Journey to Sakhalin Royal Dutch Shell in Russia A Case Solution

Case ID: 704040
Solution ID: 10571

Words: 876

Price: $45

Case Solution

Shell in Russia had been involved in a coalition with the state monopoly of gas supply. In Russia, Shell also invested in the development of oil fields in Siberia, and the establishment of a network in St. Petersburg of refilling stations. Although these investments were small, the company’s main focus was on a project named Sakhlain II. The company has an alliance called Sakhalin Energy Investment with Mitsui and Mitsubishi. However the lagest share (55%) remains with Shell. The Sakhlain II project is considered to be one of the biggest FDI in Russia. It also holds the same significance for Shell. The project is the largest in the world when it comes to accumulated gas and oil projects. However big the project is there are somechallenges in developing the project in Russia. The Russian government has the power over the project in exchange for licenses and minimized tax for the project. This agreement is contradictory with the Russian laws. Also, such collaborations are debated in Russia. The decision is based on the fact that Shell and other executives of the project have waited for the legal stabilization of the project that has not yet been possible. 

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Questions Covered

1. What are the most important differences between international oil and gas markets?

2. How is Russia situated in these markets?

3. How much protection do Production Sharing Agreements (PSA’s) provide for foreign investors?

4. Why are PSA’s so controversial in Russia?

5. Should Shell’s managers proceed with Sakhalin II, and invest another $10 billion in Russia, despite the fact that the project’s legal issues have not yet been resolved?

6. How can Shell’s managers mitigate the risks associated with this project?

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