Streetwise Professor

October 23, 2008

Boy, I’m Glad He Cleared That Up!

Filed under: Commodities,Economics,Energy,Politics — The Professor @ 7:10 pm

According to this Interfax report, Vladimir Putin has provided assurances that investment in Russia’s energy sector is risk free!:

Investment in Russian oil, gas sector risk-free, Putin tells Shell CEO
Interfax

Moscow, 20 October: Russian Prime Minister Vladimir Putin has assured Shell chief executive Jeroen van der Veer that investment in the Russian oil and gas industry carries no risks.

“These concerns can be lifted,” Putin said, commenting on the Shell CEO’s view that Russia had to guarantee good payback terms when foreign companies developed Russian deposits.

“In Jackpot, you can win or lose, and more often than not you lose. But if we draw up a system in which we can fully repay the spending on exploration and not refuse to reimburse you for developing these deposits, then there will be no losses, and there’ll be an opportunity to win big,” Putin said, commenting on the Shell CEO’s remarks.

“We intend to continue to improve regulatory standards in the sphere of natural resources,” the prime minister said.

For his part, Russian First Deputy Prime Minister Igor Shuvalov explained the gist of the discussion between Putin and Van der Veer: “Jackpot carries high investment risks. Our head of government stressed that investment carries no risks.”

I feel so much better now!

I mean really, how is one to interpret to such Orwellian statements? Is it that Putin has an extremely sadistic sense of humor and he just wanted to torment Van der Veer, one his previous victims (Sakhalin II)? Or, perhaps, making such outlandish assertions and then standing back and to observe that nobody contradicts him validates his sense of absolute power. Or maybe, just maybe, he has stared into an (economic) void, and has come to the realization that the vision that the world was at his (and Russia’s feet) when oil was $140+/bbl was chimerical; that his previous cockiness was nothing but a case of the Cocaine Blues; and that Russia desperately needs the likes of Shell and other foreign investors.

Even if the last conjecture is right, hopefully Shell and BP and others will think “once burned, twice–no thrice–shy.” For if Vlad has turned on a dime once, he can do it again. And once somebody has put their money in assets–like oil wells–that cannot be picked up and moved out of Russia, he will have no compunction at expropriating yet again. And he will do so exactly at the moment when the investments are most valuable.

So, Mr. Van der Veer, and your fellow energy CEOs: Don’t be a sucker.

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3 Comments »

  1. Actually it’s in Shell, BP and co.’s interests to continue sucking off Russia. They are failing to renew their oil reserves due to oilfield depletion (a vital component in valuing oil companies) even despite their best attempts at accounting tricks and their only hope of preserving them a bit longer is in Russia. So Van der Veer, Sir, smile big, kneel down, and go for it!!

    Comment by Da Russophile — October 24, 2008 @ 12:34 am

  2. I know exactly why Van der Veer et al assume the position–as you say, they are desperate for reserves. It’s just incredibly short sighted. They are giving away a free call on their capital to Putin. They’ll never see the upside, and if prices are low they’ll eat the losses.

    It’s like watching Charlie Brown trying to kick the football–you know he’ll try it, and you know that Lucy will yank it away leaving him flat on his back.

    BTW, this episode is an illustration of why pay limits for CEOs are a bad idea. You have to pay people a lot to subject themselves to such repeated humiliation.

    The ProfessorComment by The Professor — October 24, 2008 @ 10:38 am

  3. Dear Russophile, I hope you realize that what you say about BP, could be applied to Russia. Here, I rewrite your words using Russia: “Russia is failing to renew their oil reserves due to oilfield depletion (a vital component in valuing oil and natural resources dependent countries) even despite their best attempts at accounting tricks and their only hope of preserving them a bit longer as a global player.”

    Comment by Michel — October 24, 2008 @ 12:59 pm

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