SAKHALIN 2 DEBACLE

WWF Evidence submitted in 2008 to House of Commons Select Committee quoting from a John Donovan Sakhalin II article published on royaldutchshellplc.com

(1): The UNITED KINGDOM PARLIAMENT Hansard Archives Research Uncorrected Evidence: 20 June 2008

(2): Memorandum submitted by WWF to inquiry by House of Commons Select Committee: Quotes Sakhalin II corruption allegations from royaldutchshellplc.com article: 20 June 2008

(3): House of Commons Environmental Audit - Minutes of Evidence ordered by the House of Commons to be printed 14 October 2008 (RELATED LINK IS IMMEDIATELY BELOW)

(4) www.parliament.uk: Evidence submitted by WWF to Select Committee on Environmental Audit: Evidence submitted 20 June 2008: (SAKHALIN II BACKGROUND INFORMATION: — Allegations have been made by a whistleblower of inappropriate relationships between SEIC management and its contractors, in particular Starstroi and its subcontractor SU4.[22])

Backup webpages 1, 2, 3, 4

Sakhalin Evidence

Financial Times Article: Oil consortium faces anxious wait as Russia weighs cost overruns: 8 Sept 2004

Negotiations, which will take place by November at the latest, will be tense because under the production-sharing agreement (PSA) signed with Moscow, higher costs will mean less profit for Russia.

The project is the largest integrated energy investment in the industry’s history. It was concluded as a PSA in 1994 when Moscow was desperate for foreign investment. But Russia now considers such agreements faulty and insists that new energy investments be covered by a normal tax and royalty regime.

BLOOMBERG ARTICLE: SHELL MAY CUT RESERVES AT LEAST 4 PERCENT ON SAKHALIN29 December 2006

Extract

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 Observer: Shell to write off half of last year's reserves: Sunday 16 March 2008

Extract:

Another estimated 1.1 billion barrels will be lost from the $20bn Sakhalin II joint venture after Shell was forced to sell part of its stake last year to Russian gas giant Gazprom.

Boston Globe: The Russian power play on oil, natural gas reserves: 23 August 2008

(In one of the most blatant instances, Shell Oil was forced to yield control of its operations off Sakhalin Island in exchange for a payment of $7.4 billion from state-dominated Gazprom. Most outside analysts estimate that Shell’s share was worth $15 billion to $17 billion.)

The Observer: Shell comes under fire for role in Sakhalin audit: 31 August 2008

BusinessGreen.com: Shell accused of manipulating environmental report: 1 September 2008

Environmental Leader: Shell Criticized for Manipulating Environmental Audit Report: 2 September 2008

Ethical Corporation: Shell’s Sakhalin influence: October 2008

DAVID GREER AFFAIR

ft.com: ‘Pipeliners All!’ Shell’s memo to Sakhalin: Published: June 5 2007 22:29 | Last updated: June 6 2007 13:07

As if laying pipelines across Sakhalin Island, described by Chekhov as “hell”, were not enough, the engineers battling the elements there have to put up with their boss’s motivational memos.

In a leaked email from David Greer, the deputy chief executive of Sakhalin Energy Investment Company, the consortium running the Sakhalin 2 project, he reveals that he despises cowards and urges his staff to “Lead me, follow me, or get out of my way”.

Much of the memo appears to have been drawn from a speech by General George S. Patton to US troops ahead of the D-Day invasion, when he said: “When you were kids, you all admired the champion marble player; the fastest runner; the big league ball players; the toughest boxers. Americans love a winner and will not tolerate a loser. Americans despise cowards. Americans play to win - all the time.”

The Patton link was noted in a posting to an FT.com forum by Mark Bisset.

Sakhalin 2 has had a troubled history, hit by rising costs and concerns about its environmental impact.

In a deal completed in April, Royal Dutch Shell and its Japanese partners were forced to allow Gazprom, Russia’s state-controlled gas company, to buy a majority stake.

