Unhappy about the financial implications relating to the delays to the joint venture Sakhalin oil project, the Russian government is believed to be pressing Shell to cover the costs itself.
Sakhalin is a joint venture oil development project located in the far east of Russia which is partly funded by the Russian government. Under the terms of the joint venture production sharing agreement (PSA) Russia cannot start to benefit from production revenues until the other partners in the operation recoup their costs.
Therefore President Putin’s government is keen to keep overrun costs down in order to minimize the wait until Russia can take it cut from Sakhalin proceeds.
With this in mind it is believed that Mr Putin, while on a trip to the Netherlands, has told Shell’s Jeroen Van der Veer that his government would not ratify the revised budget of $20 billion to realize the project and that Shell would have to cover the $10 billion overrun costs.
Shell’s shares have already taken a hit due to the delay in the Sakhalin project coming online. Now Shell’s stock has lost 19 pence due to concerns over the possible addition cost burden.
Furthermore, to make matters worse, some have suggested that the Russian government, which has been very active in acquiring control over domestic energy assets recently, is using the overrun as an excuse to grab greater control of the project.