From John Donovan, owner of the news based website focused on Royal Dutch Shell www.royaldutchshellplc.com and a long term Shell shareholder
Mr. Enery Quinones
Chief Compliance Officer
The European Bank for Reconstruction and Development
One Exchange Square
London EC2A 2JN
Tel: +44 20 7338 6944
Fax: +44 20 7338 7633
Email: [email protected]
Dear Mr. Quinones
RE: SAKHALIN II PROJECT
It is my understanding that a decision is pending by the EBRD on a loan in respect of the Sakhalin Energy project in Russia in which Royal Dutch Shell Plc is the lead partner and majority shareholder.
I wish to officially draw to your attention the existence of Shell internal correspondence in 2002 between senior Shell managers including the technical director of Sakhalin Energy which place a question mark over important safety and environmental issues and the possibility of a cover-up.
These are the documents on which Mr Oleg Mitvol, the Deputy Head of Rosprirodnadzor, the Russian environmental agency, is basing a pending legal claim against Shell for $10 billion dollars. Mr Mitvol has confirmed to the news media that I supplied the evidence to him.
Links to some related articles:
argus-eyes.com: Mitvol turns up the heat: I received these letters from John Donovan, owner of the anti-Shell website www.royaldutchshellplc.com. (Argus FSU Energy: Covers the oil and gas industry in the former Soviet Union with analysis on politics, investments and trading. Includes unique and valuable data on production and flows of crude and refined products within and out of the region.)
(Argus FSU Energy: Covers the oil and gas industry in the former Soviet Union with analysis on politics, investments and trading. Includes unique and valuable data on production and flows of crude and refined products within and out of the region.)Sakhalin II: Apocalypse Now? A potential environmental calamity on a scale never before witnessed by humanity… The following are extracts from the above MarketWatch article about the email correspondence:
The following are extracts from the above MarketWatch article about the email correspondence:The e-mails from Hans Bouman, a natural-gas field manager, to Engel Van Spronsen, then Sakhalin Energy’s technical director, raise the possibility that the company’s risks at the Sakhalin II project go beyond the river bank erosion now under Russian government scrutiny.
In a May 29, 2002 e-mail, Bouman told Van Spronsen he had “started to worry” about potential flaws in the wells’ design after a technical presentation by Sakhalin Energy engineers. He said his concern was particularly related to young seismic faults and shallow gas pockets.
The project’s completion “will all happen after we both retire but, nevertheless, I am a shareholder and I am worried,” Bouman wrote. “All this (is) probably hearsay and no science or hard facts but still, I get this sinking feeling.”
Mr Mitvol is quoted as saying that Sakhalin Energy is in a state of shock over the documents. He wrote to them seeking confirmation of authenticity and has not received a response. He is also quoted as saying that Russian “special services” are investigating. This may have relevance to reports we have received about Sakhalin Energy employees being followed. We thought that this was down to activity by Shell spooks. We have it on good authority that spyware has been installed on all Shell pc’s and laptops in the hunt for the Shell “insiders” who have been leaking information to us. Shell has previously admitted using undercover agents against us and other perceived enemies such as Greenpeace.
In any event, two news organisations have independently confirmed the authenticity of the documents. I can also testify that the emails are 100% genuine.
I thought that you might like to receive a copy of the relevant email correspondence so that you can make your own judgement over the content.
THE BOUMAN/SPRONSEN EMAILS
From: Bouman, Hans MGJ NAM-ELG
Sent: 29 May 2002 01:24
To: Van Spronsen, Engel
Long time no hear! Hope all is well. I write this in english as you may want to quote from this email. I write it completely on personal title, nothing is of my business and if you think I am talking crap, just delete it.
We had last week a visit of some of the Sakhalin team people to look at our big wells (Pauwen-6 and Norg) because your project would need very big wells.
We have shown them around in the field and passed some data along and at the end of the day there was a short meeting during which they presented some stuff on the Lunskoye field. During that meeting I told them not to underestimate the difficulties of putting in a 9 5/8″completion, this is a major project and not a copy paste job!
When they talked (with great enthusiasm!) about the well completions and other problems (earthquake area, young faults that have gasplumes, half a year no access to platform etc) and I saw the completion design, I started to worry, especially on the oil producers.
Engel, several of us had the same feeling: this is not going too well. On some general questions why not this or that (e.g. sub sea templates like in Troll or Draugen) we heard: yes you are right but we are now schedule driven…..
I couple that to emails from a subsurface hand I know in the Sakhalin team and he is also apprehensive. And later, not related to any of this I heard from Teun van Waart that many moons ago EP declined to do something in this field because the risks were too high but that G&P had signed a contract anyhow.
All this probably hearsay and no science or hard facts but still: I get this sinking feeling. I would NEVER EVER want to be schedule driven pre FID on a 9 billion $ project. That is asking for problems.
I also hope nobody will state somewhere that NAM has reviewed their design and it is now OK. We never did anything like this.
