Exxon exits Russia empty-handed with oil project ‘unilaterally terminated’

Support Village Voice News With a Donation of Your Choice.

By Sabrina Valle- Exxon Mobil Corp (XOM.N) said on Monday that it left Russia completely after President Vladimir Putin expropriated its properties following seven months of discussions over an orderly transfer of its 30% stake in a major oil project.

Exxon did not say if it received any compensation for the assets, which it had valued at more than $4 billion. An Exxon spokesperson declined to comment on whether it will proceed to contest the seizure through an international arbitration process, a possibility flagged in August.

Its departure illustrates the clash between the West and Russia over energy following Moscow’s invasion of Ukraine in late February and threats of using nuclear weapons against the country and its supporters. BP, TotalEnergies, Equinor, and Shell have all transferred properties to Russian partners or left operations behind.

“We made every effort to engage with the Russian government and other stakeholders,” the Exxon spokesperson said.

The company said it “safely exited” Russia after the government earlier this month “unilaterally terminated” its interests in the Sakhalin-1 oil and gas project, its largest in the country.

Exxon has been trying to relinquish operation of Sakhalin-1 since March 1, when it announced it would abandon all of its more than $4 billion in assets, leaving open the possibility to sell Sakhalin-1. It said it would “closely coordinate” the transfer of operation with its partners – Russian company Rosneft (ROSN.MM), India’s ONGC Videsh (ONVI.NS) and Japan’s SODECO to ensure it would be done in a secure way.

In April, Exxon disclosed a $3.4 billion write down on the Russia exit and this month signaled a third-quarter $600 million impairment charge for unidentified assets. Exxon had valued its Russia holdings at more than $4 billion.

On Oct. 7 Putin seized Exxon shares in the oil production joint venture and transferred them to a government-controlled company. In August, Putin had signed a first decree that Exxon said made a secure and environmentally safe exit from Sakhalin-1 difficult. The U.S. producer reacted to August’s decree by issuing a “note of difference,” a legal step before arbitration.

The harsh language of Exxon’s formal exit shows a desired outcome for Exxon – leaving Russia – but in unamicable terms that could translate in multi-year legal disputes, starting with arbitration in European courts.

PHASING OUT

Exxon has been reducing its presence in Russia since 2014, following sanctions against Moscow after it annexed the Crimean peninsula from Ukraine.

The U.S. company had removed earlier this year its expatriate workers and closed its lubricant and chemical businesses in Russia. By July, output at the Sakhalin-1 project fell 10,000 barrels per day (bpd), from 220,000 bpd before Russia invaded Ukraine.

The volume was just enough to provide natural gas to keep the lights on in the Russian cites of Khabarovsk and Vladivostok. About 700 Russia-based employees that kept operations running will be transferred to the new Russia company taking over the asset, Exxon said.

“We are thankful for the professionalism, expertise and commitment demonstrated by ENL’s employees during these difficult circumstances,” the Exxon spokesperson said.

Exxon had pledged to take its time and provide for a safe transfer to a new operator to avoid spills, environmental accidents or shutting down the lights of cities supplied by the project.

Russian terms blocked it from transferring operations or negotiating a potential sale to Indian or Japanese partners, which indicated interest in keeping Sakhalin-1’s supply.

India’s Oil and Natural Gas Corp plans to take a stake in the new Russian entity that will manage the Sakhalin-1 project as it seeks to retain a 20% share in the asset, three sources familiar with the matter said.

Japan will decide what to do about the Sakhalin-1 oil and gas project in Russia’s Far East in consultation with its partners as it reviews details of a decree by Moscow, Industry minister Yasutoshi Nishimura said last week.

According to Putin’s Oct. 7 decree, Sakhalin-1’s foreign partners will have one month after the new Russian company is created to ask the Russian government for shares in the new entity.

Equinor last month agreed to sell Russian assets valued at $1 billion for 1 euro. The formal sale allowed Norway’s Equinor to forgo future liabilities and investment commitments. On Friday, Danone also sold its assets but kept a minority stake. (Reuters)

Support Village Voice News With a Donation of Your Choice