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St. Petersburg Times: Shell Chief Identifies Next Generation of Investments

BUSINESS
By Marcel Bard
Special to St. Petersburg Times
It is only recently that Chris Finlayson and his wife completed their move to Moscow, though Finlayson was appointed head of Shell Russia in November of 2005. They came not from their motherland, the UK, as one might have assumed, but directly from Lagos, Nigeria, where Finlayson had been CEO of Shell Africa’s Exploration and Production since 2004.
So the Finlaysons face yet another major cultural and climatic change – Chris Finlayson has already worked for Shell in countries as diverse as the Netherlands, Turkey, the UK, Brunei and Nigeria. A similarly dramatic change is waiting for Finlayson in his new management responsibilities – up until now he had been administering ‘developed portfolios’ of Shell’s business activities, whereas now he is participating in the ‘portfolio-creation process,’ i.e. bringing in new investment.
Finlayson was born in 1956 in Devon, southwest England, studied physics and geology at Manchester University and graduated with a First. On completing his studies he received offers from various different major energy companies, but in 1977 picked Shell as the better employer, not least because they would send him to work abroad. Moreover, the son of a school teacher was attracted by the company’s “high ethical and environmental standards,” and by the possibilities of career development.
“Long term commitments to one company back in the 70s were quite common in Europe,” he said. And so it is that 29 years since leaving university Finlayson is still with Shell. He started as a petroleum engineer in the UK, then worked abroad before becoming in 1998 vice-managing director of Shell UK, in 2000 managing director of Shell Brunei, in 2003 managing director of Shell Nigeria, in 2004 CEO with Shell Africa, and now “country chairman with extended responsibilities” with Shell Russia. His experiences from working on different continents and in countries with different religions and cultures not only enriched his personality, as he mentioned, but also acquainted him with his future wife in 1982, a Scot who was then also working with Shell Brunei.
He left his latest post as head of Shell Africa after only one year in order to face the new challenges associated with his job in Russia. Because of the growing importance of Russia to Shell, the company restructured its business in the CIS, leaving the new chairman with much larger responsibilities than his predecessor. He will be representing Shell Russia across its whole range of business activities, from exploration to retail.
“In the last nine to ten years I have been working in places where we have been the biggest operator, where we have already had an extremely strong and established position – the North Sea, Brunei, Nigeria,” he said.
“Coming to Russia the challenge is different…we have some massive investments going on in Salym and Sakhalin – immediate challenges – but at the same time, we want more activities in Russia, we want more investments, we want more opportunities.”
If the company’s main sources of income remain Europe and America — Russia, along with the Middle East, are very much the focus of Shell’s growth in the future. Russia is going to play a bigger part in Shell’s portfolio of assets and Chris Finlayson came here also to “be responsible for identifying the next generation of investments.”
“The mother of all projects,” as Shell managers refer to the Sakhalin-2-project, is by far the largest foreign direct investment into Russia, and one of the largest integrated oil- and gas-developments in the world.
“This is the biggest single project certainly that Shell and, by most measures, that anybody has [undertaken],” said Finlayson, adding that “Sakhalin comprises five to six single world-class projects”. Offshore oil reserves on the Sakhalin sites of Piltun Astokh and Lunskoe are equivalent to more than a year of Russia’s current crude oil exports. At its current level global LNG-demand could be satisfied for the next four years by the 15-storey high and football-field large buildings, built off the cost of Sakhalin Island.
Big projects such as Sakhalin are crucial if Shell is to develop more of the resources it has acquired in the northern territories.
“This is what the big oil companies have to get right, because these are the opportunities of the future,” said also Ian Craig, CEO of the operating subsidiary Sakhalin Energy in which Shell holds a 55 percent stake, adding that “a lot of the key opportunities going forward are going to be in these sorts of environments.”
Looking at such environments, problems become manifest: the initial estimated cost of $10 billion is set to double, causing a reaction in Russia against the Production Sharing Agreement (PSA) under which the project runs.
“I would say that this is based on an incomplete understanding of the purposes and challenges of PSAs in Russia,” said Finlayson. In a PSA companies make all the investments, and therefore are allowed to make long-term investments over between 10 to 15 years without being affected by changes in tax. After a period of production in which the costs are recovered more revenue goes to the state – the higher the cost of investment, however, the longer the government will have to wait for its revenue.
“PSAs were introduced by countries who wished to assert their sovereignty over their natural resource base on a stronger way.”
“I am confident that if we could sit in this room and look back in 25 years time, and ask ‘Has Sakhalin-2 been good for the Russian federation?’ that we would not even have a conversation about it – of course it has been. We could all see that”.
“The Russian government has indicated that it will stand by the PSA, but we will have to justify the increases in cost.”
While working for Shell Nigeria, the company openly admitted that it inadvertently fed conflict, poverty and corruption through its oil activities. “We made that statement as a part of a report when I was in Nigeria,” but “we changed our practices [which had been applied for many years before] to try and get funds better distributed.”
Referring to Russian corruption, Finlayson added that “we believe that we can get our job done, without any suggestion that we will compromise on our business principles. It’s very clear: anybody who is found to be indulged in bribery or political payments will be fired.”
As well as the Sakhalin-project, Shell Russia has been operating the Salym oil-fields for 10 years now with its Russian partner, and is now negotiating entry into the Zapoljarnoe-gas-field, currently owned by Gazprom.
As for his ambitions at Shell in general and especially in Russia, Finlayson plans to fulfil his 3-year assignment in Moscow, making Shell the number one foreign energy company in Russia. Nevertheless he expects that his stay in Russia will be more depending on “the time of the Sakhalin project going” than on formal assignments. Being a loyal Shell-soldier for almost 30 years he does not openly admit any higher ambitions saying instead that he intends to “fulfil his job, and if they give me a higher one, fine – do it with the same energy and commitment.”
For relaxation Finlayson enjoys playing golf and going downhill-skiing with his wife and daughter. He is currently looking out for golfing possibilities around Moscow.

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