WATCHING THE WORLD: The Sakhalin bear dance

Sept. 25, 2006
Dancing with the Russian bear has been the rage lately, especially in the oil industry.

Dancing with the Russian bear has been the rage lately, especially in the oil industry. It reminds me of the old song “Simon Smith and His Dancing Bear.”

As the lyrics go, “Oh, I’d step out in style with my sincere smile and my dancing bear.” And they go on to say, “Oh, who would think a boy and bear could be well accepted everywhere. Its just amazing how fair people can be.”

Words to that effect may well have been believed by many folks in the oil and gas industry, judging by the number of bears in the Kremlin picking up partners right and left. Many of their sincere smiles, though, have turned to unhappy frowns as the erstwhile partners now see the lyrics in an altogether different light.

New light

That light shone last week when Russian Natural Resources Minister Yuriy Trutnev signed a document revoking the order of 2003 endorsing a positive environmental analysis of the Sakhalin-2 project. And pace any legal niceties, that order came into force the moment it was signed.

It all came about on Sept. 18, when Trutnev considered an objection by Deputy Prosecutor-Gen. Aleksandr Buksman to the ministry’s order of July 15, 2003, called “On endorsing the conclusions of the commission of experts drawn from the state environmental analysis of the feasibility study for the integrated development of the Piltun-Astokhskiy and Lunskiy licensed fields (stage 2 of the Sakhalin-2 project).”

Not much was said about Buksman’s objections, nor are we to expect much ever will be said-certainly not in the courts. At best, we are left to understand that the Russians either are using the revocation as a bargaining ploy to get a slice of the project, or they want to dance off with the whole thing.

Soft shoe

Royal Dutch Shell PLC, which has a 55% stake in the project, has been in talks with state-owned OAO Gazprom for more than a year about trading 25% of its share in Sakhalin-2. Gazprom has been offering a 50% stake in one of its onshore fields in central Siberia, but Shell has not been overly keen.

Last week, ahead of Trutman’s revocation, Gazprom suddenly said the talks with Shell over the possible asset swap were off. There was no explanation at all, just a closed door. Gazprom said there had been “no movement in the past year,” and that was that. The dance was over.

Or was it? The main question being asked in industry circles was whether the Kremlin’s tough line spelled seriously bad news for Shell or whether it was simply a negotiating ploy to extract better terms from the deal for Russia.

Either way, it seems that the boy and his dancing bear just cannot be accepted everywhere. And that leads us to question that wonderful line, “It’s just amazing how fair people can be.”