Shell's mission ends

A representative of Gazprom will head Sakhalin-2 for the start of gas supplies

The Gazprom board reviewed the progress of the Sakhalin-2 project and confirmed the monopolist’s intentions to ensure full operational control in it. Despite the fact that in April last year the Russian gas monopolist, after several months of active pressure on the shareholders of Sakhalin Energy (the project operator), acquired a controlling stake in this company , the direct management remained with the former majority participant - the Anglo-British Royal Dutch Shell. However, immediately after the start of production and export of liquefied natural gas, planned for the first quarter of 2009 (presumably February), Gazprom, under a new shareholder agreement, delegates its chief executive officer to Sakhalin Energy. In addition, at the meeting of the company’s board, it was decided that the Russian company would appoint its technical director to the operator company, ensuring for itself a numerical majority in the committee of executive directors. The names of new representatives of Gazprom in Sakhalin-2 have not yet been approved.

After Gazprom entered the project, the shares of the previous participants were halved. Royal Dutch Shell now owns 27.5% minus one share, while Japanese Mitsui and Mitsubishi own 12.5 and 10%, respectively. As compensation, they received $7.45 billion for everyone, which reimburses their expenses for implementing the project before Gazprom entered. Almost all liquefied natural gas (LNG) that will be produced within the project (plant capacity 9.6 million tons per year) is contracted on a long-term basis. However, due to an “attack” from Rosprirodnadzor and technical problems, the start of deliveries was postponed from the end of 2007 to mid-2008, and then to the first quarter of 2009.

Currently, Sakhalin Energy's board of directors consists of eight non-executive directors (two from each shareholder) and nine executive directors. On the executive committee, five people, headed by Ian Craig, represent Royal Dutch Shell, four were nominated by Gazprom. The Russian monopolist is represented by Mr. Craig's deputy Andrey Galaev, commercial director of Sakhalin Energy Viktor Snegir, person responsible for personnel Vladimir Penkin and director of external relations Igor Ignatiev (previously headed the Moscow office of Sakhalin Energy, but was nominated by the gas monopolist at SE).

After the start of LNG production, the executive committee will be increased to 11 people with two representatives from Gazprom. In this case, apparently, Royal Dutch Shell will have the right to appoint a first deputy chief executive officer. The position of technical director is now occupied by Robert Ryan of the British-Dutch company, however, Gazprom, as a source in the concern explained, needs to grow its own personnel, given the ambitious plans for the development of the Shtokman field and the construction of LNG production facilities there. But since such a large-scale project requires an experienced specialist, the Royal Dutch Shell representative will remain as technical co-director.

The Gazprom press release also notes that at the meeting of the concern’s board “particular attention was paid to the implementation of corporate governance standards, regulations and requirements in force in the Gazprom group at Sakhalin Energy.” And it was decided to bring the issue of the progress of the project and corporate control at Sakhalin-2 to the November meeting of the concern’s board of directors.

Alexey GRIVACHS