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BUSINESS NEW EUROPE: Shell gets stuck in a Sakhalin blog-mire

Business New Europe Sakhalin II

Derek Brower in Colchester, UK
2007-01-08

His office in a modest home in Colchester is littered with computers and other electronic equipment. A wide-screen television is tuned to BBC news. And the dog is in the car, so as not to disturb bne’s correspondent as he interviews John Donovan – David to Shell’s Goliath.

In December, Donovan, his 89-year-old father Alfred and a website he runs from his home in England’s southeast became famous. And, happily for a man who has devoted the past decade of his life to a grudge with Shell, it was all related to the Anglo-Dutch company’s problems on Sakhalin Island in Russia’s Far East.

Asked by a journalist from PetroleumArgus, a trade magazine, who his sources were for the environmental abuse charges he has laid against the Sakhalin Energy consortium developing a liquefied natural gas (LNG) project on the island, Oleg Mitvol, deputy head of Russia’s environmental watchdog Rosprirodnadzor, said he had “email correspondence between executives in Sakhalin Energy management from 2002.”

The kompromat, or compromising material, had come from Donovan, owner of the anti-Shell website www.royaldutchshellplc.com, Mitvol said.

Mitvol is an increasingly controversial figure in Russia. His campaign against Sakhalin Energy, a consortium led by Shell, has led to charges amounting to $30bn. He is also waging a campaign against Peter Hambro Mining, accusing the company of violations in the development of gold mines and pushing for the revocation of two licenses in the Yamal region.

Despite Mitvol’s claims to the contrary, few doubt that his eco-campaigning is related to Gazprom’s efforts to muscle in on the project. The Kremlin believes that the production-sharing agreement (PSA) it signed in 1996 with Shell and others has turned into a disaster. As the costs of the project have risen from $10bn to more than $20bn the time when Russia will begin profiting from a project developing its resources has become more distant. According to the terms of the PSA, the consortium is allowed to recover its costs before splitting revenue with the government.

Given that Gazprom wants into the world’s LNG market, the rising costs and the alleged environmental abuses seem to have been too good an opportunity to miss. The eco-charges laid the foundation for Gazprom’s efforts to get a share of the contract and on December 21 the Russian monopoly succeeded, taking a 50%-plus-one-share stake in the project at a cost of $7.45bn. Beneath a picture of Vladimir Putin at the top of Donovan’s website is the taunt: “Putin: Shell’s new boss?”

Either way – paying the fines or letting in Gazprom – Shell has been humbled on Sakhalin. And that makes Donovan and his father very satisfied indeed.

A running sore

Their website is an open wound for Shell. The Anglo-Dutch major has tried to shut it down on the grounds that it uses the company name. But it can’t, because www.royaldutchshellplc.com makes no money. For good measure, Donovan registered the site in the US, where laws on websites are weighted in favour of the domain owner.

“We wanted it to become a magnet for people who had a problem with the company,” says Donovan.

It has. The Ogoni tribe of Nigeria use the website to spread information about Shell’s activities in the Niger Delta. And Shell insiders frequently post on the site’s “livechat” facility.

“I’ve also heard that Athabasca Sands in Canada has some serious cost problems developing,” wrote one contributor in December, under the pseudonym SakhalinMollusc. “Anyone know if that is true or not? If so Shell is really on the ropes with Canaa [sic] & Sakhalin over-budget, reserves shrinking & Nigeria production being lost by the day.”

The site had 1.7m hits in November and gets more by the month. Shell has taken out injunctions to stop at least one of its disgruntled geologists from posting information on the site, says Donovan. But he adds that he still speaks to this insider on a regular basis.” And Donovan claims that he and his disgruntled insiders on the website were well ahead of the curve on Shell’s reserves scandal of 2003-04, in which the company was found to have inflated its oil and gas reserves by some 20%, or almost 4m barrels.

How the website came to the attention of Mitvol and the Russian government is indicative of just how bold Donovan has become in his fight against Shell. “I wrote to President Putin in 2005,” he says. The letter, says Donovan, offered the Kremlin inside information about how far Shell’s costs on the project would exceed the original plans. Donovan’s insiders now say the project could cost up to $26bn.

