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Comment on issue of Shell project management credibility (and our credibility) from Tim Newman

08 January 2007

From Tim Newman

Rather than trying to discredit what I wrote by telling your readers I work for Shell Exploration & Production, you’d have been far better responding to the comment itself, i.e. by saying exactly why you disagree with what I have written.

Instead you have made a rather catastrophic blunder in assuming I work for Shell, and I do not. I have no connection whatsoever with Shell and I never have done. I am simply an oil and gas professional, albeit a rather outspoken one, who lives in Yuzhno-Sakhalinsk and disagrees with your assertion that Shell’s reputation for competent project management lies in ruins following the Sakhalin II project.

In the original post on which I commented you said that:

We genuinely welcome open and lively debate.

If you wish your readers to believe that this is true, surely it would have been a better course of action to respond properly to my criticism of your assertion rather than seeking to discredit me personally by branding me a Shell insider? After all, had my comment been written not by me but by a Shell employee, in what way would that have invalidated the point being made?

The article:

Comment from Tim Newman on the article: The Sakhalin II controversy continues

Our Reply  (*for the latest development see news at foot of article)

Hello Mr Newman

The assertion that you work for Shell E & P was based on the following extract from an article published by “OilOnline” on 18 January 2005.

“Tim Newman, Shell E&P, presented lessons learned for SBOP drilling from a dynamically positioned semisubmersible. Most SBOP drilling operations have been conducted from moored semisubmersibles. Among the lessons learned, according to Mr Newman, is to contract a good quality rig. Shell’s rig of choice was the Stena Tay, a 5th generation unit rated for 7,500 ft of water with state-of-the-art pipe handling equipment and over 3 million lbs riser tensioner capability.”

We provided a link to the article. I can only surmise that you were unaware of this article as you would probably have contacted them, as you have us, to advise that the information indicating that you represented or had a connection with Shell was factually wrong. You can see why we assumed that you worked for Shell bearing in mind your Sakhalin background. Perhaps there is, by co-incidence, another Tim Newman who does have a connection with Shell? As you categorically state that you have never had any connection with Shell, then of course we accept that. However, under the circumstances, we do not see this as qualifying as a “catastrophic blunder”. In any event, we are sorry if being wrongly labelled as being connected with Shell has caused you any embarrassment.

With regard to the validity of your comment, it makes no difference other than perhaps carrying greater weight if it had come from a Shell employee or contractor.

Extracts below from independent sources, some of which include quotes from no less an authority than the CEO of  Shell, speak for themselves in regard to the issue of Shell’s reputation for project management (which has not improved in subsequent years and has ended in the current debacle).

We do like to engage in open and lively debate in relation to Shell or our activities and our invitation for you to write an article about the Sakhalin II crisis stands bearing in mind your confirmation that you are an oil and gas professional.

Some extracts (there are many more of the same kind)

The Times 29 July 2005 

In a reference to the Sakhalin cost overruns, admitted by Shell a fortnight ago, Mr van der Veer said: “It is clear we must improve project management.”

Shell’s problems were contrasted with its Texan rival ExxonMobil yesterday. The company announced a 32 per cent profit increase. Lee Raymond, the oil group’s chairman, boasted: “ExxonMobil-operated projects that are key to future volume growth, continue to be on budget and are on, or ahead of, schedule.”

http://www.shellnews.net/week30/timesshellwoes29july2005.htm

The Guardian 29 July 2005

Mr van der Veer acknowledged that “we know we have much more to do, including improving project management” and said the company was working hard “to show steady improvement”.

http://www.shellnews.net/week30/guardianunimpressedwithshellfigures28july2005.htm

London Evening Standard 28 July 2005

“We have to say there are certain large projects which don’t go well at all,” said chief executive Jeroen van der Veer. He denied the blundered project was of lasting damage to the group’s reputation.

http://www.shellnews.net/week30/london_evening_standard28july2005.htm

Financial Times 28 July 2005

Shell, which this month united its Dutch and UK holding companies, is struggling to keep up. It lags behind competitors in production growth, faces lawsuits in the US over false reserves statements and announced a $10bn cost overrun at Sakhalin-2, the flagship Russian project.

Jeroen van der Veer, Shell chief executive, said that Bonga, one of Shell’s most important projects in Nigeria, would also be delayed. “We know we have very much to do, especially in improving our exploration and production project delivery,” Mr van der Veer said.

http://www.shellnews.net/week30/financial_timesdisappointment28july2005.htm

AFX Asia (Focus) 28 July 2005: 

Van der Veer told reporters in a conference call that Shell and Gazprom are currently engaged in “detailed negotiations” on the terms of the swap following the signing of a framework agreement on July 7. Discussions will take “many months” to complete, he added. “There’s still a lot of work to be done,” he said. The pair still share the belief that the asset exchange makes “strategic sense,” Van der Veer stressed. He was commenting on newspaper reports that Gazprom felt short-changed with the exchange, given that the cost overruns and delays at Sakhalin have effectively reduced the value of the asset.

