Journey to Sakhalin Royal Dutch Shell in Russia A Case Solution

Case Solution

Methods of Royal Nederlander/Spend in Russia incorporated an effective alliance with Gazprom, the country's gas monopoly, the development of the Salym oil fields in Siberia, together with a little retail re-filling network in St. Petersburg. Focuses on the Sakhalin II project. Sakhalin II 's for the existence of the Sakhalin Energy Investment Co. (SEIC), possessed by Royal Nederlander/Spend (55%), Mitsui (25%), and Mitsubishi (20%). Worth roughly $10 billion, the second phase of Sakhalin II would be the single greatest expenditure inside the good status for Royal Nederlander/Spend, together with the only greatest foreign direct acquisition of Russia's history. Sakhalin II could be even the greatest integrated coal and oil project in the world. The job, however, faces numerous challenges, however. A production talking about agreement (PSA)--a commercial contract involving the foreign investor together with a number government that replaces the country's tax and license programs for your existence in the project--governs Sakhalin II. Although Sakhalin II's PSA likes the status of Russian law, other Russian laws and regulations and rules conflict while using the PSA. PSAs also provide become questionable within Russia. After a period of browsing vain for legal stabilization, Spend and SEIC professionals need to research when the project goes forward.

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Questions Covered

1. What are the most important differences between international oil and gas markets?

2. How is Russia situated in these markets?

3. How much protection do Production Sharing Agreements (PSA’s) provide for foreign investors?

4. Why are PSA’s so controversial in Russia?

5. Should Shell’s managers proceed with Sakhalin II, and invest another $10 billion in Russia, despite the fact that the project’s legal issues have not yet been resolved?

6. How can Shell’s managers mitigate the risks associated with this project?