Daily Mail: Sakhalin shock: “THE way in which the stock market shrugged off the disclosure by Shell of a $10bn cost overrun at its Sakhalin-2 gas project in Russia is astonishing. If a national government were to admit an error on such a scale the finance minister would almost certainly pay with their job.”: “Shareholders need to be assured that the oil giant is husbanding its resources well and is not squandering its oil price windfall. The Sakhalin experience does not suggest that the present management is any more skilled than its predecessor at this.”: Posted Sunday 17 July 2005

City Comment

By Alex Brummer

Published Friday 15 July 2005

THE way in which the stock market shrugged off the disclosure by Shell of a $10bn cost overrun at its Sakhalin-2 gas project in Russia is astonishing. If a national government were to admit an error on such a scale the finance minister would almost certainly pay with their job.

In big oil nothing really counts any longer. An oil price close to $60-a-barrel means that the majors and their investors can withstand almost any shocks, including hurricanes in the Gulf of Mexico, without causing a ripple.

Yet there are reasons for analysts to be concerned about Shell's disclosure. It was late last month that Shell's chief executive Jeroen van der Veer grandiloquently declared that the group was embarking on 10 'elephant' projects to help restore the group's replacement reserves.

This is a laudable objective at a time when the oil companies are under fire for not ploughing enough cash back into exploration and refining investment. Shareholders need to be assured that the oil giant is husbanding its resources well and is not squandering its oil price windfall. The Sakhalin experience does not suggest that the present management is any more skilled than its predecessor at this.

The declaration that the overrun was 'clearly disappointing' may set a monetary record for litotes.

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