ExxonMobil (NYSE:XOM) has completed its exit from Russia, calling the departure an “expropriation” of its main Russian operation and potentially setting up a future legal challenge.
“With two decrees, the Russian government has unilaterally terminated our interests in Sakhalin-1 and the project has been transferred to a Russian operator,” an ExxonMobil spokesperson said in a statement. “We have safely exited Russia following the expropriation.”
ExxonMobil has been winding down production at Sakhalin-1 since May after announcing its intention to leave just weeks after Russia’s invasion of Ukraine earlier this year. The operation is hugely complex and 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.
In August, ExxonMobil sent a “notice of difference” to Russian authorities after the Kremlin blocked the Texas oil giant from exiting Sakhalin-1, which is the first step toward filing a lawsuit against the country. “We made every effort to engage with the Russian government and other stakeholders,” Exxon said. The company expects about 700 employees to transfer to Sakhalin-1’s new operator.
The Russian government established a new operator for the Sakhalin 1 offshore oil and gas development in Russia’s Far East after Prime Minister Mikhail Mishustin signed a resolution on the matter last week.
Under the resolution, ExxonMobil’s Russian subsidiary, Exxon Neftegaz, now has two weeks to transfer its assets, financial obligations, personnel and existing contracts to the new operator, dubbed Sakhalin-1.
The assets include the Arkutun-Dagi, Chayvo and Odoptu offshore fields and supporting infrastructure.
Other former foreign shareholders in the project — Japan’s SODECO consortium and India’s ONGC Videsh — have to apply to the Russian government to regain their shareholdings in the project.
The current production sharing agreement — signed with the project’s consortium in 1995 — will be transferred to the new operator.
The project’s shareholders are ExxonMobil, Rosneft PJSC, Japan’s SODECO and Oil & Natural Gas Corp (ONGC) of India. Exxon said in early August that it was in talks to hand over its 30% stake to an unidentified third party, but the following day Russian president Vladimir Putin issued a decree barring the exit of foreign shareholders from several strategic projects, including Sakhalin-1, until year-end. Exxon is challenging the decree.