December, 2006:

A file of our news stories stretching back to July 2005 concerning the former Royal Dutch Shell Sakhalin II project can be found on the link below: –

http://www.shellnews.net/blog/our-dire-warnings-about-sakhalin-since-july-2005.html

With all due modesty, no one has run alarm bells as loudly or as long about this ill fated project or have been as accurate in forecasting the current disastrous outcome for Shell both financially and in respect of its reputation. Our warnings have resulted from information received from Shell/Sakhalin insiders.   read more

(Man of the people … Vladimir Putin greets children in Moscow’s Red Square.
Photo: AP/Yuri Kochetkov)

The New York Times
Steven Lee Myers in Moscow

INSIDE the Kremlin last week, the executives of three big international companies – Royal Dutch Shell, Mitsubishi and Mitsui – heaped praise on the man whose government had forced them to cede control of the world’s largest combined oil and natural gas project.

“Thank you very much for your support,” Shell’s chief executive, Jeroen van der Veer, told the President, Vladimir Putin. The meeting ended a six-month regulatory assault on the project, Sakhalin II, but only after the companies surrendered control of it to the state energy giant, Gazprom. read more

By Heidi Vogt
The Associated Press
Sunday, December 31, 2006

DAKAR, Senegal

Angola is joining the Organization of Petroleum Exporting Countries, African oil exploration is booming, and China is investing. The stampede for oil in Africa has continued even as militant attacks in some countries and precarious governments in others make returns uncertain there.

Though much of the continent is just as conflict-ridden as the Middle East, analysts say, Africa is increasingly attractive because it is one of a diminishing number of regions still welcoming foreign corporations. read more

EXTRACT: POOR RECORD: The EBRD is supposed to demand strict environmental compliance from its borrowers and green groups said Shell’s poor record in managing Sakhalin-2 meant the project did not qualify.

THE ARTICLE

Sun Dec 31, 2006 3:22 PM GMT  
By Tom Bergin

LONDON (Reuters) – Russian gas giant Gazprom’s decision to take a majority stake in the Royal Dutch Shell-led Sakhalin-2 project may save the European Bank for Reconstruction and Development (EBRD) from having to approve its most controversial loan application ever. read more

By Sylvia Pfeifer
31 December 2006

Europe’s top development bank is set to walk away from the Sakhalin-2 energy project in what will be seen as an embarrassing snub to the renationalisation policy of Vladimir Putin, the Russian president.

The London-based European Bank for Reconstruction & Development – which was established to encourage free markets in the former Soviet bloc – fears that the $20bn Russian scheme no longer qualifies for support after Shell and its two partners were forced to sell stakes to Gazprom, the state-owned gas company.
  
“With the emergence of Gazprom as the major shareholder in Sakhalin Energy Investment Company, the project has effectively been nationalised,” said one industry executive familiar with Sakhalin. “The bank doesn’t normally back projects of that nature.” read more

Week of December 31, 2006

Proponents of the Mackenzie Gas Project have invested about C$500 million in the venture so far, but a confluence of rising costs, weakening economics and aboriginal resistance that has slowed down the regulatory process could still undo that commitment, TransCanada Chief Executive Officer Hal Kvisle has warned.

In a year-end interview he delivered one of the bleakest assessments yet of the proposal to finally start shipping gas from Canada’s Arctic region to southern markets. read more

Production and access challenges may drive growth
By KRISTEN HAYS

Oil exploration and production companies that have enjoyed record profits fueled by high commodity prices over the last two years may go to the altar in 2007 to keep growing.

Analysts say the energy sector could see more mergers and acquisitions to counteract difficulty in gaining access to oil and natural gas and higher costs of getting it to the surface.

Fadel Gheit, an oil analyst with Oppenheimer & Co. in New York, said many oil companies are in prime financial condition with clean balance sheets and billions on hand. read more

BEHOLDEN TO BIG OIL…. If I didn’t know better, I might just think the Bush administration is a little too cozy with the oil industry.

The Justice Department is investigating whether the director of a multibillion-dollar oil-trading program at the Interior Department has been paid as a consultant for oil companies hoping for contracts.

