June 27, 2009 / 11:25 AM / in 10 years

UPDATE 2-Russia's Putin offers surprise deal to Shell

* Shell accepts Putin’s invite to work on Sakhalin 3 and 4

* Russia needs foreign help to develop its energy wealth

(Adds quotes, details, background)

By Simon Shuster

MOSCOW, June 27 (Reuters) - Russian Prime Minister Vladimir Putin moved again to ease his government’s clasp over the energy sector on Saturday, capping off a week of foreign energy deals with a surprise offer for Royal Dutch Shell (RDSa.L).

Weaker oil prices, now half of what they were a year ago, have persuaded Russia to scale back its resource nationalism. Moscow now looks to be balancing the dogged protection of its energy wealth with the need to have foreigners invest in it.

The offer to Shell, which comes days after Russia struck major deals with France’s Total (TOTF.PA) [ID:nLO221477], is emblematic of the renewed openness, because Shell was the victim of Russia’s most aggressive drive to re-take control of its natural resources.

In 2006, under intense government pressure, it ceded control of the vast Sakhalin-2 project to Russia’s Gazprom (GAZP.MM). But on Saturday, Putin invited Shell to help develop the giant Sakhalin-3 and Sakhalin-4 projects off Russia’s Pacific coast.

“These require offshore production in difficult deep sea areas where your experience will be very valuable,” Putin told Shell Chief Executive Jeroen van der Veer at a meeting in his summer residence outside of Moscow.

Van der Veer accepted the invitation and said it was an ideal time to move ahead with these projects, as the financial crisis has brought down the price of construction.

“We are ready to work quickly,” he said. “It is a good signal that investments start to flow again, a good signal for Russia and, of course, a good signal for Shell.”


In February, gas export monopoly Gazprom inaugurated Sakhalin-2, a $22-billion liquefied natural gas project, in which Shell has 27.5 percent after giving up control to Gazprom.

Sakhalin-3 and Sakhalin-4, also based on the Pacific island of the same name, are at far earlier stages and big money is still needed even to nail down how much oil and gas they hold.

The informal agreement with Shell on Saturday did not lay out the Anglo-Dutch major’s future role in these projects.

When asked by Reuters whether it would have a direct stake in either one, Shell Chief Financial Officer Peter Voser said, “I think it’s a natural progress now, having built Sakhalin-2.”

A key aim of van der Veer’s visit to Moscow, the final one of his career as Shell’s chief executive, was to introduce Voser as his successor. Voser will take his place as of Wednesday.

Over the past decade, Putin has built close ties with the heads of many foreign energy giants and has a habit of meeting them face to face before allowing any major deal to go forward.

Because the two of them share fluency in German, Van der Veer said it would be easy for them to get along.

“I can assure you that this Swiss-accented German is not easy to understand,” said Putin, who learned to speak the language during his early career as a KGB spy in Dresden.

Putin said that Shell has met all of its contractual obligations in Russia and was a welcome partner, despite the public controversy with Gazprom over Sakhalin-2.

“We have a dialogue that has not been easy, but we have reached an agreement to meet each other half way and come to an agreement that has allowed us to build a firm foundation for future cooperation,” Putin said.

Van der Veer added: “Cooperation with Gazprom has been very smooth.”

At the Saturday meeting, Shell also signed a cooperation deal with Russian shipping firm Sovcomflot to develop shipping infrastructure for the transport of liquefied natural gas (LNG).

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