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9 Oct, 2022 12:39

Russia to take over major oil project

President Vladimir Putin has ordered that Sakhalin-1 be transferred to a domestic entity
Russia to take over major oil project

Russia’s Far-Eastern Sakhalin-1 oil and gas project, currently led by US-based Exxon Mobil, will be transferred to a local entity, according to a decree signed on Friday by Russian President Vladimir Putin.

The decree mandates the Russian government forming a new legal entity that will take over the rights and responsibilities of the project, its investor rights, and its operator, Exxon Mobil subsidiary Exxon Neftegas Limited, which holds a 30% stake in the project. Russian oil major Rosneft, India's ONGC Videsh, and Japan's SODECO also have stakes in the venture. The new operator will be managed by Rosneft subsidiary Sakhalinmorneftegaz-shelf.

Foreign stakeholders are now given one month to announce whether they wish to maintain their stakes in the new company. Those who decide against doing so will be offered compensation, which will be adjusted for the potential losses brought on by the halt in production at Sakhalin-1 earlier this year.

Exxon Neftegas Limited said in March that it intended to withdraw from the project, and in April announced the introduction of force majeure, which brought oil and gas production to a near-complete halt from the 220,000 bpd it was extracting prior to the start of Russia’s military operation in Ukraine. Exxon has not yet commented on the Sakhalin-1 decree.

Russia used a similar strategy earlier this year to seize full control of Sakhalin-2, another oil and gas project in the Russian Far East, which had been partly owned by the UK’s Shell and Japan’s Mitsui and Mitsubishi. Both Japanese firms agreed to transfer their stakes in the project to the new operator, while Shell exited the venture.

Yasutoshi Nishimura, the head of Japan’s Ministry of Economy, Trade and Industry, said on Sunday that Sakhalin-1 remained important for Japan’s energy supply, although the country does not currently receive oil from the site.

Japan is 90% dependent on oil supplies from the Middle East, but the Sakhalin-1 project is important in terms of diversifying import channels and ensuring stable supplies. Therefore, we would like to clarify the intentions of the Russian side and decide on specific further actions in close consultation with the parties involved,” Nishimura said on the NHK TV channel.

For more stories on economy & finance visit RT's business section

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