The director of the program and three subordinates, all based in Denver, have been transferred to different jobs and have been ordered to cease all contacts with the oil industry until the investigation is completed some time next spring, according to officials involved. read more

There will be bruises as predators, politicians and regulators get stuck in. Chief executives will have to rise to the challenge if they want to keep their jobs – and their huge salaries. Oliver Morgan reports

Sunday December 31, 2006

Politics are likely to play a big role in the last full year that Lord Browne spends at the top of oil group BP. Much of BP’s recent growth has come from its 50:50 joint venture with Russian company TNK. However, earlier this month, BP’s rival Shell was forced to cede control of its joint venture to develop the massive Sakhalin-2 oil and gas field off Russia’s east coast to Gazprom after pressure from the Kremlin. read more

By Sylvia Pfeifer
31 December 2006

Europe’s top development bank is set to walk away from the Sakhalin-2 energy project in what will be seen as an embarrassing snub to the renationalisation policy of Vladimir Putin, the Russian president.

The London-based European Bank for Reconstruction & Development – which was established to encourage free markets in the former Soviet bloc – fears that the $20bn Russian scheme no longer qualifies for support after Shell and its two partners were forced to sell stakes to Gazprom, the state-owned gas company.
  
“With the emergence of Gazprom as the major shareholder in Sakhalin Energy Investment Company, the project has effectively been nationalised,” said one industry executive familiar with Sakhalin. “The bank doesn’t normally back projects of that nature.” read more

By Alfred Donovan

Saturday 30 December 2006

The Sakhalin II project and related backdrop events have been marked by deception, double-dealing, corruption, massive pollution, intrigue, blackmail, murder and spies. Some might unfairly say this constitutes a fairly typical Shell project, as per the example of Shell’s activities in Nigeria.

With the assistance of a number of Shell/Sakhalin Energy insiders, we are completing the draft of an article which will be published next week on our own website and simultaneously by a news publishing source. Individuals associated with the project who are mentioned in the current draft include Jeroen van der Veer, Malcolm Brinded, David Greer, Mike Taylor,  Steve McVeigh, David Meehan, Campbell Wyper and Togrul Tosun. We understand that Tosun was made redundant in the late 90s when the failure of managing Kashagan was unfairly blamed on him in order to keep the real culprits (such as Henk Dijkgraaf) out of the firing line. read more

By ANDREW E. KRAMER
Published: December 30, 2006

MOSCOW, Dec. 29 — For Gazprom, the Russian energy monopoly, 2006 is ending as it began: in a dispute over prices and control of a pipeline in a neighboring country that is threatening the smooth flow of natural gas to Europe.

But this time, the price increase was levied on a Russian ally, Belarus, a country whose foreign policy is aligned with Moscow in all but one important aspect: support for increasing cash flow at Gazprom.

“All this means destruction of our relations” with Russia, Belarus’s president, Aleksandr G. Lukashenko, said in comments carried on state television on Friday. read more

(Photo: Joseph Sywenkyj for The New York Times: The Sakhalin 2 project in Russia’s Far East is still under construction. Last week Gazprom took control of the project when foreign developers, led by Royal Dutch Shell, agreed to sell it 50 percent plus one share.)
 
By ANDREW E. KRAMER

MOSCOW: The Russian government has won another concession from the foreign partners of the oil and natural-gas field being developed in Russia’s remote Far East, known as Sakhalin 2.

Last week Gazprom, the Russian energy monopoly, took control of the project when foreign developers led by Royal Dutch Shell agreed to sell 50 percent plus one share to Gazprom, after months of pressure on the company and accusations about environmental issues from a Russian regulator. Critics called the sale a forced nationalization. read more

By Robert Orr
Published: December 30 2006 02:00 | Last updated: December 30 2006 02:00

The year’s worst performer was Carnival, the cruise-ship operator, while other notable underperformers included oil giant BP and GlaxoSmithKline, the pharmaceuticals company.

With the price of crude falling below $60 a barrel for the first time in a month,oil stocks were lower. Royal Dutch Shell eased 0.7 per cent to £17.90, further unsettled by news that it would have to share the burden of cost overruns at the Sakhalin-2 development in Russia with its two Japanese partners. The news is the latest blow to Shell in Russia, where it has been forced to cede control of Sakhalin-2 to local group Gazprom. read more

By Christopher Brown-Humes
Published: December 30 2006 02:00 | Last updated: December 30 2006 02:00

…one of the surprises of the year was just how many of the UK’s top 20 companies did so badly. Six of them actually saw their share prices fall – BP, Shell, GlaxoSmithKline, AstraZeneca, BHP Billiton and HSBC.