Mr Greer’s e-mail reveals the pressure the company is under to hit its schedule of delivering its first shipments of liquefied natural gas by the second half of next year and the unusual management techniques he is using.

“Pipeliners All! Many thanks to all of you for your contributions to this week’s Bi-Annual Challenge ... and what a Challenge it is going to be for all of us!” the e-mail begins, cheerily enough.

“From the outset, I want to assure you that, despite the mutterings on the day and the challenges ahead, I have total faith in you and our collective ability to complete the task ahead of us.”

After the good news, though, the mood darkens. “However, some of the comments and body language witnessed at the Bi-annual Challenge meeting do suggest that PDP is running the risk of becoming a team that doesn’t want to fight and lacks confidence in its own ability. Surely, this is not the case? Pipeliners and Engineers love to fight and win, traditionally. All real engineers love the sting and clash of challenge.”

After more appeals to the pride of “real frontier professionals” comes the inspirational bit. “When everyone of you were kids, I am sure that you all admired the champion marble player, the fastest runner, the toughest boxer, the big league football players. Personally, I, like most others, love winning. I despise cowards and play to win all of the time. This is what I expect of each and everyone of you...”

“Strive to be proud and confident in yourselves, be proud of your tremendous pipeline achievements to date and lift up your level of personal and team energy to show everyone that you are a winning team capable to achieving this year’s goals. If you can crack this angle, I am very confident you can crack the job, with ease.

“So Lead me, Follow me or Get out of my way; Success is how we bounce when we are on the bottom.”

The memo was leaked to the website www.royaldutchshellplc.com, which has long been a thorn in Shell’s side.

Shell confirmed the e-mail was genuine but was reluctant to discuss it further.

Copyright The Financial Times Limited 2010.

Shell shakedown: Fortune's Abrahm Lustgarten reports how the world's second-largest oil company lost control of its $22 billion project on Russia's Sakhalin Island. February 1 2007: 12:10 PM EST

Extracts

The news was stunning, even if rumors had been flying: Shell (Charts) was halving its ownership in the $22 billion project, cutting its stake from 55% to 27.5%, and Gazprom, the Russian gas giant, was stepping in, buying Shell's share plus half the stakes owned by Japanese partners Mitsui and Mitsubishi, for just $7.5 billion - the equivalent, says a Shell spokesman, of "paying to enter on the ground floor, as if they were a shareholder at the beginning." The foreign companies also agreed to absorb $3.6 billion of the project's mounting cost overruns.

That Shell and its partners were victims of an unscrupulous campaign by the Russians to win leverage at the negotiating table is certainly true. The company's loss of its controlling interest in what chief executive Jeroen van der Veer called a "key part of Shell's upstream strategy," amounting to an estimated 5 percent of its global reserves, is largely a story about the high risks of frontier international energy projects. But it is also a tale of how Shell misplayed a strong hand and, after 12 years of work, lost untold billions of dollars in future earnings.

 

Alfred Donovan email correspondence with Shell International General Counsel Richard Wiseman: 11 November 2005 (note warning from Wiseman relates to Putin/Van der Veer animated article)

Email from Alfred Donovan to President Putin and automated response received 25 November 2005

Email to Oleg Mitvol, Ministry of Natural Resources of The Russian Federation 7 August 2006

Posting on Live Chat by The Ministry of Natural Resources of The Russian Federation 8 October 2006

Fax sent by John Donovan to Oleg Mitvol, headed "Royal Dutch Shell Sakhalin II project": 17 October 2006

Fax from John Donovan to Oleg Mitvol, Deputy Minister, Ministry of Natural Resources of The Russian Federation: Wednesday 18 October 2006

Sakhalin II: Apocalypse Now? A potential environmental calamity on a scale never before witnessed by humanity!:18 October 2006

