TNK-BP and BP declined to comment yesterday on the decision from RosPrirodNadzor, which was reminiscent of the manouvering by Russian agencies that resulted in Shell losing control of its Sakhalin project in the Russian Far East in 2006.

ExxonMobil is (XOM) at loggerheads with the Russian government over the Sakhalin I project. The issue is the one that eventually spelled Shell’s (RDS.A) doom in Sakhalin II: Development costs under the production sharing agreement (PSA):

If successful, Mrs al Musawi’s case could set a legal precedent that would invalidate all the agreements that Iraq secured last year – with BP, CNPC, ExxonMobil, Petronas, Royal Dutch Shell, Eni, Gazprom and Lukoil.

Shell Chief Executive Peter Voser said his company looks “forward to a good cooperation with the government,” but he refused to say how much money will be spent on the project.

PETROLEUM ECONOMIST

A new book tells the story of the oil industry’s boom-bust cycle through the personalities of its main protagonists. It isn’t always a flattering portrait, writes Derek Brower

The book is especially strong on such juicy details, not least when it describes the machinations – rivalries, personality clashes and egos at work – during the mega-merger period of the late 1990s. Browne’s successor, Tony Hayward, is seen entertaining Gazprom boss Alexei Miller at a Chelsea football match in London. Shell’s former chief, Jeroen van der Veer, argues in German, without interpreters, with Russia’s then president Vladimir Putin about the Sakhalin Energy project at a private function in Holland. And so on.

The majors also have personalities. Exxon, a participant in the mega-mergers when it bought Mobil, is the brooding presence throughout. Shell was repeatedly bruised by run-ins with environmentalists and activists, and its bi-national schizophrenia left it flatfooted as Browne and BP seized the agenda.

Shell also handled its Russian investments badly, unintentionally antagonising the authorities, with humiliation on Sakhalin island the result. The Anglo-Dutch firm emerges from the narrative as a sluggish behemoth, crippled by internal rivalries between the Hague and London, undermined by its own constitution and eventually brought low by the reserves scandal. Phil Watts, the chairman at the time, who was eventually exonerated from wrong-doing in the affair, receives relatively sympathetic treatment in the book. Shell did wrong, acknowledges Bower, but other majors were booking reserves in a similar way and escaped censure or lobbied their way out of it.

But it’s not a book that leaves the reader feeling positive about the characters who dominate the world’s most important industry. “Oil men can play to any rules they are asked to play,” Bower quotes former Shell chairman John Jennings. “Oil breeds arrogance because it’s so powerful.”

THE ABOVE ARE EXTRACTS FROM DEREK BROWER’S REVIEW: FULL REVIEW

Russia, holder of the world’s biggest gas reserves, in February inaugurated an LNG plant on Sakhalin Island, entering Asia Pacific markets after relying on pipelines to Europe for decades. The $22 billion Sakhalin-2 project began year-round oil exports in December last year after previously being limited to seasonal shipments because of ice. Sakhalin-2 partners, who include Royal Dutch Shell Plc, had planned to send 55 LNG tankers from the plant this year. Gazprom owns 50 percent plus one share of Sakhalin Energy, while Shell owns 27.5 percent, Mitsui & Co. 12.5 percent and Mitsubishi Corp. 10 percent.

Dec. 13 (Bloomberg) — Royal Dutch Shell Plc and OAO Lukoil will join BP Plc and Exxon Mobil Corp. among Iraq’s top oil producers based on their pledges in winning bids this weekend as the country auctioned 28 percent of its crude assets.

Three British companies — BP, Cairn Energy and BG Group — are among the bidders, alongside companies such as Royal Dutch Shell, Total and Gazprom. Competition is expected to be fierce and the groups were reluctant to reveal which fields they wanted.

Royal Dutch Shell is hopeful that it will gain an equity stake in a giant Russian gas field that could supply all of the world’s needs for a decade. Peter Voser, Shell’s chief executive, said that talks with the Russian government about the Yamal project in the Siberian Arctic were progressing well.

Rise of the gripe site

Extracts from Prospect Magazine Article “Rise of the gripe site”: February 2007
By Derek Brower, senior correspondent Petroleum Economist

How two men and a website in Colchester humbled one of the oil industry giants

It is not the kind of place you would expect to find at the centre of a global energy war. John Donovan’s office is in a modest house in a suburb of Colchester. No electronic maps of Europe adorn his walls, as they do the walls of Gazprom’s Moscow control room. And nor are there any butlers bringing cups of tea and expensive biscuits, as you find at Shell’s head office on the Thames. There is just Donovan’s 89-year-old father, Alfred, in the room next door.