BP was the FTSE 100’s third worst performer, falling 8.3 per cent, while Royal Dutch Shell dropped 3.7 per cent. Both felt the effect of the drop in oil prices towards the end of the year but the average price of crude in 2006 was still almost 17 per cent higher than in 2005. BP was beset by problems in the US, including the fatal explosion at its Texas City refinery in March last year, an oil spill in Alaska in March and delays to the opening of the flagship Thunder Horse project in the Gulf of Mexico. read more

David Teather and Angela Balakrishnan
Saturday December 30, 2006

Behind many of the year’s stories was the shifting world order: the emerging power of Russia, India and China.

The year began with Russia cutting gas supplies to Ukraine, raising fears of shortages and soaring prices across Europe. At the end of the year Shell was forced by the Russian government to reduce its stake in the world’s biggest liquefied gas project. Both raised fears about the Kremlin using the country’s natural resources as a political weapon as well as highlighting concerns about both the security and cost of energy supplies as emerging economies began to compete for resources. read more

Nick Fletcher
Saturday December 30, 2006

Oil prices eased below $60 in the US for the first time for a month leaving BP, 4p lower at 567.5p, and Royal Dutch Shell down 7p to £17.85. Shell was also hit by reports the company and its partners would have to stump up a third of the $10bn overrun on the controversial Sakhalin-2 gas project in eastern Siberia.

[email protected]

http://business.guardian.co.uk/marketforces/story/0,,1980260,00.html

By Josephine Moulds
Last Updated: 12:58am GMT 30/12/2006
FTSE falls on a quiet day ahead of break

City trader

Oil stocks were down on a weaker crude price as traders disregarded a sharp drop in US crude stockpiles on Thursday night. BP slid 4 to 567½p. Royal Dutch Shell was hit by news that it will be made to foot the bill for huge cost overruns at the Sakhalin-2 oil and gas project in Russia together with its two Japanese partners. It retreated 12p to £17.90. BG Group, which on Thursday announced it had bought a US power plant, lost 4½ to 693p. read more

• Shares of Exxon Mobil, the world’s biggest corporation, had their largest annual increase since 1980 as the company boosted oil production and crude prices rose to an all- time high.

• Royal Dutch Shell will cut its proven oil and gas reserves by more than 4pc when it gives up half its stake in Russia’s Sakhalin-2 venture, analysts said.

• Gazprom, Russia’s natural-gas export monopoly, is continuing talks with Belarus to avoid a Jan. 1 cutoff that could curb deliveries to Europe. read more

By Stephen Voss and Torrey Clark

Dec. 29 (Bloomberg) — Royal Dutch Shell Plc, Europe’s largest oil company by market value, will cut its proven oil and gas reserves by more than 4 percent when it gives up half its stake in Russia’s Sakhalin-2 venture, analysts said.

The equity transfer to state-run Russian energy company OAO Gazprom is expected to be completed by the end of February, and may not be reflected in Shell’s reserves number for the end of 2006. Shell reports proven reserves once a year, usually around March, giving yearend totals for various geographical areas. read more

By Jim Polson

Dec. 29 (Bloomberg) — Centurion Energy International Inc., the Canadian oil and gas producer that’s being acquired by a United Arab Emirates-based energy company, announced the termination of plans by Royal Dutch Shell Plc to help it explore for natural gas in Egypt’s Nile Delta.

The two companies mutually agreed to end an accord under which Shell would have paid $15 million for a 50 percent stake in two gas blocks, West Manzala and West Qantara, Calgary-based Centurion Energy said in a statement today. read more

WASHINGTON, Dec. 27 /PRNewswire-USNewswire/ — FreeEnterpriser.com today announced the “Five Worst CEOs of 2006” — a review of the worst CEOs of the year.

“Despite this year’s bull market, 2006 was a banner year for CEOs who are undermining free enterprise, free markets and capitalism,” said Tom Borelli, editor of FreeEnterpriser.com.

