The Kremlin pushed Exxon XOM 1.44%
Mobile Corp. exited a major Russian oil and gas project and transferred the Texas oil giant’s stake to a Russian company, according to the US company.
Moscow blocked Exxon’s efforts to transfer ownership and sell its 30 percent stake in the Sakhalin-1 company in Russia’s Far East for months, and has now wiped out Exxon’s stake entirely. Exxon described Moscow’s move Monday as an expropriation and said it had withdrawn from Russia.
The Kremlin gave no indication that it would pay Exxon the value of its stake. Exxon said it has left its legal options open under its production-sharing agreement and international arbitration law. If the company takes legal action, it can take years to resolve the matter.
The largest US oil company had promised in March that it would leave Russia shortly after the invasion of Ukraine and not make any further investments in the country. It had maintained ties with Russia for decades, but pulled out of at least 10 other joint ventures after the US and its allies imposed sanctions on Russia after invading Crimea in 2014. Sakhalin-1 was not affected by these sanctions.
Exxon declared force majeure in April, cutting production from its Sakhalin island development from 220,000 to about 10,000 barrels per day of oil and natural gas. It also incurred $3.4 billion in accounting expenses related to its exit from Russia in the first quarter.
European oil companies with interests in Russia have also worked to get out of the country. February Shell SHEL 1.74%
PLC announced that it is leaving the Sakhalin-2 project, another oil and gas project in Russia’s Far East, and BP BP 0.49%
PLC announced it would divest its nearly 20 percent stake in state-owned Rosneft.
Exxon’s exit was particularly complicated because it operates the project and is responsible for safety and environmental measures. The project has not been shut down entirely, in part because it provides electricity to residents of Sakhalin Island, which is an environmentally sensitive area. It was a difficult task to find a contractor capable of handling the complex project. Exxon had operated Sakhalin-1 since the 1990s.
“Our priority from the beginning has been to be a responsible operator by protecting the employees, the environment and the integrity of operations at Sakhalin-1,” said Meghan Macdonald, spokeswoman for Exxon.
Reuters reported Exxon’s exit on Monday.
Exxon and its partners have had a production sharing agreement since the 1990s. Exxon Neftegas Ltd., a unit of the US oil company, owned 30% of the project and operated it. Rosneft owns 20%, while Japan’s Sodeco and India’s ONGC Videsh own separate stakes.
Exxon expects about 700 employees from its Russian unit to transfer to the new operator.
A decree by President Vladimir Putin this month handed over Exxon’s stake to a newly formed Russian company and said Exxon and other foreign partners in the Sakhalin-1 consortium could bid for ownership of the new company. Exxon’s exit signals it has no plans to bid for ownership of the project.
Exxon escalated its dispute with Russia in August when it told Kremlin officials it would sue the government if Moscow didn’t allow it to pull out of the project. The company had sent Russian officials a non-compliance notice, which lawyers say is a common requirement in commercial contracts to resolve conflicts before litigation. It also triggers a deadline by which the parties can reach an agreement or the matter can be taken to court.
“We have made every effort to work with the Russian government and other stakeholders,” Ms Macdonald said.
write to Collin Eaton at [email protected]
Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the October 18, 2022 print edition as “Exxon’s Sakhalin-1 Holding Snatched.”