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Daily Telegraph: Shell to pay annual dividend to Moscow

Daily Telegraph Sakhalin2 photo

(An employee of Sakhalin Energy stands at the Sakhalin-2 project’s liquefaction gas plant in Prigorodnoye)

By Russell Hotten
Last Updated: 1:44am BST 27/04/2007

More details of the terms on which Royal Dutch Shell ceded majority control of its flagship Sakhalin-2 gas project have emerged with news that the company will pay the Russian government an annual special dividend.

The agreement to pay the dividend, which will run into hundreds of millions of pounds, was one of a number of concessions agreed by Shell and two Japanese partners in return for their continuing involvement in the lucrative project.

Gazprom, the state-run gas company, took control of Sakhalin-2 after a prolonged campaign by Moscow authorities alleging that Shell breached environmental rules and could have its licence to operate revoked.

A Shell source said that the payment would be “a few hundred million dollars a year in the first years and then depend on the oil price”.

Shell now owns 27pc of Sakahlin-2 and will pay that proportion of the dividend.

The source said the payments had not been disclosed because the company does not comment on contract terms.

But, while the payments will not have a material impact on Shell’s finances, the news raises further questions about what other concessions the company made.

Sakhalin Energy, comprising Shell, Mitsui, and Mitsubishi, sold a majority stake in the project to Gazprom for $7.45bn (£3.7bn), agreed to absorb $3.6bn of cost overruns, and allowed the Russian company to appoint the next chief executive.

The annual dividend means another cut in the amount that Shell is likely to make from the project.

Shell struck its deal to operate Sakhalin-2 with Moscow in the early 1990s, when Russia was an economic mess. Under president Vladimir Putin Moscow has been clawing back control of assets it believes were sold too cheaply.

There is speculation that the Kremlin is now turning its attention to assets owned by BP’s Russian joint venture, TNK-BP. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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