“Instead of relying on innovation and unfettered competition as guiding principles for maximizing shareholder value, the “Five Worst CEOs of 2006″: (1) sought government regulation as a means of generating profits; (2) used shareholder assets to advance their personal hobbies and enhance their stature in elite social circles; and (3) deflected criticism by allowing anti-business activist groups to hijack company resources and influence business decisions,” said Steve Milloy, executive director of the Free Enterprise Education Institute. read more

Published: Dec 28, 2006

SAKHALIN II PSA: EXTRACT: ‘Delyagin alleged that the deal was murky and could discredit Shell if investigated properly. ‘

The director of the Moscow-based Institute of Problems of Globalization, Mikhail Delyagin, has sharply criticized Gazprom’s decision to raise the price for Russian gas exported to Belarus 4.3-fold from 1 January 2007.

“The only thing our government has on its mind is cash,” Delyagin said in a live interview broadcast by Ekho Moskvy radio on 28 December. “These people have learnt no lesson” from the gas conflict with Ukraine in the beginning of 2006, he went on to say. Belarusian President Alyaksandr Lukashenka will simply start to siphon off gas intended for Europe. It would be easier for Minsk than it was for Kiev, because Lukashenka, unlike the present Russian or Ukrainian leadership, “does not need a house on Sardinia or in Paris but fights for the interests of his country,” he said. read more

Published: Dec 28, 2006

Royal Dutch Shell PLC announced Thursday that one of its Brazilian offshore oil fields is commercially viable and that two deep-water areas of the block have been identified for development.

Europe’s second-largest oil company did not say when production would begin in the BS-4 block or offer yield estimates, but the field has estimated reserves of about 300 million barrels of very heavy crude.

Shell is the lead operator of the block with a 40 percent stake. Brazil’s state-owned Petroleo Brasileiro SA also has a 40 percent stake, and U.S.-based Chevron Corp. holds 20 percent. read more

By: DAN CATERINICCHIA,
Published: Dec 28, 2006

The kidnappings and armed attacks plaguing oil companies operating in Nigeria’s oil-rich Niger delta are among the top security challenges U.S. businesses are likely to face in 2007, a State Department official said Thursday.

“We’re keeping our eye on Nigeria right now,” Doug Allison, a special agent with State’s Bureau of Diplomatic Security, said in a phone interview. “That situation seems to be not getting any better.” read more

EXTRACT: After the recent tensions over the Sakhalin development between Shell and Gazprom, there were doubts about whether Russia would be willing to develop stable relationships with foreign investors, a fear that was dismissed by Stephen O’Sullivan of Deutsche Bank in Moscow, who has followed the battle closely. The scale of pressure on Shell developed after it announced that the cost of the project, which the Russian state must first pay off before it receives a full dividend, shot up from $10 to $22 billion, he points out. “Along comes Shell with this huge cost overrun, so it gave the government a stick,” he argues. read more

Published: Dec 29, 2006

Shell has hired the former US interior secretary Gale Norton as general counsel for its “unconventional resources” division. Ms Norton will provide and co-ordinate legal services for the division, which develops technology to get oil from sources such as oil shale.

By Barney Jopson
Published: December 29 2006 02:00 | Last updated: December 29 2006 02:00

The average size of fines doled out by the City watchdog dropped in 2006, but the total number of penalties edged up from the previous year.

The Financial Services Authority collected just over £13m in fines from 25 cases this year, with the average penalty working out at around £520,000.

The average fine in 2005 was about £860,000 as the regulator collected £16.3m from 19 cases.

The figures reflect the performance of the FSA’s en-forcement division in its first full year under the leadership of Margaret Cole, a litigator recruited from White & Case. read more

By Chris Hughes
Published: December 29 2006 02:00 | Last updated: December 29 2006 02:00

Sakhalin throws up a fresh disappointment

Shell suffered a blow when it was forced to surrender control of Russia’s Sakhalin-2 oil field to state-backed Gazprom last week. Now the Anglo-Dutch oil group faces fresh embarrassment in defeat.

To re-cap, Shell sold half of its 55 per cent stake in Sakhalin to Gazprom to revive the project that Russia had grounded citing environmental reasons. The price Shell received – following months of wrangling – was better than many had expected. That helped Shell preserve some dignity despite losing control. read more

By Arkady Ostrovsky in Moscow and Ed Crooks in London
Published: December 28 2006 18:44 | Last updated: December 28 2006 18:44

Royal Dutch Shell and its two Japanese partners are to be made to share the burden of the huge cost overruns of Sakhalin-2, it emerged on Thursday, in news that cast a less favourable light on their deal to cede control of the project to Gazprom.

