Exxon Mobil took the first step toward filing a lawsuit against Russia after Vladimir Putin blocked the oil major from exiting its only remaining operation in the country.
Exxon has been trying to exit the Sakhalin-1 project in the country’s Far East since March but was stalled by a presidential decree earlier this month. Russia’s state-owned Rosneft said the dispute could be resolved if Exxon resumes normal operations at the project.
“We have provided a notice of difference to the Russian Federal Government regarding the decree, which inhibits our rights and impedes our ability to exit operations safely,” the Irving, Texas-based company said Tuesday in a statement.
Putin tightened his control over Russia’s finance and energy sectors earlier this month by halting foreign companies from disposing of their assets as part of measures “to protect national interests.” The decree came just days after Exxon said it was in talks to move its 30% stake of Sakhalin-1 to a third party entity it didn’t identify.
Sakhalin-1 is a hugely complex operation that produced about 227,000 barrels a day last year. It has multiple records for the longest wells ever drilled, uses ice breakers to maintain exports when the sea freezes over in winter and was regarded as an engineering marvel when it first started pumping in 2005. Exxon has been winding down output since May and it’s likely to be a steep technical challenge for the eventual new owner to safely ramp up production to prior levels.
If production at Sakhalin-1 returns to normal, this could create conditions for resolving all disputes around the project, Russia’s state news agency Tass reported on Tuesday, citing a representative of Rosneft PJSC, another shareholder in the Far Eastern project with a 20% stake.
Oil production at Sakhalin-1 has been practically halted since May 15 due to Exxon’s decision to withdraw from the project, Rosneft said earlier. There have been no crude exports from the De Kastri terminal, which serves Sakhalin-1, since the start of June, according to tanker-tracking data monitored by Bloomberg.
Earlier this month Russia ordered a new entity be created for Sakhalin-2, a separate gas project nearby in which Shell Plc was a major shareholder as well as Japanese trading houses Mitsubishi Corp. and Mitsui & Co.