Putin orders the confiscation of the Sakhalin 1 oil and gas project led by Exxon

MOSCOW/HOUSTON (Reuters) – Russian President Vladimir Putin signed a decree on Friday to create a new operator for his company, ExxonMobil. (XOM.N) Sakhalin-1 oil and gas project in the Far East of Russia.

Putin’s move affecting Exxon’s largest investment in Russia mimics the strategy he has used to control other energy properties in the country.

The decree gives the Russian government the power to decide whether foreign shareholders can hold stakes in the project.

Exxon owns 30% of the operator’s stake in Sakhalin-1 with Russia’s Rosneft (ROSN.MM)India, ONGC Videsh (ONVI.NS) and Japan’s SODECO as partners.

Oil production at the Sakhalin 1 project fell to just 10,000 barrels in July from 220,000 barrels per day before Russia invaded Ukraine.

Navigate the exit

Exxon has been trying to exit its operations in Russia and transfer its role in Sakhalin 1 to a partner since March, following international sanctions imposed on Moscow.

The Russian government clashed with Exxon, with the oil producer threatening to refer the case to international arbitration.

Exxon declined to comment on Friday’s decree.

Japan’s SODECO was not immediately available for comment, but an industry ministry official, which holds a 50% stake in the company, said it was gathering information and talking to partners. Japan has stopped buying crude from Russia since June. Read more

Exxon took a $4.6 billion impairment fee in April due to its Russian activities and said it was working with partners to move the Sakhalin 1 operation. It has also cut energy production and is moving employees out of the country.

In August, Putin issued a decree that Exxon said made safe and environmentally safe exit from Sakhalin-1 difficult. The US producer then issued a “Memorandum of Difference,” a legal step before arbitration.

The decree issued on Friday said that the Russian government is establishing a Russian company, operated by Rosneft subsidiary Sakhalinmorneftegaz-RF, which will own the rights of investors in Sakhalin-1.

The decree said foreign partners would have one month after the establishment of the new company to demand the Russian government for stakes in the new entity.

Putin used a similar strategy in a July decree to take full control of Sakhalin 2, another gas and oil project in Russia’s Far East, with Shell. (coincidence) And Japanese companies Mitsui & Co (8031.T) and Mitsubishi Corp. as partners.

Russia has approved applications from the two Japanese trade councils seeking to transfer their stakes to a new operator. Read more

Reporting by Reuters. Additional reporting by Yoshifumi Takemoto and Yuka Obayashi in Tokyo; Editing by Cynthia Osterman and Clarence Fernandez

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