Just days after confirming that Russia would pay the companies $7.45bn to establish its controlling stake in the project, the government said it would require the three foreign owners to meet $3.6bn of the additional costs of Sakhalin-2 themselves. read more

Last Updated: 1:34am GMT 29/12/2006

• Centrica, the UK’s biggest energy supplier, said four employees were among six people who died in a helicopter crash this week in the Irish Sea, in Morecambe Bay off the coast of north-west England.

• Gazprom, Russia’s natural-gas export monopoly, is in talks with Belarus to avoid a possible January 1 halt in shipments that would cut deliveries to Europe for the second time in a year. Belarus has threatened to block supplies after the price for gas for itself rose. read more

(Paying the cost overruns, part of a secret protocol, will allow spending on the Sakhalin project to be increased)

By James Quinn
Last Updated: 1:34am GMT 29/12/2006

Royal Dutch Shell and its two Japanese partners are to be made to foot the bill for huge cost overruns at the Sakhalin-2 oil and gas project in Russia.

Shell – along with partners Mitsui and Mitsubishi – are set to cover $3.6bn (£1.8bn) of costs on the project just a week after agreeing to sell half their stakes to Russia’s Gazprom for $7.45bn in cash.
  
Paying the cost overruns, part of a secret protocol, will allow spending on the Sakhalin project to be increased read more

Chris Noon, 12.28.06, 3:58 PM ET 
 
It sounds as though Royal Dutch/Shell, Mitsui and Mitsubishi the three companies developing the Sakhalin-2 energy site in the eastern part of Russia, have been thoroughly humiliated by the Kremlin.

The companies will have to shoulder $3.6 billion in new costs to develop the Sakhalin-2 oil and gas project, the world’s largest energy development, thereby lowering the amount state-run Gazprom (other-otc: OGZPY – news – people ) will have to spend to join the project and speeding royalty payments to Russia. That’s $3.6 billion that the oil companies will never see again. read more

December 29, 2006
Carl Mortished, International Business Editor
 
Royal Dutch Shell and its Japanese partners in the Sakhalin-2 gas project will be forced to swallow a third of the $10 billion (£5.1 billion) cost overrun suffered by the giant liquefied natural gas facility in eastern Siberia, according to reports from Moscow.

A confidential agreement between the Russian Government, Shell, Mitsui and Mitsubishi has settled the dispute over the project’s expanding budget on terms that require Shell and its Japanese partners to absorb $3.6 billion of the cost overrun. The partners had expected to be able to recoup the costs from first sales of gas. 
 
According to Moscow press reports, the new agreement sets the project’s total cost at $19.4 billion but stipulates that only $15.8 billion of the costs can be fully redeemed under the Sakhalin-2 production- sharing agreement (PSA), meaning that the remaining $3.6 billion must be borne by the original Sakhalin-2 partners. read more

Crude-oil futures broke a four-day losing streak, settling at $60.53 a barrel on the New York Mercantile Exchange, after data showed a bigger-than-expected drawdown in crude supplies in the latest week.

Here is Thursday’s roundup of oil and energy news:

* * *
RUSSIA, BELARUS HEAD FOR SHOWDOWN: Russia and the former Soviet state of Belarus are heading toward a showdown over natural-gas prices that both sides warn could lead to a New Year’s Day pipeline shutoff similar to the one a year ago, when thermometers plunged in Ukraine and Europe. Gazprom’s willingness to threaten yet another midwinter fuel cutoff is reinforcing fears across Western Europe about its reliance on Russia for the energy that powers the region. read more

Threats Widen in Gazprom-Belarus Dispute

Gazprom’s dispute with the Belarusian government over the cost of gas — this year’s edition of what seems like an annual winter pricing fight between the state-owned Russian monopoly and a formerly Soviet client state — now threatens the supply to Western Europe. Gazprom said yesterday that Germany, Poland and Lithuania could face supply disruptions, because if Gazprom cuts off Belarus, Belarus will halt all natural-gas flows through its pipeline, which provides 20% of Europe’s gas. “If I don’t have a domestic gas supply contract, Gazprom won’t have a transit deal,” Belarusian Deputy Prime Minister Vladimir Semashko said, as quoted by the Financial Times. Gazprom has said it will turn off the taps for Belarus starting Jan. 1 if no deal is signed. read more

COMMENT FROM breakingviews 
December 28, 2006

The last thing BP needs is another big problem. The oil giant is already dealing with a fight over management succession and faces U.S. lawsuits on safety lapses and trading practices in the futures markets. But Russian resource nationalism could well join the list, if reports of a government investigation into TNK-BP’s Kovytka gas field prove correct.

