Description
oil industry and foreign investments in the Russian O&G sector. The ppt includes the risks associated with investment in Russia reviews Sakhalin energy.
Investing in Russian Oil Industry
Buying stakes in Russian companies • November 1997, Shell invested around $1 billion in Gazprom • BP bought a ten percent stake in AO Sidanko and twenty percent stake in eastern Siberian gas fields, controlled by Sidanko • 1995 deal between Arco and Lukoil, in which Arco bought in Lukoil that gave Arco a 7.99% stake in Lukoil
Risks
Lack of transparency of the companies and the resulting speculation about the companies' assets and financial position • Sidanko became subject to bankruptcy proceedings in 1998 • Settlement with government, TNK seized two of the best production subsidiaries of Sidanko, Kondpetroleum and Chernogorneftegaz • BP Amoco protested which led to litigations • TNK and BP finally reached an agreement in 2001 to jointly own and run Sidanko (TNK owns eighty-four percent and BP owns ten percent of Sidanko )
Weak protection of shareholders' rights • Yukos,Russia's second largest oil company, was involved in litigation with its Western minority shareholders, led by Kenneth Dart, over Yukos's attempt to sell additional shares in some of its subsidiaries, thus diluting the shares' value Dart is believed to hold between twelve and fourteen percent of Samaraneftegaz, Tomskneft, and Yuganskneftegaz, three of Yukos's drilling subsidiaries the additional shares were issued at a meeting to which Western shareholders were denied admission Dart sued Yukos and secured six international injunctions to stop the transfer of the newly issued shares On June 28, 1999 Dart won his first legal battle in the Samara court in Russia after which they settled for confidential agreement
•
•
•
•
Project Financing under PSA Deals
• PSA (Production-Sharing Agreement): contract between the state and an investor • Defines the terms and condition for exploration and taxes • Terms defined in the PSA supersede laws defined in the status quo • Makes many long term, typically high risk projects possible
History of PSAs in Russia
• PSAs in Russia were created under Yeltsin (law signed in 1995 and took effect in 1996) • Three PSAs operating currently – Sakhalin 1 – ExxonMobil – Sakhalin 2 – Shell – Kharyaga – Total • PSAs used in other former Soviet countries (Azerbaijan and Kazakhstan)
PSA Structure
• • • Government retains the rights and ownership of the oil and gas resources Company provides all capital Payments at specified points in the project and royalty payments (6% in Sakhalin) After the capital investment is recouped, profit is shared between the government (Russian federation and regional Sakhalin Oblast) and the company The government share increases as the project progresses (up to 70%) The company pays tax on the profit that it makes
•
• •
Sakhalin-2 and Shell
• Island off the east coast of Russia • Estimated 14 billion barrels & 96 trillion cubic feet natural gas • Developed by Shell, Mitsubishi, Mitsui • Operate as Sakhalin Energy • Foreign investment accomplished though PSA contract
Sakhalin-2 Current Issues
• In Fall 2006, Natural Resource Ministry (NRM) says project violating multiple environmental standards • Project must be reviewed and approved before work is continued • Could result in suspension of project, which will add to overall costs
Was it Really Environmental?
• Analysts speculate that the actions weren’t motivated by environmental concerns • Motivated by government desire to give Gazprom a bigger share • In 2005, Shell offered 25% of share to state-run company Gazprom for a 50% share in a Gazprom field • Government and Gazprom not content
Review of Sakhalin-2
• Review currently being conducted by NRM • Expected to last one month • Sakhalin Energy claims that they did not violate any standards and have cooperated with NRM • Russian government denies any claims of political motivation and says there is evidence of ecological damage
doc_967239116.pptx
oil industry and foreign investments in the Russian O&G sector. The ppt includes the risks associated with investment in Russia reviews Sakhalin energy.
Investing in Russian Oil Industry
Buying stakes in Russian companies • November 1997, Shell invested around $1 billion in Gazprom • BP bought a ten percent stake in AO Sidanko and twenty percent stake in eastern Siberian gas fields, controlled by Sidanko • 1995 deal between Arco and Lukoil, in which Arco bought in Lukoil that gave Arco a 7.99% stake in Lukoil
Risks
Lack of transparency of the companies and the resulting speculation about the companies' assets and financial position • Sidanko became subject to bankruptcy proceedings in 1998 • Settlement with government, TNK seized two of the best production subsidiaries of Sidanko, Kondpetroleum and Chernogorneftegaz • BP Amoco protested which led to litigations • TNK and BP finally reached an agreement in 2001 to jointly own and run Sidanko (TNK owns eighty-four percent and BP owns ten percent of Sidanko )
Weak protection of shareholders' rights • Yukos,Russia's second largest oil company, was involved in litigation with its Western minority shareholders, led by Kenneth Dart, over Yukos's attempt to sell additional shares in some of its subsidiaries, thus diluting the shares' value Dart is believed to hold between twelve and fourteen percent of Samaraneftegaz, Tomskneft, and Yuganskneftegaz, three of Yukos's drilling subsidiaries the additional shares were issued at a meeting to which Western shareholders were denied admission Dart sued Yukos and secured six international injunctions to stop the transfer of the newly issued shares On June 28, 1999 Dart won his first legal battle in the Samara court in Russia after which they settled for confidential agreement
•
•
•
•
Project Financing under PSA Deals
• PSA (Production-Sharing Agreement): contract between the state and an investor • Defines the terms and condition for exploration and taxes • Terms defined in the PSA supersede laws defined in the status quo • Makes many long term, typically high risk projects possible
History of PSAs in Russia
• PSAs in Russia were created under Yeltsin (law signed in 1995 and took effect in 1996) • Three PSAs operating currently – Sakhalin 1 – ExxonMobil – Sakhalin 2 – Shell – Kharyaga – Total • PSAs used in other former Soviet countries (Azerbaijan and Kazakhstan)
PSA Structure
• • • Government retains the rights and ownership of the oil and gas resources Company provides all capital Payments at specified points in the project and royalty payments (6% in Sakhalin) After the capital investment is recouped, profit is shared between the government (Russian federation and regional Sakhalin Oblast) and the company The government share increases as the project progresses (up to 70%) The company pays tax on the profit that it makes
•
• •
Sakhalin-2 and Shell
• Island off the east coast of Russia • Estimated 14 billion barrels & 96 trillion cubic feet natural gas • Developed by Shell, Mitsubishi, Mitsui • Operate as Sakhalin Energy • Foreign investment accomplished though PSA contract
Sakhalin-2 Current Issues
• In Fall 2006, Natural Resource Ministry (NRM) says project violating multiple environmental standards • Project must be reviewed and approved before work is continued • Could result in suspension of project, which will add to overall costs
Was it Really Environmental?
• Analysts speculate that the actions weren’t motivated by environmental concerns • Motivated by government desire to give Gazprom a bigger share • In 2005, Shell offered 25% of share to state-run company Gazprom for a 50% share in a Gazprom field • Government and Gazprom not content
Review of Sakhalin-2
• Review currently being conducted by NRM • Expected to last one month • Sakhalin Energy claims that they did not violate any standards and have cooperated with NRM • Russian government denies any claims of political motivation and says there is evidence of ecological damage
doc_967239116.pptx