But it is the home of www.royaldutchshellplc.com. a website which can claim to have cost Shell billions of dollars-and helped Vladimir Putin score another victory over western energy interests. This is how.

At the end of December, the Kremlin’s politically driven campaign to win control of a liquefied natural gas project on Sakhalin Island came to its predictable climax. The deal signed in Moscow between Shell and Gazprom saw the Russian company take 50 per cent plus one share of Sakhalin Energy, the consortium developing the project.

It was an offer that Shell and its two Japanese partners on Sakhalin could not refuse. The project, on a remote island notorious for its harsh winters, is one of the largest ever attempted. Sakhalin Energy will produce 9.6m tonnes per year of liquefied natural gas and 180,000 barrels per day of oil when it comes on stream in 2008.

But Sakhalin ran into serious problems. The most important was its escalating costs. In the mid-1990s, when Shell signed the contract, the oil price was low and Russia was on its knees financially. Moscow needed the expertise Shell offered. But by the time Shell was announcing a doubling of costs on Sakhalin, President Putin was rather less respectful of foreign energy companies. The cost increase-which postponed, some said indefinitely, the moment when Russia would profit from the production of its own energy reserves-was too much for impatient officials in Moscow.

To get control of the project, the Kremlin … suddenly got green. It unleashed Rosprirodnadzor, the country’s environmental watchdog, on Sakhalin. The alleged environmental abuses of the project-including deforestation, disruption of marine life, and careless infrastructure across an earthquake-prone region-are so bad that they “threaten to make Exxon Valdez look small,” says one insider.

Oleg Mitvol-the deputy head of Rosprirodnadzor, who was entrusted with the job of bringing Sakhalin Energy to heel-had by last December accumulated sufficient evidence of Shell’s and its partners’ abuses to lay charges against the consortium amounting to $30bn. There were also threats that the licence to develop the project could be removed.

With the green gun at its head, Shell allowed Gazprom to take control of the project-giving Russia an immediate share of profits and oversight of costs.

Taking the role of the humiliated man seriously, Shell’s head Jeroen van der Veer thanked Putin for helping to resolve the conflict.

What most astonished Shell was the detailed inside knowledge Mitvol had accumulated about the company’s abuses. Some in the company suspected industrial espionage. But it was actually information that the Donovans of Colchester were passing to Mitvol. The two men had received detailed material about Shell’s ecological abuses on Sakhalin: a catalogue of corner-cutting, mismanagement and efforts to cover up damaging evidence.

They say they got this information from Shell insiders. Mitvol clearly trusted the material, and in December he admitted for the first time publicly that his deep throat on Sakhalin was John Donovan.

The Donovan website has become an open wound for Shell. The Anglo-Dutch giant has tried to shut it down on the grounds that it uses the company name. However, as www.royaldutchshellplc.com makes no money, this hasn’t worked.

“We wanted it to become a magnet for people who had a problem with the company,” Donovan told me when I visited him recently. It has. The Ogoni tribe of Nigeria uses the website to spread information about Shell’s activities in the Niger delta. And unhappy Shell insiders frequently post on the site’s live chat facility.

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

The site had around 1.7m hits in November. Its role in Shell’s embarrassment on Sakhalin has raised its profile. Understandably, the company is worried about the information that leaks on to the website: Donovan says that it has taken out injunctions to stop at least one of its disgruntled geologists from posting on the site. He also says that his site and its whistleblowing insiders were well ahead of the pack on Shell’s reserves scandal of 2003-04, when the company inflated its oil and gas reserves by some 20 per cent.

The source of John Donovan’s grudge … centres on the accusation that Shell stole intellectual property belonging to him and his father. They had been in the garage business since the 1950s and 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 Donovans’ company, sold to them, says Donovan, and sales increased by 30 per cent 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. The men complained to the company’s senior management but were ignored. Offended that a company with which they had worked for so long should treat them this way, the Donovans began their guerrilla war.

After various legal actions, 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 speak 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 later broke the “peace treaty” by making disparaging remarks about them.

So Donovan launched his website-which costs only around £1 a week to run. And thanks to the ecological problems on Sakhalin, Shell’s poor record for bringing projects on stream on time and on budget and the power of the web, the Donovan grudge against Shell came to a spectacular climax in December.

Donovan is not worried that his site became an instrument in the Russian government’s ambition to become an energy superpower.

“Shell is not the worst oil company in the world,” says Donovan, “but we feel they mistreated us very badly.” Shell could have settled with the two men for £1m in 1998. Instead, Shell settled with the Russian government in December, with $30bn in fines hanging over the company’s head.

Leaflet published in October 2009 by John Donovan of royaldutchshellplc.com