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21

Shell Annoys Putin

Shell's recent efforts to increase expenses on the Sakhalin-2 project have recently annoyed Russian President Vladimir Putin

The consulting company International Project Analysis has prepared a report for Royal Dutch Shell in which it states that the oil company is ?excessively reliant? on contractors to manage large production projects and does not have control over its expenses because of a lack of control over its contractors, Russian business daily Kommersant reported.

The consulting company mentioned Sakahlin-2 as an example. The report was based on analyses of 13 Royal Dutch Shell projects, including Sakhalin-2.

Shell's recent efforts to increase expenses on the Sakhalin-2 project from $12 billion to $20 billion have recently annoyed Russian President Vladimir Putin. The president said during his state visit to The Netherlands that the addition financing would not be granted. The IPA report recommended maximally centralizing management of projects. It will probably complicate relations between Shell and the Russian government. The company has stated that selection of additional management personnel has already begun.

Shell has problems in the United States as well. A Senate hearing yesterday was held on the activities of the largest oil companies in third quarter of the year. Managers from ExxonMobil, Royal Dutch Shell and ConocoPhillips took part. Thanks to the record high world oil prices, those companies also received record profits. Shells' profits were 68 percent higher in the third quarter of 2005 as compared to the third quarter of the previous year.

Observers say that the Senate hearings are a run up to considerations of taxation of excessive profits. Such taxes were imposed on oil companies in the U.S. in the 1980s.