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The case study explores the execution of the two major Sakhalin projects that were instrumental in establishing Russia’s position as a pre-eminent source of natural gas.  These projects were among the earliest ones on a global scale that involved multiple global partners and were executed in a forbidding part of the country, offshore Russia in the Sea of Okhotsk.  The partnership arrangements for these projects were underpinned by PSAs (Production Sharing Agreements)  executed between the Russian government and the various partners.  Sakhalin I was a partnership between Rosneft, ExxonMobil, Oil and natural Gas Corporation of India, and a Japanese consortium while Sakhalin II included Shell, Mitsubishi, and Mitsui.  Both development deals were struck when Russia was in the midst of significant economic chaos following the breakup of the USSR into constituent republics.  This period in Russian history was marked by significant opportunities as well as significant risks.

Once implementation got underway, the economic conditions started to change and so too the political climate in the country.  The election of Putin to power in 2000 marked a major transition in the fortunes of the Sakhalin projects.  While ExxonMobil has chosen to focus primarily on the oil segment of the project, Shell had set its eyes on the LNG (Liquefied Natural gas) phase of the project after having successfully commissioned its oil operations soon after the project got underway.  The two companies seemed to have different philosophies with respect to project execution.  ExxonMobil relied on a very long drawn, methodical approach to a project that was much smaller in size compared to Shell’s Sakhalin II ventures. Shell had chosen to rely on the extensive use of contractors to bring its gas reserves to market because it perceived a potential race to get long term contracts locked up with buyers in Japan and Korea, and it appeared that ExxonMobil was eyeing the same prize.  The execution experience of the two companies reflected their own core values and aspirations thus providing numerous insights into the manner in which super majors handle megaproject execution in the face of changing environmental conditions.

The case study on Shell/Sakhalin covers a wide range of issues that are crucial to success in the industry. On one level, it offers a rich description of the challenges of working in Russia, a location that continues to gain increasing importance within the industry. On another, it illustrates the core value of flawless execution especially in difficult regions of the world that seem to be in frequent political turmoil. It also helps identify a set of do's and don'ts when it comes to identifying partners, managing external relationships with government entities, and the unique management issues that arise in joint ventures.


12 pages