The value of an oil firm lies in the value of its "proven" reserves. Determining the size, true value and exploitation costs is at best a murky business. The scandal of 2004, when Shell callously over estimated its reserves, has given past hydrocarbon portfolio holders a sour taste. Turning to Russia, the hunger for sweet crude in the Sakhalin fields is going to be bitter at best for foreign investors.
Shell's majority share was just recently bought out for 7.5 billion dollars, which gives Gazprom a 55% majority share in the mammoth fields. In Russian media the deal is noted as a Christmas gift for Gazprom. Although nothing more than a generous extortion, the deal could actually have been worse for Shell. Nevertheless, there will have to be yet another de-valuation of its reserves and hence, the intrinsic value.
There is some good news on the horizon: the threat of under investment was looming and after much haggling, Russia has now finally agreed to a new 20 billion dollar expansion of the mammoth project. Nonetheless, even when the Sakhalin fields get up and running, it is going to be an expensive money machine at best. The price of oil is an important factor in the overall profitability of the venture. The are certainly going to be some hick-ups along the way, notably in the short term.
The predicted weakness of the American Economy is brewing stormy clouds. The American consumer is already feeling the pinch of "expensive" oil as their purchasing power slides with a weakening dollar. And the front for commodity prices such as oil to be denominated in Euros is gaining momentum. Although this would be a welcome move for oil producers who are seeing their dollar assets slide, American consumers would finally be exposed to the real cost of energy and their inherent inefficient per capita mode of production. Higher prices would lead to a slowing American demand (something we are perhaps already starting experience), adding some downward pressure on the inescapable upward trend.
In the short and medium term there is much to be grumpy about and in the future even more to speculate about. Will this be the last wrestling match in Russia for state control of natural resources, or will the empire strike back yet again?
(Sources: Financial Times, NRC Handelsblad, the Economist, The Moscow Times)
Shell's majority share was just recently bought out for 7.5 billion dollars, which gives Gazprom a 55% majority share in the mammoth fields. In Russian media the deal is noted as a Christmas gift for Gazprom. Although nothing more than a generous extortion, the deal could actually have been worse for Shell. Nevertheless, there will have to be yet another de-valuation of its reserves and hence, the intrinsic value.
There is some good news on the horizon: the threat of under investment was looming and after much haggling, Russia has now finally agreed to a new 20 billion dollar expansion of the mammoth project. Nonetheless, even when the Sakhalin fields get up and running, it is going to be an expensive money machine at best. The price of oil is an important factor in the overall profitability of the venture. The are certainly going to be some hick-ups along the way, notably in the short term.
The predicted weakness of the American Economy is brewing stormy clouds. The American consumer is already feeling the pinch of "expensive" oil as their purchasing power slides with a weakening dollar. And the front for commodity prices such as oil to be denominated in Euros is gaining momentum. Although this would be a welcome move for oil producers who are seeing their dollar assets slide, American consumers would finally be exposed to the real cost of energy and their inherent inefficient per capita mode of production. Higher prices would lead to a slowing American demand (something we are perhaps already starting experience), adding some downward pressure on the inescapable upward trend.
In the short and medium term there is much to be grumpy about and in the future even more to speculate about. Will this be the last wrestling match in Russia for state control of natural resources, or will the empire strike back yet again?
(Sources: Financial Times, NRC Handelsblad, the Economist, The Moscow Times)