This could be no more than a little local difficulty. TNK-BP, 50% owned by BP, can only exploit Kovytka fully if Gazprom lays export pipelines out of Eastern Siberia. Gazprom, though, wants a big share of the revenue. And the new investigation into a technical contract violation — where TNK-BP produced less gas than agreed, but only because there were no buyers for any more — sounds like a means of getting its way. read more

By Andrew E. Kramer
Thursday, December 28, 2006

MOSCOW

The Russian government has won a further concession from the foreign partners at the world’s largest combined oil and natural gas field, known as Sakhalin-2, which is being developed in Russia’s remote Far East.

Last week, Gazprom, the Russian energy monopoly, took majority control of the project when the foreign developers, led by Royal Dutch Shell, agreed to sell 50 percent plus one share to Gazprom, after months of pressure on the company and accusations from a Russian environmental regulator. Critics called the sale a forced nationalization. read more

By John Donovan

News of a “secret protocol” between Shell and the Russian government has leaked out today. The Russians evidently wanted to further embarrass Shell management. Note that there is no mention of Mitsui and Mitsubishi involvement in the secret deal.  Shell refuses to comment on the “confidential” secret agreement.

This comes just days after Shell CEO, Jeroen van der Veer, was quoted gratefully thanking President Putin during the Gazprom/Sakhalin Energy deal signing ceremony in Moscow (“Thank you very much for your support,”).  read more

U.S. scholar Marshall Goldman says energy wealth and control over export pipelines have made Russia more powerful than at any time in its history.

Professor Goldman told the Jamestown Foundation that Russia’s post-cold war power is built on its oil and gas resources. He said both eastern and western Europe have become dependent on Russia for oil and gas and that alternative supplies are not available. The recent boom in oil and gas prices, said Professor Goldman, has greatly boosted Russia’s economic and political clout. read more

Created: 28.12.2006 12:45 MSK (GMT +3), Updated: 13:29 MSK

Royal Dutch/Shell signed a secret protocol with the Russian government as part of its deal to sell half of the Sakhalin-2 project to Gazprom, allowing Shell to boost spending but not as much as it wanted, Russian business daily Vedomosti reported on Thursday, Dec. 28.

Shell is now allowed to boost spending in the giant Sakhalin project to $15.8 billion from the previously approved $12 billion, the daily said.

Shell’s spokesman in Moscow Maxim Shub told Reuters the protocol was confidential and he would not comment on it. He said details of project costs would be discussed in February at a meeting with the Russian government. read more

By Torrey Clark

Dec. 28 (Bloomberg) — Royal Dutch Shell Plc and its Japanese partners will take on $3.6 billion of costs themselves to develop the Sakhalin-2 oil and gas project in Russia, lowering the amount state-run OAO Gazprom will spend to join the project and the hastening the state’s share in the profit.

Sakhalin-2’s stage-two budget may be approved at $19.4 billion, less than Shell had sought. The amount includes $3.6 billion the foreign shareholders will spend without getting tax relief, Deputy Energy Minister Andrei Dementiev told Moscow-based Vedomosti newspaper in remarks confirmed by the ministry’s press office today. read more

Last Update: 7:21 AM ET Dec 28, 2006

By Aude Lagorce, MarketWatch

LONDON (MarketWatch) — The European Commission on Thursday called for Russia and Belarus to find a rapid solution to a dispute over natural-gas prices that threatens damage to relationships between the two long-term allies and to disrupt deliveries to the continent. 

“The Commission is following the situation very closely since it may affect gas supplies to the European Union. I call the two parts to reach as soon as possible a satisfactory agreement that do not put in question gas transits to the E.U.,” said Commissioner Andris Piebalgs in a statement.  read more