Agreements from Another Era: Production Sharing Agreements in Putin’s Russia, 2000-2007

Every so often a company signs an agreement so advantageous it becomes part of corporate lore
and is analyzed in business school textbooks for years to come. In 1994, a consortium of foreign
oil companies known as the Sakhalin Energy Investment Corporation (SEIC) believed it had
signed just such a deal with the Russian government for the development rights to the Sakhalin-2
oil and gas fields in the Russian Far East (RFE). SEIC’s former CEO Steven McVeigh claimed
in a Harvard Business School case study that the production sharing agreement (PSA) for
Sakhalin-2 included the ‘best PSA terms that you will ever get in Russia’.1 Twelve years later,
Russian President Vladimir Putin summoned the CEOs of SEIC’s remaining partners—Shell,
Mitsui and Mitsubishi—to the Kremlin and forced them to sell a controlling stake in Sakhalin-2
to Gazprom, Russia’s state-owned gas company.

By: Timothy Fenton Krysiek

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