Shell in Ukraine shale force majeure

Shell in Ukraine shale force majeure

Crash site: of MH17 in eastern Ukraine Reuters/Scanpix


BP warns of possible sanctions impact

29 July 2014 07:31 GMT

By Steve Marshall & Rob Watts  31 July 2014 12:13 GMT

Shell has declared force majeure on an exploration project in Ukraine that is close to the site where Malaysia Airlines flight MH17 crashed, although it is too early to assess the impact on the company of sanctions on Russia, according to its chief executive.

The Anglo-Dutch supermajor has been exploring for shale gas in Ukraine and its assets in Russia include a stake in Sakhalin-2, one of the world’s largest liquefied natural gas projects.

“I think it is relatively close. We were in roughly the same region,” chief executive Ben van Beurden said in a conference call on Thursday, referring to the location of the MH17 crash site.

“The operation that we had on the unconventional exploration programme in that general area is on hold – as a matter of fact it was technically on hold for evaluation purposes.

“We’ve also declared force majeure – as you can imagine, simply because we cannot continue the operations there.”

A Shell spokesman later confirmed the company took the decision to declare force majeure on 15 July, two days before the crash, as a result of the deteriorating security situation.

The spokesman said: “Shell took the contractual step of declaring force majeure on some specific obligations of the Yuzivska production sharing agreement due to the security situation in the Yuzivska area.

“There are some time commitments in the production sharing agreement, and we have been re-scheduling and re-arranging activities to allow us to continue to perform our obligations.

“However, at the time of declaring force majeure, we believed that any further impact due to the security situation would prevent us from delivering some of them by the dates required.”

He added: “The purpose of such a step is for the parties to the PSA to be notified that Shell is unable to perform certain specific activities safely, and in the timeframe agreed under the PSA, for reasons outside of our control. We will continue to perform all the activities we can carry out safely.”

Shell has not halted all its operations in Ukraine, only those rendered potentially unsafe by the security situation, and it is understood that it intends to resume the halted work once it is safe to do so.

Speaking on the call to discuss Shell’s second-quarter earnings, van Beurden said it was too soon to assess what the impact of Western sanctions on Russia would be.

“It is easy to think of what has happened and all the events that have followed on from it as a bit of a game changer,” he said.

“But it is a bit early to say how this will all play out. We are not as exposed to Russia as some of our competitors.”

Nearly 300 people, 193 of them Dutch citizens, were killed when the Malaysia Airlines plane en route from Amsterdam to Kuala Lumpur was brought down on 17 July in eastern Ukraine, where pro-Russian separatists are battling government forces. Four of the victims were Shell employees.

Van Beurden said: “It is really a tragedy of unbelievable proportions no matter how you look at it. I look at it as a father and husband (and) I can only imagine the grief of those who lost their loved ones in such a terrible event.

“As a Dutchman, I grieve for the many compatriots that lost their life in this crash. Then as a CEO of Shell, I grieve together with other 92,000 Shell staff for the colleagues we lost together with so many of their family members.

“Our thoughts are with everyone affected by this very, very tragic event.”

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