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Daily Telegraph: Russia gets its hands on Royal Dutch Shell’s Sakhalin-2 field

By Russell Hotten
Last Updated: 1:21am GMT 12/12/2006

Royal Dutch Shell has bowed to pressure from the Russian government to allow state-owned energy company Gazprom to take over its Sakhalin-2 oil and gas field.
 
The Anglo-Dutch oil company said yesterday that it has made several proposals to Moscow and Gazprom. These are understood to involve Shell and its partners giving up control of the $20bn (£10.2bn) project.

The move by the Kremlin will be seen as a sign that Russia will no longer tolerate foreign investors controlling strategic assets.

Shell owns 55pc of Sakhalin-2, with Mitsui of Japan owning 25pc and Mitsubishi 20pc. It is thought that Shell proposed giving up about 30pc-35pc, and the other two companies handing over about 10pc each.

Gazprom was originally negotiating to take a 25pc stake in Sakhalin-2. Talks collapsed when Shell said the development, on an island in eastern Russia, would require substantial investment.

Shell has faced threats from Russian agencies to terminate operating licences because of environmental violations. These were viewed in the West as attempts to force Shell into submission.

Stephen O’Sullivan, an analyst at Deutsche Bank, said: “The days when foreign companies could envisage control over Russian oil and gas projects are over.”

But, given Sakhalin’s huge revenue potential, Shell would still benefit from being part of the project, he said.

The Sakhalin deal was struck in the early 1990s when oil was around $20 a barrel and Russia’s ailing economy needed foreign earnings. But with oil touching $60 a barrel, Russia wants to reclaim a greater share of earnings.

A spokesman for Gazprom said the company is analysing the proposals. Shell declined to comment.

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2006/12/12/cnshell12.xml

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