http://www.shellnews.net/week30/afx_asia28july2005.htm

The Observer 24 July 2005

But with exquisitely appalling timing – a week before the unification – Shell announced that one such scheme, its much-vaunted Sakhalin-2 liquefied natural gas project, was $10 billion over budget and well behind schedule. Not only will this hurt the return Shell can make on the project,but it also hurts its credibility, which it had hoped would cease to be an issue after the unification, and hurts it in the area that van der Veer singles out as being most important. Now there are mutterings about further management heads rolling, with the focus on exploration and production head Malcolm Brinded.

http://www.shellnews.net/week29/observershellcracks24july2005.htm

SocialFunds.com 22 July 2005

Last year, Shell (ticker: RD) rocked the business world when it revised its proven oil reserves by 20 percent, later revealing that top executives had foreknowledge of mistakes in reserve statements. Last week, Shell again sent out shock waves when it revised cost projections twofold for its Sakhalin II project, upping estimations from $10 billion to “the order of $20 billion” while simultaneously announcing delays to the project timeline.

http://www.shellnews.net/week29/socialfunds.shelltrust22july2005.htm

NewRatings.com 19 July 2005

In a research note published on July 15, the analyst mentions that the company has indicated that the total capital investment in its Sakhalin II phase 2 project is now projected at $20 billion, which is nearly double the amount estimated when the project was approved in 2003. Royal Dutch/Shell has also indicated that the increased project costs are partly on account of the rise in service costs and raw material prices, adverse currency effects and miscalculations in the budgeting process. The development has raised further concerns regarding the reliability and transparency of the company’s upstream projects, Bear Stearns adds.

http://www.shellnews.net/week29/newratings.shellmiscalculations19july2005.htm

The Moscow Times 19 July 2005

Van der Veer told the Financial Times that the “staggering” cost overruns at its Sakhalin-2 project have dealt a blow to the company’s reputation after last year’s admission it had overstated oil and gas reserves.

“I fully realize it has had an impact on our reputation,” van der Veer said in an interview published Saturday. “I’m concerned it will carry over to other things that we do.”

http://www.shellnews.net/week29/moscow_times.htm

The Wall Street Journal 18 July 2005

It didn’t just over-egg reserves; it also under-egged the costs of developing the giant Sakhalin gas project in Russia. Shell reckons it will now cost $20 billion, or about €16.5 billion, to develop the field. That is twice the amount when the project was approved two years ago. Citigroup estimates that the rate of return on the field will now drop to 11% — below Shell’s hurdle rate. This does little to improve Shell’s image with investors.

http://www.shellnews.net/week29/wall_street_journalstifftherussianstate18july2005.htm

Daily Mail 17 July 2005

THE way in which the stock market shrugged off the disclosure by Shell of a $10bn cost overrun at its Sakhalin-2 gas project in Russia is astonishing. If a national government were to admit an error on such a scale the finance minister would almost certainly pay with their job.

http://www.shellnews.net/week28/daily_mailsakhalinshock17july2005.htm

Forbes 17 July 2005

Forbes: Royal Dutch/Shell Hurt By ‘Credibility Issues’: “…Royal Dutch/Shell Group announced that total capital investment for the Sakhalin II phase 2 project is now estimated at $20 billion, about double the figure given when the project was sanctioned in 2003.”: “Bear Stearns said, “The announcement raises additional concerns about the transparency and reliability of upstream projects and financial returns on future growth. In addition, we believe upside from current levels is limited by lack of oil and gas production growth, and management credibility issues.”: Sunday 17 July 2005

http://www.shellnews.net/week28/forbesshellmanagementcredibilityissues17july2005.htm

Financial Times 16 July 2005

Financial Times: Shell admits impact of Sakhalin-2 overruns: “Jeroen van der Veer, Royal Dutch/Shell chief executive, admitted that the “absolutely staggering” $10bn (£5.7bn) cost overrun on Sakhalin-2, its flagship Russian gas project, was another blow to the group’s standing after last year’s reserves accounting scandal.”: Saturday 16 July 2005

http://www.shellnews.net/week28/financial_timesshelladmitsimpactofsakhalin16july2005.htm

The Times 15 July 2005

THE TIMES: Shell forced to admit Russian costs have doubled: “The doubling of costs and an anticipated half-year delay to the construction schedule is a blow to Shell’s reputation as a project manager and it will lead to further embarrassment with Shell’s partners, including Gazprom, the Japanese investors Mitsui and Mitsubishi, and the Russian Government.”: Friday 15 July 2005

http://www.shellnews.net/week28/timesshellsakhalin15july2005.htm

*Apparently there is indeed a Tim Newman at Shell Sakhalin but it is not the same Tim Newman who posted the comments on this site – both apparently live on Sakhalin, both are apparently oil and gas professionals. The Tim Newman who posted the comments has a bystander’s interest in the Sakhalin II project (which he is obviously entitled to have). It is all an astonishing coincidence. I have sent an email to Tim Newman at Shell in the following terms (and hope I have used his correct email address)… 

08 Jan 2007

This email is intended for the Mr Tim Newman of Sakhalin Energy/Shell Expro 

Dear Mr Newman  I just wanted to apologise for the postings on our website today which arose from a misunderstanding as to identity. The relevant correspondence was with your namesake, Tim Newman, another oil and gas professional who by sheer coincidence lives and works on Sakhalin. We had no idea that you were two different people.  The situation became so complex and farcical that rather than trying to explain what happened, I would simply apologise for any embarrassment caused to you.

