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Russia Seizes Exxon's Stake in Sakhalin-1 Offshore Project

Orlan
The Orlan platform at the Sakhalin-1 project (Rosneft)

Published Oct 17, 2022 8:36 PM by The Maritime Executive

Two months after freezing ExxonMobil's ownership stake in the lucrative Sakhalin-1 oil and gas project, the Russian government has seized it without compensation, ending the last vestiges of the oil major's partnership with Russian producers. 

Until Monday, the Exxon subsidiary Exxon Neftegaz held a 30 percent stake in the 220,000 bpd Sakhalin-1 project, a complex of three offshore fields in the Sea of Okhotsk and an onshore processing station on Sakhalin Island. Exxon has been involved in its development since the early days of post-Soviet Russia, and its history is full of innovation in drilling technology: with Exxon as operator, the rigs at Sakhalin-1 have set multiple records for well length and depth, including a new record for the deepest borehole on the planet. 

In early March, less than a week after the invasion of Ukraine, Exxon announced that it would suspend production at Sakhalin-1, declare force majeure and halt further investments in the Russian market. It tapered production down to just 10,000 bpd, enough to satisfy local needs, but effectively closed the operation for purposes of export revenue. 

On August 5, Moscow ordered a freeze on any sale of Exxon's stake in the "strategic" Sakhalin-1 project, alongside similar bans on foreign-ownership transactions for other marquee energy infrastructure assets. The announcement followed just days after Exxon had disclosed negotiations with a third party for a sale of its shares in Sakhalin-1. 

On October 7, Russian President Vladimir Putin signed a decree transferring Exxon's stake to a subsidiary of Russian oil company Rosneft. On Monday, Exxon confirmed that the Russian government had "unilaterally terminated" its stake in Sakhalin-1 and expropriated its shares in the project. The supermajor is widely expected to file an arbitral claim against Moscow for the multibillion-dollar value of its holdings. 

Japanese oil company Sodeco and Indian national oil company ONGC retain their stakes for now; an ONGC spokesperson told Reuters that it is engaged in a "healthy dialogue" with Moscow about its options.