December 29th, 2006:

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