Email from John Donovan to Oleg Mitvol 19 October 2006

Email from John Donovan to Oleg Mitvol 19 November 2006

Email from John Donovan to Oleg Mitvol: 29 November 2006

Email received by John Donovan from Derek Brower, Senior Correspondent, The Petroleum Economist: 12 Dec 2006

John Donovan email correspondence with London law firm acting for Oleg Mitvol/RosPrirodNadzor: 21 December 2006 (Mark Stephens of
Finers Stephens Innocent)

The following files relating to the Donovan's involvement in the Sakhalin-2 project in Russia were supplied to the Donovan's by Shell as a result of a Data Protection Act application. There is a great deal of repetition but hidden in the pages is Shell internal correspondence relating to the Donovan's and their website. It includes a Shell internal email to David Greer, the then Project Director and Deputy CEO of Sakhalin Energy Investment Company. The handwritten numbering at the right hand foot of the documents were added by the Donovan's. All are pdf files and patience is needed when downloading.

Sakhalin-2 file 1: pages 1 to 31

Sakhalin-2 file 2: pages 31 to 70

Sakhalin-2 file 3: pages 71 to 109

Sakhalin-2 file 4: pages 110 to 150

Sakhalin-2 file 5: pages 151 to 193

Sakhalin-2 file 6: pages 194 to 218

Sakhalin-2 file 7: 5 pages Shell/SEIC internal emails concerning wish to "kill" Sunday Times story (it was "killed")

ARTICLES WHICH RELATE TO royaldutchshellplc.com AND SAKHALIN-2

Argus FSU Energy: Mitvol Turns up the heat: 19 November 2006 (Interview with Mitvol in which Mitvol says he received evidence from John Donovan of the "anti-Shell" website, royaldutchshellplc.com)

Johnson’s Russia List (sourced from Russian news agency, Interfax: Nov 2006 (contains further confirmation of John Donovan being Mitvol's source of Shell internal emails relating to Sakhalin-2 project)

January 2007 BUSINESS NEW EUROPE: Shell gets stuck in a Sakhalin blog-mire

Prospect Magazine: Rise of the gripe site: February 2007 (Prospect Magazine Subscription Website)

Rise of the Gripe Site (pdf version)

Accountability in Action: Between exposé and libel: online activity and the lack of institutional accountability: 27 July 2007(Also look at "Accountability in Practice Royaldutchshellplc.com – The power of a website" at foot of main article)

Prospect Magazine: Shell’s Colchester headache: 12 September 2007

Nikkei BP (Japan): Gripe sites are becoming more powerful: 13 November 2007

Sakhalin Losses

Bloomberg: Shell May Cut Reserves at Least 4 Percent on Sakhalin: 29 December 2006

1. Extract from Royal Dutch Shell Annual Report and Form 20-F 2007 - 28 Minority interest

 

"In April 2007, Shell sold half of its interest in Sakhalin II, reducing its interest from 55% to 27.5%, for a sales price of $4.1 billion. As a result of this transaction, Sakhalin II has been accounted for as an associated company rather than as a subsidiary with effect from April 2007. The main impact on the Consolidated Balance Sheet was a decrease of $15.7 billion in property, plant and equipment and $6.7 billion in minority interest, and an increase in investments: equity-accounted investments of $3.7 billion."

2. Extract from Royal Dutch Shell Plc Annual Report and Form 20-F 2007 - Reserves

 

While proved oil and gas reserves attributable to Royal Dutch Shell shareholders reflected the net reduction of 402 million boe of proved reserves relating to Sakhalin...

3. Extract from Boston Globe article published 23 August 2008:

Russia has been particularly aggressive. In one of the most blatant instances, Shell Oil was forced to yield control of its operations off Sakhalin Island in exchange for a payment of $7.4 billion from state-dominated Gazprom. Most outside analysts estimate that Shell's share was worth $15 billion to $17 billion. Not only was Gazprom's payment far below the amount Shell had invested in the project, but it provided Gazprom with a dominant 51 percent share of the ownership. This heavy-handed offer from Gazprom came after state environment officials threatened to close down the entire operation because of supposed environmental violations.

