent to just shy of 19bn barrels, the authors of the study, John S. Herold, the Houston-based research company, and Harrison Lovegrove, the London advisers, found. read more

UpstreamOnline: EBRD delays Sakhalin 2 loan decision

Shell pectin

By Upstream staff

The European Bank of Reconstruction and Development (EBRD) said today it would not decide whether to extend a key loan to Anglo-Dutch supermajor Shell’s Sakhalin 2 project until it settles a dispute with the Russian government.

Earlier this week Russia suspended the Shell-led Sakhalin Energy Consortium’s environmental permit to proceed with the $20-billion oil and gas project in a move analysts see as part of a Kremlin attempt to gain a stake in the project.

A $7-billion financing package hangs on the EBRD’s decision, which had been expected this month after years of discussions between Sakhalin Energy and the EBRD to ensure the project met the Bank’s environmental rules, Reuters reported. read more Shell sees oil at $30-$40

Company says it will stick to its longtime price assumption, plans on expanding refinery capacity.

September 20 2006: 4:41 PM EDT

AUSTIN (Reuters) — Shell Oil Co. is maintaining its oil price assumption for evaluating projects at between $30 to $40 a barrel, despite the recent slide in oil prices, the company’s president told Reuters on Wednesday.

“We’ve been maintaining the price assumption between $30 to $40 a barrel for some years and we intend to continue that,” John Hofmeister, who heads the U.S. unit of Royal Dutch Shell (Charts), said. read more

The Motley Fool: Petulant President Putin

By Rich Smith (TMFDitty)
September 20, 2006

“All I really need to know, I learned in kindergarten,” goes the saying. Here, at least. Over in Russia, I’m guessing it goes more like: “What I didn’t learn in dyetsky sad, I never learned.”

Case in point: Russian President Vladimir Putin, who’s acting less like a “Vladimir” and more like a tantrum-throwing “Vova” with every passing day.

In the latest fit of presidential petulance, The Moscow Times reports that the Kremlin has apparently tried to pull out of a deal for Russian national carrier Aeroflot to purchase 22 Boeing (NYSE: BA) 787s, to counterbalance a similar deal to purchase 22 Airbus A350s. The original plan was for Aeroflot, which is controlled by the Russian state, to make purchases from both of the world’s dominant large aircraft-builders, playing one against the other in pricing negotiations. read more

St Diplomatic flak for Moscow’s Sakhalin move

Big News
Wednesday 20th September, 2006 (UPI)

Japan, Britain and the European Union are pressuring Russia not to renege on a signed agreement with foreign investors to develop a huge oil and gas field.

In the 1990s the Kremlin signed a series of production-sharing agreements, known as PSAs, with various western energy companies to develop Pacific Rim oil and natural gas reserves.

But since then Moscow has begun using its state-run OAO Gazprom to nationalize natural resources. Gazprom pushed Royal Dutch Shell PLC, which is running the $20 billion Sakhalin II project, to deal it in for a 25-percent stake in exchange for a 50-percent stake in a smaller Russian natural gas field. read more

The New York Times: Executive lays out Gazprom’s vision for Asia-Pacific region

By Andrew E. Kramer

Published: September 20, 2006
MOSCOW A top executive of Gazprom, the Russian natural gas monopoly, expounded Wednesday in a speech at an economic forum on his company’s sweeping plan for controlling supplies in the Asia-Pacific region – one some analysts say would replicate in Asia a strategy that served the company well in Europe.
Gazprom’s deputy director, Aleksandr Ananenkov, spoke just two days after the Russian government withdrew an environmental permit for a consortium led by Royal Dutch Shell on Sakhalin Island.
That action threw the future of the venture as a foreign-controlled development into doubt. Gazprom is negotiating to join the consortium; energy analysts say the environmental ruling appeared to be a nudge by the Russian government to force Shell to sell a stake to the Russian company, or risk expensive delays.
Also, in another setback for Shell, the European Bank for Reconstruction and Development said Wednesday that it would withhold a $200 million loan from the consortium if the Russian government formally revoked the environmental permit. This could delay other, linked commercial bank financing and raise overall capital costs for the $20 billion development.

The action in Sakhalin came as Gazprom was maneuvering to control another natural gas field in Siberia now owned by BP’s joint venture in Russia: TNK-BP’s Kovytka field in the Irkutsk region.
Gazprom has detailed plans to link Sakhalin by pipeline with natural gas fields in eastern Siberia, and ultimately western Russia, into a unified system that will supply both domestic users and customers in Asia, Ananenkov said.
“Already today, Gazprom possesses more reserves of natural gas than all countries of the Asia-Pacific region combined,” he said, according to excerpts provided by Gazprom. “This creates a solid base for relations between our company and any government in this region.”
The company has a timeline for natural gas pipe laying in Siberian provinces from the Altai Mountains to Vladivostok, he said. Ananenkov said mostly untapped natural gas deposits in Sakhalin, Irkutsk, Krasnoyarsk and Yakutia would power this integrated domestic- and export-oriented system.
It is a vision of monopolistic supply, according to Rory MacKarquhar, director of Goldman Sachs in Moscow.
“The simplest, and least damning, explanation is the same reason they insist on this in Europe,” he said, referring to Russia’s stated economic goals for maintaining a monopoly on natural gas. “They see no advantage to Russia competing with itself in gas supply. They are in a much stronger bargaining position when they have a united front. This holds true in the east as well as the west.”
The problem is, Gazprom does not own the field licenses to supply enough natural gas to meet its vision of a monopoly in the east, according to analysts; those licenses now belong to foreign companies that entered Russia in the 1990s. For most of the 1990s, Gazprom ignored the Asian market, focusing on traditional customers in Europe. Fields in the east were snapped up by foreign companies, such as BP or Shell, eager for a toehold in northeast Asia. It was the most liberal and diversified region in Russian energy development.
Now, Shell is the only company in Russia marketing natural gas for export outside of Gazexport, Gazprom’s export arm, and is an exception that potentially could undermine Gazprom’s future pricing power in Asia.
“For many years, Gazprom has been trying to push its entry into Kovytka and Sakhalin projects,” said Vitaly Yermakov, research director for Russian and Caspian energy in Cambridge Energy Research Associates.
“Russia needs to have the opportunity to apply price pressure on its counterparts, both in the west and the east,” he said. “That is the whole point of the export monopoly.”  read more