I can only advise to be very cautious, ask some senior people to comment/design stuff in this are and get the biggest bastards you can find for a VAR3 to really grill everyone on the team. It will all happen after we both retire but nevertheless: I am a shareholder and I am worried.
Please do not shit on the guys that were here, they mean well and else they will never come forward with ideas etc. NAM could help on reviewing designs or on VARs.
All the above written in great haste and in several different periods so treat it as such.
ps today I agreed on a visit by the Central Development Committee next Thursday. A group of some 13-15 people will visit based on enthusiastic stories by the visitors I described above!
Manager Asset Groningen
Tel: +31 592 3 63276 GSM: 06 201 35 448
Internet: [email protected]
From: Van Spronsen, Engel
Sent: woensdag 5 juni 2002 4:00
To: Bouman, Hans NAM-ELG
Subject: RE: Sakhalin
I never ever think that what you say is crap. I think it shows that the text is written at different time, so my apologies for asking questions to get a good picture.
I accept that a 9 5/8 completion is a major job, but do you have the feeling that the Sakhalin staff got that in their head?
What is exactly your concern about the completion, particularly for the oil wells? I assume that is not related to your paragraph about general questions (sub-sea template).
Thank you for noting that NAM did not sign off on the design (you must however done this, so what do you mean by “We never did anything like this”) . Can you advice me on some real bastards I can use to grill?
I know that Paul Stuivenwold is also apprehensive about the “production technology” input, particularly for the gas wells. Is that the subsurface hand you refer too or are there more?
I share sometimes the same feeling as you about schedule, particularly if the schedule is “very aspirational”. One problem we have however is that the Russian Approval system requires an early lock-in of about everything. Any change immediately sets off a whole series of new environmental impact calculations etc.
Thanks for hosting the CDC. So far this group has been quite reasonable. All experts you can convince with good technical arguments. They are the group who sign off on the reservoir development plan. Unfortunately, the State Reserve Committee is more difficult. One would expect that development plan and reserves have a link, but that link is in Russia not so clear. However, we have even be able to convince the SRC.
Hope to hear from you soon.
From: Bouman, Hans MGJ NAM-ELG
Sent: 25 June 2002 15:49
To: Van Spronsen, Engel
Subject: RE: Sakhalin
I am back since 2 days so here a very short answer.
I believe that the guys that visited us understand that a 9 5/8 completion is a major piece of work. With ‘not signed off’ I mean that we as NAM did not tell Sakhalin all was well with their 9 5/8 well. Their visit was only for info and sharing best practices etc, so no formal NAM involvement. Of course we signed off 14 years ago on the Pauwen6 well and that has worked very well.
My concerns on the lunskoye project were:
– limited time of access to the platform so you must build in redundancy.
– the gasplumes you have over those big faults. What are the chances of re-activating those faults if you drill through them with extended reach wells.
– I forgot the number of wells but understand these will be limited, so what of the reliability of supply?. Also the oilwells would be horizontals from the platform that would produce high watercuts very quickly. But they would perforate the wells higher up for autogaslift since the wells would not flow against 1400 psi surface pressure. They could not argue why not putting a simple LP unit on top and flare some gas for the first few weeks.
– injection of cuttings in this are: any risk for re-activating faults?
– why not use any templates and do everything from 1 platform? (Answer ‘ yes’ we think so too but we are already on a schedule driven programme…)
If you are going to put a VAR team together I suggest you include Willem Heijnen, now in New Orleans for wel and completion design and knowing Willem he will comment on many other topics as well. Also a good designer would be Peter Oosterling, no idea where he is now.
I cannot remember more things but hope this clarifies my worries somewhat. Apparently the visit of the CPC has gone very smoothly, they were very happy to see our facilities and Groningen System. One of our production people drove the bus past the house of Koop in Tjuchem and they all saw the big statue of Lenin in his garden (10 m tall!) This impressed the hell out of them!
We operate a “Live Chat” facility on our website on which Shell insiders often post comments without having to reveal identities. It is the only public platform on which Shell employees can now freely express views and make insider revelations after Shell closed down the “Tell Shell Forum” on its own website. This happened after we exposed a scandalous situation whereby Shell was secretly carrying out censorship of postings. Shell General Counsel Richard Wiseman admitted the censorship policy (in an email to us). We also receive information from a growing network of Shell “insiders” as mentioned above.
Printed below are a selection of Live Chat postings and emails relevant to the Sakhalin project.
LIVE CHAT POSTINGS 3 August 2006
guest_2770: If this is just the beginning of the ministry’s audit of Sakhalin, I wonder what they will find next….
Looks like Gazprom will be getting a lot more than 25% of Sakhalin 2…..
guest_4214: wait until they discover the flawed ERD well designs which have a high chance of causing blow-outs when drilling through the young faults… and wait until they discover that there maybe just insufficient contingency built into the process facilities and number of wells to produce uninterrupted several months unattended. Just imagine if the facility trips in early winter with no possibility to send people there. An LNG plant without gasinput is an expensive piece of kit…. Putin may drive Shell mad until they want to give Sakhalin away for free?