Shell could hardly refuse the offer. It was either take in Gazprom as the dominant partner or risk losing the investment. Sure enough, once Gazprom took over, the environmental issue magically disappeared. Shell's CEO, Jeroen van der Veer, vainly tried to put a gloss on the whole episode by rationalizing that "the great news is that now there is stability so we can all work together, all the shareholders, to get the project up and running as soon as possible. . . . Thank you for suggesting this truly historic event." He even thanked Russia's Vladimir Putin "for your assistance.

Royal Dutch Shell 2007 Annuals Accounts and Form 20-F (INCLUDES SAKHALIN II Losses) 224 Pages

Royal Dutch Shell 2007 Annual Review 60 Pages

David Greer Story: Project Director and Deputy CEO of Sakhalin Energy resigned after internal email was leaked to royaldutchshellplc.com

'Pipeliners All! Shell's memo to Sakhalin: Financial Times 5 June 2007

Shell's team in 'hell' feels the heat: Financial Times 6 June 2007

Shell man's motivational memo is straight from the Patton script: 7 June 2007

Motivational memos must make their message clear: 11 June 2007

Memo writer in the Shell annals: Financial Times 22 June 2007

FT Online Poll on "Worst Motivational Memo": June 2007

Email from Sakhalin Energy to John Donovan 21 June 2007

 

OUR DIRE WARNINGS ABOUT SAKHALIN II SINCE JULY 2005

ShellNews.net: The inside story of Shell’s Sakhalin II debacle : 05 January 2007

ShellNews.net: THE SHELL SAKHALIN-2 DEBACLE: Creditability concerns over Royal Dutch/Shell Executives, Jeroen van der Veer and Malcolm Brinded following the Salhalin2 $10 billion cost overrun scandal.: "The only thing which has saved the hangover management at Shell is the one element over which they have no influence - the high oil price. In every other respect they are an unmitigated disaster. They should be sent packing.": Monday 18 July 2005: Read the article

ShellNews.net: Final Cost of Sakhalin-2 will now be at least $26 Bn.: "A new Sakhalin management team recently completed a technical review of the project. It has concluded that the final cost will be at least $26bn.": Tuesday 18 October 2005: 00.30am GMT: READ

ShellNews.net: Royal Dutch Shell fails to deny $26 billion overrun figure on Sakhalin2: Tuesday 15 November 2005: 08.45am ET: READ

ShellNews.net: Rattled Shell management swamped with bad news, issues threat following President Putin’s Sakhalin2 tirade: Thursday 17 November 2005: 03.00am EDT: READ

ShellNews.net: Is Sakhalin Doomed?: Tuesday 22 November 2005: 06.40am EST: READ

ShellNews.net: Dire warning to President Putin about $26 BILLION overrun on Sakhalin2 project: Friday 25 November 2005: 04.30am EST: READ

ShellNews.net: Dynamite Email from Shell insider: “I am a Shell employee but of late we not allowed anymore to freely ventilate our concerns to management by fear which reigns inside the company. Therefore I take the unusual step to send this email to you from my home address and trust you will keep me anonymous.”: “The last few weeks there has been a great number of articles on Sakhalin and other disasters on your site. The one that made me write this email was the interview with Linda Cook.”: “…the ‘poodle’ of Phil Watts…”: Monday 28 November 2005: READ

ShellNews.net: European Bank for Reconstruction and Development defers Sakhalin2 decision for one month: Tuesday 29 November 2005: 07.00am EST: READ

ShellNews.net: An Open Letter to Jean Lemierre, President, European Bank for Reconstruction and Development, regarding Shell's Sakhalin II loan application: "Perhaps if more time had been spent on project management rather than ego and status driven pursuits and personal enrichment by Shell senior management, Shell would not be in the almost perpetual state of crisis which its stakeholders have witnessed in recent years.": Sunday 4 December 2005: 00.15am EST READ