Yours sincerely
John Donovan

royaldutchshellplc.com and its sister websites royaldutchshellgroup.com, shellnazihistory.com, royaldutchshell.website, johndonovan.website, shellnews.net, shell2004.com, shellshareholders.org, don-marketing.com and cybergriping.com are all owned by John Donovan. There is also a Wikipedia article: royaldutchshellplc.com

3 Comments on “Comment on issue of Shell project management credibility (and our credibility) from Tim Newman”

  1. #1 Tim Newman
    on Jan 8th, 2007 at 18:15

    Thank you for replying so promptly. The address:

    [email protected]

    has a crude anti-spam filter in, specifically the -NOSPAM- element of the address, which has to be removed before the address works, i.e. [email protected]

    This is a pretty common blogger thing as my spam filter was being swamped by thousands of automated messages each day.

    As for the other issues, I guess we have arrived at a difference of opinion which has been laid out clearly in the exchanges thus far. I have nothing further to add which would be of any interest, and I don’t see the need to turn this into an article on its own. Thank you for the offer though.

  2. #2 Royal Dutch Shell Plc.com
    on Jan 8th, 2007 at 17:58

    Below is an email I sent to you at the time of posting the original article. It was sent to your ‘[email protected]’ blog address. As you can see it was perfectly polite.

    Hello Tim

    We have added your photograph and blog address to the article…

    http://royaldutchshellplc.com/2007/01/07/comment-from-tim-newman-on-the-article-the-sakhalin-ii-controversy-continues/

    assuming that this was a comment made by you.

    If you would like to write an article giving your own view of Shell’s Sakhalin II situation perhaps taking detailed issue with our articles on the subject, we would be happy to publish on an unedited basis. We want to present all sides of the debate.

    If the comment was not made by you, please let me know and I will immediately remove your photograph and blog address.

    Regards
    John Donovan

    Email ends

    I made enquiries and confirmed that a Tim Newman worked at Shell/Sakhalin. It seemed reasonable given your interest in the project that it was you, but I sent the email just in case.

    Returning to the issue you raised, Jeroen van der Veer acknowledged over a year ago the damage to Shell’s reputation for project management arising mainly from Sakhalin II. What we are left debating is the degree of damage, which must be a matter of opinion. I contend that it has been ruined, as things have only deteriorated since July 2005 with more recent admissions culminating in the current debacle. You take a different view.

    There is not much more that can be said.

    If you would like me to publish this exchange as an article please let me know and I will happily do so tomorrow. (It is a few minutes to midnight here in the UK)

    Regards
    John Donovan

  3. #3 Tim Newman
    on Jan 8th, 2007 at 17:20

    Firstly, I took issue with your comment that:

    Sakhalin II costs doubled to an admitted $20 billion, thereby ruining Shell’s reputation for competent project management.

    The fact remains that Shell’s reputation for competent project management does not lie in ruins, and were a poll run across the oil and gas industry tomorrow it would reveal that despite the Sakhalin II project, Shell is still regarded as one of the most competent OPCOs in the world. This is not to say that Shell’s reputation and credibility has not been damaged to some extent, perhaps to a great extent, as a result of their management of the Sakhalin II project, and I have at no point claimed this. The sources you link to simply confirm that Shell’s reputation has been damaged; in none of them does it say that Shell’s reputation lies in ruins.

    Secondly, I did not feel embarrassed that you think I work for Shell, but I do take serious issue with the way you dealt with my comment. Rather than responding to it in a polite and gentlemanly way, which you finally got round to in this post, you instead searched through the net, got hold of my picture, stuck my head on a pole and shouted “Yeehaw boys! We bagged ourselves a Shell employee!”. Your post was nothing more than an unmasking session, although for what purpose is unclear. Had I been the Tim Newman who works for Shell, I could be looking at facing serious disciplinary action from my superiors because you have interpretted my personal comments as being representative of the company, something which even most amateur bloggers long ago learned to distinguish between.

    I think this episode should serve as a lesson to any Shell employee foolish enough to consider posting a comment on this site and using their real name, as you clearly are more interested in scoring points against Shell – even at the expense of one of their unsuspecting employees – than engaging in a meaningful discussion with oil and gas professionals on the issues of the Sakahlin II project.

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