LIVE CHAT POSTING 4 August 2006
The messages posted about the ERD wells through young faults and process facilities deserve to be highlighted. If true, these are both very serious issues. Due to ice and fog, access to the Sakhalin offshore production facilities during the winter months is severely limited, and they are therefore designed to be operated unmanned. In the event that a fault is detected in the production system, the facilities are designed to shut down automatically, cutting the supply of gas to the LNG plant onshore. Manual intervention, investigation and rectification of the fault are then required prior to restarting. Faults are more likely to occur if the system design does not incorporate adequate contingency.
An ERD (Extended Reach Development) well is a extended reach well, designed to drain a reservoir at a distance (up to 8km) from a platform. If an ERD well is drilled through an active geological fault, any geological activity is likely to rupture the well casing and production tubing, causing a blowout (an uncontrolled release of hydrocarbons from the reservoir). The environmental consequences of such an event in winter would be catastrophic as it may be impossible to undertake blowout control measures until the following summer. This could result in the discharge of millions of tons of oil into an ice filled sea, and the Exxon Valdez would look insignificant in comparison. And the whales?
Email received from a Shell insider on 5 October 2006. Please note the caveat.
There is an interesting comment in the Kashagan article by a Total executive, who says that the development has to be re-designed because of safety concerns. Shell was originally the operator of Kashagan, but was kicked out. ENI became the operator by default, but inherited much of Shell’s prior work and project infrastructure – hence the offices for the project are in the Hague rather than Milan. If the development planning for Kashagan was so bad that it now has to be re-engineered, Shell will have some responsibility, casting further doubts on the safety and viability of the development plan for Sakhalin. I have not checked the dates and cannot remember all the details, so it’s probably better not to quote too much of the previous paragraph – although there are certainly plenty of people (doubtless readers of your website) who will be able to confirm/correct my suspicions.
Email received by a Shell insider on 8 October 2006.
The issue of well integrity, as wonderfully illustrated by the Indonesian disaster, is real. If my understanding is correct, the Sakhalin 2 wells are horizontal, and penetrate active, non-sealing, faults. In the event of an earthquake (and they are frequent in and around Sakhalin), it is probable that the wells would be sheared by any movement of a fault. This would cause exactly the same situation as we see in Indonesia, except that it would be further complicated by the fact that the fluid released might be oil rather than gas (both will be produced in Sakhalin) causing an environmental disaster on a scale never seen before, that the eruptions would take place offshore, and that the sea might be frozen preventing any remedial action for several months.
It is obvious from the content of the above that the individuals making these comments are experts in the relevant issues.
We receive information on a regular basis and this is being supplied to Mr Mitvol via his private fax number. News organisations are also activity pursuing these matters.
The fact that Royal Dutch Shell senior management has a track record in cover-up and deceit must be a matter of concern. Are you aware, for example, that the majority of the Board of Directors of Royal Dutch Shell Plc are tainted by what the Chairman of the US Securities & Exchange Commission, Christopher Cox, has branded as a fraud (the Shell reserves debacle). He has described the fraud as being on a par with the Enron, WorldCom, Global Crossing, Tyco, Vivendi and Parmalat scandals
Aad Jabobs, (non-executive Chairman of the Board of Directors, his deputy Lord Kerr (the senior independent Director), Jeroen van der Veer (CEO), Malcolm Brinded (Executive Director for Exploration and Production), Rob Routs (Executive Director, Oil Products and Chemicals), plus non-executive directors, Maarten van den Bergh, Sir Peter Burt, Sir Peter Job, Wim Kok, Jonkheer Aarnout Loudon and Lawrence Ricciardi, are ALL tainted by the reserves fraud.
All are named Defendants in a US Class Action lawsuit originally brought by the UNITE National Retirement Fund and the Plumbers and Pipefitters National Pension Fund. The lawsuit names 27 directors and officers of Royal Dutch/Shell. The suit accuses Shell executives of breach of duties to shareholders, abuse of control, mismanagement, fraud and unjust enrichment. Shell has set aside $500 million to settle the action.
Shell has also already agreed to settle other related lawsuits for over $100 million. Although Shell officially denies any wrongdoing, these settlements amount to a tacit admittance of misdeeds in return for a lesser penalty. Shell management has also agreed to changes in respect of corporate structure and governance, including business ethics. It has also paid over $150 million in fines imposed by regulatory authorities.
Would it be proper or wise for the EBRD to put its faith in the current discredited Royal Dutch Shell management when the stakes are so high, including the fate of the last remaining population of Gray Whales on our planet?
PS. Further information about our website can be found on:
cc. Mr Emmanuel Maurice, General Counsel, EBRD, Fax: +44 20 7338 6150