ShellNews.net: Shell insider view on Sakhalin II loan news from the European Bank for Reconstruction and Development:"In spite of Shell's attempts to spin this announcement, this does not mean that the project has been given a clean bill of health.": Thursday 15 December 2005: 12.15 EST: READ

ShellNews.net: The Dow Jones report (see article below) about the $50,000 reminds me of a comment that I heard within Shell - something to the effect that Shell were under increasing financial pressure from the Russian "mafia"…: “may be little more than the tip of the iceberg”: Friday 13 January 2006: READ

ShellNews.net: Bribery and Corruption at Shell: Saturday 14 January 2006: READ

ShellNews.net: WWF seeking information from those concerned about Sakhalin : 2 Feb 2006

ShellNews.net: From a Shell Insider: “...Malcolm Brinded is certainly lying when he states that he did not know”: Mon 20 Feb 2006 04:27 AM EST: READ

ShellNews.net: WWF seeking information from those concerned about Sakhalin : 5 March 2006

ShellNews.net: Potential catastrophic consequences if Sakhalin ERD wells allegations are true: 4 August 2006

EMAIL TO MINISTRY OF NATURAL RESOURCES OF THE RUSSIAN FEDERATION : 7 August 2006

ShellNews.net: Sakhalin II: Another Shell scandal? : 20 August 2006

Sakhalin II: The Russians play hard ball with Royal Dutch Shell : 6 Sept 2006

An email to Royal Dutch Shell General Counsel regarding Sakhalin II crisis : 18 Sept 2006

Catastrophic news for Royal Dutch Shell Plc?: Russia calls a halt to Sakhalin II : 18 Sept 2006

Royal Dutch Shell’s Sakhalin Nightmare : 20 Sept 2006

Sakhalin II & Brent Bravo debacles: time for Brinded to resign? : 21 Sept 2006

Scotland on Sunday: The true cost of Sakhalin II : 24 Sept 2006

Email to Jeroen van der Veer: Resolving the Sakhalin II impasse : 26 Sept 2006

Email to Jeroen van der Veer: the Sakhalin II crisis : 26 Sept 2006

Sakhalin II Cost Overrun: $20 billion, £22 billion, $25 billion or $26 billion? : 27 Sept 2006

ShellNews.net: hardly surprising Putin is questioning the viability of Sakhalin II : 29 Sept 2006

ShellNews.net: did our whistleblower email to Oleg Mitvol precipitate the Sakhalin II crisis? 6 October 2006

Email to Jeroen van der Veer: Sakhalin II: the destruction of Shell’s reputation for prudent project management 10 October 2006

Sakhalin II: Apocalypse Now? A potential environmental calamity on a scale never before witnessed by humanity… 18 October 2006

ShellNews.net: The Hans Bouman, Engel van Spronsen Sakhalin emails : 23 October 2006

ShellNews.net: I supplied the evidence Mitvol is using against Sakhalin Energy in $10 Billion Claim : 20 November 2006

ShellNews.net: Email from John Donovan to The European Bank for Reconstruction & Development: Sakhalin II : 23 November 2006

ShellNews.net: Argus FSU Energy series of important Sakhalin II articles : 1 December 2006

ShellNews.net: Live Chat posting by ‘REALSCOTTY’: Shell insider revelation about Sakhalin II budget scandal : 4 December 2006

Oleg Mitvol: the ‘Kremlin attack dog’ that makes the oil giants tremble : 7 December 2006

ShellNews.net: IMPOTENT INCOMPETENT SHELL : 13 December 2006

ShellNews.net: Another leaked email from Jeroen van der Veer: 17 December 2006

ShellNews.net: Sakhalin II intrigue continues with news of a secret ‘protocol’: 28 December 2006

ShellNews.net: Coming soon… the inside story on the Sakhalin II debacle: 30 December 2006