Bloomberg: EBRD May Delay Sakhalin Loan Decision on Permit Halt (Update1)

By Stephen Voss

Sept. 20 (Bloomberg) — The European Bank for Reconstruction and Development needs to know whether Royal Dutch Shell Plc’s $20 billion Sakhalin-2 project in Russia has a valid permit before it can decide whether to provide funding.

The bank has already twice delayed its decision on a loan as an internal EBRD team examines whether the oil and gas project in eastern Russia meets its environmental and sustainable development standards.

Russia’s industrial safety inspectorate is expected to authorize by tomorrow a Natural Resources Ministry order canceling a key Sakhalin-2 operating permit on environmental damage grounds, ministry spokesman Rinat Gizatulin said yesterday. read more

Bloomberg: Dutch Foreign Ministry Asks Russia to Explain Sakhalin Decision

By Fred Pals

Sept. 20 (Bloomberg) — The Dutch Foreign Ministry wants an explanation from the Russian government for the cancellation of Royal Dutch Shell Plc’s permit for the $20 billion Sakhalin-2 oil and gas project.

Russia’s industrial safety inspectorate is expected to authorize by tomorrow a Natural Resources Ministry order canceling a key Sakhalin-2 operating permit on environmental damage grounds. The move underscores Russian President Vladimir Putin’s tightening grip on the nation’s energy industry. read more

Bloomberg: Russia Raps Exxon, Shell for Environmental Breaches (Update4)

By Christian Schmollinger and Shigeru Sato

Sept. 20 (Bloomberg) — Russia’s government denounced projects led by Exxon Mobil Corp. and Royal Dutch Shell Plc for breaching environmental rules, as President Vladimir Putin seeks tighter control of the oil and gas industry.

Exxon’s Sakhalin-1 venture failed to complete safety measures at De Kastri, a Far East export terminal, while Shell’s Sakhalin-2 project may be charged with destruction of forests, a criminal offence, officials in Russia’s Ministry of Natural Resources and industrial safety inspectorate said. read more

Dow Jones Newswires: Sakhalin II Woes May Have Knock-on Effect On Loan-Sources

Wednesday September 20th, 2006 / 17h20 
LONDON -(Dow Jones)- Royal Dutch Shell PLC’s (RDSB.LN) environmental and contractual issues with the Russian government on the Sakhalin II project could trigger a knock-on effect on talks to get a $500 million loan from the European Bank for Reconstruction and Development, or EBRD, people familiar with the matter said.

Approval for the estimated $500 million EBRD loan is itself tied to a larger $5 billion project financing effort.

Tuesday, the Russian Ministry of Natural Resources pulled a key environmental permit for the second phase of a Far Eastern oil and gas project. An EBRD spokesman said earlier this week that should the permit not be reinstated, the bank wouldn’t be able to approve the loan. read more

The Wall Street Journal: EU, Japan Object To Russia’s Move On Shell Permit

September 20, 2006; Page A11

Russia’s move to revoke an environmental permit for a $20 billion oil-and-gas project led by Royal Dutch Shell PLC sparked protests from Europe and Japan.

Meanwhile, Russia’s OAO Gazprom said talks aimed at bringing the state-controlled gas monopoly into the giant project on the Far East island of Sakhalin have made no progress since Shell announced costs would double more than a year ago.

Russia’s Ministry of Natural Resources said Monday it was withdrawing its approval for the second phase of the project because of allegations Shell had violated terms of the deal. Shell denies that. read more

The Wall Street Journal: Oil News Roundup: September 19, 2006 5:22 p.m.

September 19, 2006 5:22 p.m.

Crude-oil futures tumbled on the New York Mercantile Exchange, shedding more than $2 a barrel to settle at less than $62, their lowest close since late March, after an OPEC official suggested the cartel wouldn’t cut production any time soon. Here is Tuesday’s roundup of oil and energy news.

* * *
RUSSIA RAISES HACKLES: Russia’s move to revoke an environmental permit for a $20 billion oil-and-gas project led by Royal Dutch Shell sparked protests from Europe and Japan. Meanwhile, Russia’s OAO Gazprom said talks aimed at bringing the state-controlled gas monopoly into the giant project on the Far East island of Sakhalin have made no progress since Shell announced costs would double more than a year ago.
read more

The Wall Street Journal: Russia to Review Agreement License With Kharyaga

September 20, 2006 11:38 a.m.

MOSCOW — Russia’s Ministry of Natural Resources said Wednesday that it had officially begun the process of reviewing the Kharyaga production sharing-agreement license for possible cancellation.

The license may be canceled due to underdevelopment of the field, the official, Sergei Fyodorov, head of the ministry’s government policy department, told Dow Jones Newswires.

France’s Total SA, the operator of the field with a 50% participating interest, said it couldn’t comment immediately on the statement. read more

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