Posted on 12/11/2006 3:23:14 PM PST by sergey1973
Shell succumbed to months of creeping state pressure on Monday, offering Gazprom new terms of entry into its key Sakhalin-2 project.
Shell CEO Joroen van der Veer held talks in Moscow on Friday with Gazprom CEO Alexei Miller and Industry and Energy Minister Viktor Khristenko, spokespeople at Shell and Gazprom said.
Both sides refused to comment on a Reuters report citing industry insiders that said Shell had offered to cede its controlling stake in Sakhalin-2 to the state-run gas giant.
(Excerpt) Read more at themoscowtimes.com ...
Energy ping
You gotta do what you gotta do to make money.
It's Russia's oil after all.
Well--there is a possibility of having all oil producers pay the fee to the government (i.e. 50% of oil revenues belongs to the Russian Federal Govm't). If rules are clear and the same for all the players, than it's no problem at all. However, in case of Shell it looks like a classical extortion scheme on the part of Russian govm't--suddenly environmental violations are found and now after Shell makes the different offer advantageous to Gazprom, I predict all the violations will suddenly disappear -:))))
BUT BUT - THAT IS HOW THE GAME IS PLAYED...BY EVERYONE.
You mean to tell me that the saudis and nigerianns and the whatever sat down with Shell executives Madonna-like and negotiated with "clear rules"!
Well, no. Not really. But the potential for this kind of abuse, or gamesmanship, always exists where ever "rule of law" is weak. You just put your finger on the central fact of working and investing abroad. You are playing on someone else's turf, and they can change the rules at any time, and you are forced to work through their courts to get satisfaction, which means forget working through the courts.
The only hammer a company like Shell has is the promise of future investment capital. If they get too badly shafted then future investment dollars will go to other locations where they consider their investment to be safer. They can and have simply walked away from a troublesome host country.
But its one thing to walk away from a few hundred million. Its another to walk away from billions; once you've sunk billions into a project you are hooked. As the joke goes, if you owe the bank a million, the bank owns you. If you owe the bank billions, you own the bank.
If you've sunk billions into country x, country x owns you. It becomes very difficult to just walk away. Country x knows it, and can use that fact to put the screws to you.
Oil companies operate in this climate every day, which means they have to learn to be very good negotiators.
Every oil company operates with the full knowledge that, whatever the contract says, they can be booted out of a country at any time. So they try to recoup their investment costs as they go, they try to build the terms of any future divorce into the contract up front, they try to work through the lending agencies, which can cut off lending to a country that doesn't play fair. But all of this is tricky, and with a country as big as Russia, it may or may not work. The biggest thing in your favor is that the host country wants investment capital, and if other companies think the game is rigged, they won't be so willing to invest there.
You mean to tell me that the saudis and nigerianns and the whatever sat down with Shell executives Madonna-like and negotiated with "clear rules"!
I would say, Saudis yes, Nigerians no. Which is why Saudi Arabia is considered a good place to invest, and Nigeria is not. But even in Saudi Arabia, where the rules are clear, its still not "rule of law", you are at a clear disadvantage in any dispute. Thats why overseas investing is not for the faint of heart.
OK---excellent points you make.
We can all agree that overseas investing is not for business ingenues. And I'm sure that the folks from over there feel the same way about doing business here. Maybe not as corrupt but just as complex in some ways.
So we pay a premium for the insecurity of accessing goods from out there.
Here's another link. This story is on Drudge too.
http://www.guardian.co.uk/russia/article/0,,1970064,00.html
Well said.
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