From Contraian Edge
I can’t say I was surprised to see that Royal Dutch Shell (NYSE: RDS.A) will be “selling” 50% plus one share of the Sakhalin-2 project to Gazprom for $7.5 billion. Several months ago, the Russian government wanted to take Royal Dutch Shell to court because it was ruining the environment. I suppose when the Russian government referred to the environment, it meant the economic environment, not Mother Nature. The “environmental” issue was very simple: Product sharing agreements (PSA) signed by the Russian government with Shell were not considered advantageous to Russia — at least not anymore.
The 7.5 billion-dollar question comes to mind: Did Gazprom buy a controlling stake in the Sakhalin-2 project at a fair price? It’s hard to say. $7.5 billion is not chump change, but Shell didn’t sell a controlling stake in the project — which, by the way, insured a replenishment of its dwindling oil reserves for years to come — at its own will. You don’t have to be a genius to figure out that after “selling” (I use that term loosely because it assumes willing participants on both sides) its stake in the Sakhalin project, the environmental issues will not be issues any more.
I’ll be blunt: The Russian government manipulated its environmental/legal levers to muscle an ownership stake in the project out of Shell, possibly at a significant discount. I understand that it’s so much easier to be sympathetic to the poor children and elders that this oil money is supposed to go to, than to a multibillion dollar, impersonal, foreign (Dutch to be exact) oil company.
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