Gazprom and Shell signed a new agreement today, under the eyes of Vladimir Putin on his trade mission to Europe. The agreement has been in discussion for a few years; at one point a BP-and-Rosneft style share swap was discussed, but the two companies appear to have settled for a Joint Venture. Together they’ll extract shale oil in Siberia and explore two Arctic fields (one in the Chukchi Sea, one in the Pechora Sea).
This deal brings together two companies with scandalous records in trying to drill in ice-covered waters: Shell’s repeated misadventures off the coast of Alaska and Gazprom’s attempts to get the first oil out of the Prirazlomnoye field in the Russian Arctic have made headlines throughout the past year and a half. In 2011, the drilling rig Kolskaya, commissioned by Gazprom’s offshore exploration subsidiary Gazflot, capsized and sank on its way back from exploratory drilling in the Okhotsk Sea. 54 out 67 crew died – most of them drilling, not towing crew – as (according to interviews with surviving staff and experts) the company refused to provide another ship to transport the workers while the rig was being towed.
Here are three questions that anybody interested in the deal, from environmentalists to Shell shareholders, should be asking:
1) How soon do the companies mean to start drilling in the Arctic ocean?
A similar Joint Venture between Rosneft and Exxon, operating two fields in the Kara Sea, is supposed to start drilling in 2014. Now Arctic ventures are already notorious for their delays – Gazprom’s own Prirazlomnaya was planned to start extracting oil in 2005 and still has not started – but with the current Russian government’s keenness to get oil from the continental shelf as soon as possible, the big state-owned companies are under pressure to extract as much as they can.
Rosneft had to give up a license in the Okhotsk Sea in 2008 because it failed to do the drilling it had promised under its license agreement. That license went to Gazprom, which started drilling late in the season of 2011, continued drilling despite the onset of rough weather, and lost the rig (the above mentioned Kolskaya) in a storm.
So, will the license terms similarly hurry on Gazprom and Shell?
2) How much will we know?
Now Shell’s not great at reporting its own problems with Arctic preparedness. In their annual report (say ShareAction)
You will find mention of the Kulluk, prior to its running aground, ‘successfully completing its role in supporting our 2012 Alaska exploration programme’ – which poses the almost philosophical question of whether one can successfully support a programme which itself was a failure.
You’ll be told that the spill containment vessel, the Arctic Challenger, “received U.S. Coast Guard certification” but too late for the 2012 drilling season. Again, strictly factually correct but missing the informative context that this delay was owed to the ship failing inspection after inspection.
If you look in Gazprom’s 2010-2011 sustainability report, the number of mentions of the capsized Kolskaya platform is… zero. They don’t even include the rig’s crew in their reporting on fatalities.
Shell’s Oil Spill Response Plans (OSRP) for its Beaufort Sea and Chukchi Sea drilling were made available online following massive public pressure. Gazprom’s OSRP for Prirazlomnaya was never made available in full, and has apparently expired in 2012. Will we see Shell and Gazprom’s OSRPs for their joint projects?
3) Who will control the drilling?
Shell and Gazprom are already partners in the offshore extraction project Sakhalin-2 – there, Shell has retained control over the operations even though Gazprom gained a controlling stake. Will the arrangement here be similar, or will Gazprom run the show? And if so, who will be ultimately responsible for the projects’ safety?