ExxonMobil accuses Russia of ‘expropriation’ as it exits oil project

ExxonMobil said it has exited Russia after government “expropriation” of its largest oilfield in the country, increasing the likelihood of a multibillion-dollar legal fight with the Kremlin.

The US oil supermajor said president Vladimir Putin’s government had “unilaterally terminated” its interest in the Sakhalin-1 oil and gas project in Russia’s far east, and that the field has been transferred to a domestic operator.

The announcement on Monday marked the latest cut in energy ties between Russia and the west following Moscow’s invasion of Ukraine, unravelling decades of effort by American and European companies to tap Russia’s vast oil and gas reserves.

Exxon in March said it planned to exit Sakhalin-1, which it operated and owned a 30 per cent stake. Putin earlier this month signed a decree creating a new operating company that would be managed by state-run oil group Rosneft to take over the project.

The decree gave Exxon and other foreign investors in the project a month to decide if they wanted to apply to retain ownership stakes. Exxon does not plan to apply for one, a person familiar with the company’s decision-making said.

Other shareholders in the project include Rosneft, India’s state-backed ONGC Videsh and Japan’s Sodeco. India and Japan have sought to maintain energy ties with Russia and could seek to remain part of the Sakhalin-1 project as they have at other oil and gasfields.

Sakhalin-1 had been producing about 220,000 barrels of oil a day before the war in Ukraine, but output had fallen to roughly 10,000 b/d after western sanctions against Russia disrupted operations.

Exxon had said it kept minimal amounts of oil and gas flowing to maintain fuel supplies for the local market, which could have otherwise suffered blackouts and shortages.

Exxon took a $4.6bn pre-tax charge on the loss of its Russia business in April, which was largely tied to Sakhalin-1. The company on Monday said: “We have safely exited Russia following the expropriation.”

Exxon’s accusations that Russia forced it out of Sakhalin-1 hinted at a potential push from the Texas-based company to try to recoup its losses in international arbitration courts.

“We made every effort to engage with the Russian government and other stakeholders,” Exxon said.

Exxon launched a legal fight in international arbitration courts against the Venezuelan government after its assets in that country were seized by the late leader Hugo Chávez in 2007.