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Authors:
Published by:
Harvard Business Publishing (2004)
Version:
2 June 2006
Length:
27 pages
Data source:
Field research

Abstract

Operations of Royal Dutch/Shell in Russia included a strategic alliance with Gazprom, the country's natural gas monopoly, the development of the Salym oil fields in Siberia, and a small retail refilling network in St Petersburg. Focuses on the Sakhalin II project. Sakhalin II is the reason for the existence of the Sakhalin Energy Investment Company (SEIC), owned by Royal Dutch/Shell (55%), Mitsui (25%), and Mitsubishi (20%). Worth approximately $10 billion, the second phase of Sakhalin II would be the single largest investment decision in the history of Royal Dutch/Shell, as well as the single largest foreign direct investment in Russia's history. Sakhalin II would also be the largest integrated oil and gas project in the world. The project, however, faces a number of challenges, however. A production sharing agreement (PSA) - a commercial contract between the foreign investor and a host government that replaces the country's tax and license regimes for the life of the project - governs Sakhalin II. Although Sakhalin II's PSA enjoys the status of Russian law, other Russian laws conflict with the terms of the PSA. PSAs have also become controversial within Russia. After several years of waiting in vain for 'legal stabilization', Shell and SEIC executives must decide whether the project should go forward.

Topics

Foreign investment; Globalization; Energy; Strategic alliances
Location:
Size:
USD236 billion revenues, 90,000 employees
Other setting(s):
1991-2003

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