He didn’t get a reply. So he wrote to Mitvol, with more details about Shell’s environmental problems on the island. Mitvol didn’t reply either. But the silence, it has become clear, was not because Donovan’s information was being ignored.

The grudge that stole Christmas

For a man and his father who have devoted the past decade to waging a war against Shell from their home in Colchester, the Sakhalin news and Mitvol’s commendation of their work was a welcome Christmas gift.

The grudge goes back several years. Donovan and his father, who had been in the garage business since the 1950s, began selling ideas for promotions to attract customers to petrol stations. A typical scheme would involve a tie-in to a popular film. Shell liked the ideas that Don Marketing, the Donovan’s company, sold to them. Petrol and other sales increased by 30% on the back of some of the campaigns.

Then, says Donovan, in the early 1990s a new manager in Shell’s promotions division started stealing the ideas. They complained to the company’s senior management and were ignored. So the Donovans took to the streets with guerrilla tactics.

Alfred Donovan, already in his 80s, started visiting Royal Dutch/Shell’s headquarters in The Hague and in London. The two men and a handful of supporters picketed outside the buildings. And, using the company’s own language, they founded the “Shell Corporate Conscience Pressure Group” to pester the company about its behaviour. Driving up and down the motorway to petrol stations in the UK, the two men surveyed garage owners, canvassing their opinion of Shell and had the findings independently audited. “The results were spectacularly bad for Shell,” says Donovan. About 75% of respondents considered it an “unethical” company.

By the time the various lawsuits claiming that Shell had stolen their intellectual property approached a judgment in the High Court, Donovan claims he and his father had become victims of the company’s underhand tactics against them. “By coincidence or otherwise” their home and the homes of their solicitor and other witnesses in the trial were burgled. And a “journalist” who turned up to interview the men and others involved turned out to be no such thing. Then a man hired by Shell to investigate Don Marketing was caught going through their mail. Shell, says Donovan, admitted to having employed the snoop.

Donovan also alleges that personal connections between Sir Mark Moody Stuart, then managing director of Shell Trading, and the High Court judge ruling on the lawsuit undermined their claim. At the end of the trial, the judge commended Andrew Lazenby, the Shell employee at the centre of the Donovans’ claims, and criticised John Donovan. But Donovan also alleges that Shell had intervened when the men applied for Legal Aid, helping to ensure that their representation in court was weak. In the event, a criminal barrister represented John Donovan, and not a specialist in intellectual property. Alfred Donovan had no representation at all: his legal representation had to withdraw after legal aid was revoked.

Shell would not speak publicly about Donovan’s allegations to bne, but, privately, supporters of the oil company have reiterated the High Court judge’s condemnation of Donovan.

Donovan’s claims about Shell and its alleged tactics are wild and unverifiable. But Shell agreed to settle out of court, paying the Donovans a sum “in the thousands” as part of a “peace treaty” stipulating that neither party speaks about the matter in future. The Donovans were disappointed by the sum their claim had been for around £1m but accepted “under duress.”

That was in 1999. But, says Donovan, Shell then broke the “peace treaty” by making disparaging remarks about the men when another marketing contract that they were involved in came up before Shell.

And so Donovan launched his websites. Aside from “www.royaldutchshellplc.com“, earlier versions such as “www.shellsucks.com“, “www.shellnews.net” and “www.tellshell.net” (based on Shell’s own attempt to be transparent at www.shell.com/tellshell)also drew in commentary about controversial Shell activities, ranging from the reserves scandal, to Nigeria, to Shell’s efforts to build a “potentially environmentally calamitous” pipeline from the Corrib gasfield offshore Ireland to an onshore terminal.

The main site costs $2 a week to run. Donovan’s nephew, Nick, is the technological mastermind behind it. But the readers include Nigerian activists, anti-globalisers, international journalists, irritated Shell executives, and of course Alfred Donovan, an 89-year-old veteran of the Second World War whose sharp mind sits inside a diabetic body with only half a lung.

And the readers also include Oleg Mitvol and Russia’s environmental watchdog.

“Shell is not the worst oil company in the world,” says Donovan, “but we feel they mistreated us very badly.”

Donovan says Shell could have settled with the two men for £1m in 1998. Instead, Shell settled with the Russian government for $7.45bn.

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