ExxonMobil exits Russia after ‘expropriation’ of Sakhalin-1

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EXXONMOBIL has safely exited Russia following the Government’s “expropriation” of Sakhalin-1, a major oil and gas project in Russia’s Far East.

The 250,000 bbl/d Sakhalin-1 project was owned (30%) and operated by Exxon, with partners including Russia’s Rosneft and companies from India and Japan. ExxonMobil announced that it would exit the project in March, following Russia’s invasion of Ukraine. Reuters reports that Exxon had been attempting since then to transfer its role in Sakhalin-1 to a partner.

Exxon said the Russian Government had “unilaterally terminated” its interest in Sakhalin-1, which has been transferred to a Russian operator. According to press, Russian President Vladimir Putin signed a decree earlier this month to create a new operator managed by state-owned Rosneft to take over the project.

Reuters says that the decree also gave Russia authority to decide whether foreign shareholders could retain stakes in the project, and foreign partners were given a month to apply to retain ownership stakes. This is, reportedly, similar to the approach that Russia used to seize control of Sakhalin-2, another major oil and gas project in Russia’s Far East.  

The move to take control of Sakhalin-1 is the latest cause for clash between Exxon and Russia, where the project is concerned. Prior to the decree this month, Bloomberg reported a Russian decree which Exxon said “inhibits our rights and impedes our ability to exit operations safely”. Reuters reports that the company filed a “note of difference”, adding that this was a legal step prior to arbitration.

Highlighting Exxon’s previous legal action against Venezuela after its assets were seized by late leader Hugo Chávez in 2007, the Financial Times said Exxon’s accusations that it had been forced out of Sakhalin-1 could hint at a push to recoup its losses in international arbitration.

Exxon told The Chemical Engineer: “We’re reserving our legal rights under the production-sharing agreement and international law.”

While Exxon exited Russia on 14 October, the Financial Times highlighted that India and Japan have sought to maintain energy ties with Russia. The news company speculated that project partners, Indian state-backed ONGC Videsh and Japan’s Sodeco, may seek to remain part of Sakhalin-1 as they have at other oil and gas fields.

Reuters reported that Sodeco was not immediately available for comment, but an official of the industry ministry – which owns a 50% stake in the company – said it was gathering information and talking with partners.

Sakhalin-1 was designed to produce 250,000 bbl/d of oil; press states that it was producing about 220,000 bbl/d prior to Russia’s invasion of Ukraine, falling to just 10,000 bbl/d following the conflict. Exxon said it was keeping minimal amounts of oil and gas flowing to maintain fuel supplies for local market, to avoid blackouts and shortages, the Financial Times reports. According to Reuters, the company has also moved staff out of the country.