Putin orders seizure of Exxon-led Sakhalin 1 oil and gas project

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MOSCOW/HOUSTON, Oct 7 (Reuters) – Russian President Vladimir Putin on Friday signed an executive order that establishes a new operator for the Sakhalin-1 oil and gas project run by Exxon Mobil Corp (XOM.N) in the Far East Russian.

Putin’s move affecting Exxon’s biggest investment in Russia mimics a strategy he has used to take control of other energy properties in the country.

The decree gives the Russian government the power to decide whether foreign shareholders can retain stakes in the project.

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Exxon holds a 30% operator stake in Sakhalin-1, with Russia’s Rosneft (ROSN.MM), India’s ONGC Videsh (ONVI.NS) and Japan’s SODECO as partners.

Oil production from the Sakhalin-1 project fell to just 10,000 barrels per day (bpd) in July, from 220,000 bpd before Russia invaded Ukraine.

NAVIGATING IN AN EXIT

Exxon has been trying to exit its operations in Russia and transfer its role in Sakhalin-1 to a partner since March, after international sanctions imposed on Moscow.

The Russian government and Exxon have clashed, with the oil producer threatening to take the case to international arbitration.

Exxon declined to comment on Friday’s executive order.

Japan’s SODECO was not immediately available for comment, but an official with the industry ministry, which has a 50% stake in the company, said it was gathering information and talking to partners. Japan has stopped buying crude from Russia since June. Read more

Exxon took a $4.6 billion impairment charge in April for its Russian business and said it was working with partners to hand over the Sakhalin-1 operation. It also reduced power generation and moved staff out of the country.

In August, Putin issued an executive order that Exxon said made it difficult for a safe and environmentally friendly exit from Sakhalin-1. The American producer then issued a “note of difference”, a legal step before arbitration.

Friday’s decree said the Russian government was in the process of creating a Russian company, managed by Rosneft subsidiary Sakhalinmorneftegaz-shelf, which will hold the rights of investors in Sakhalin-1.

Foreign partners will have one month after the creation of the new company to apply to the Russian government for shares in the new entity, the decree specifies.

Putin used a similar strategy in a July decree to take full control of Sakhalin-2, another gas and oil project in the Russian Far East, with Shell (SHEL.L) and Japanese companies Mitsui & Co ( 8031.T) and Mitsubishi Corp. as partners.

Russia has approved requests from two Japanese trading houses to transfer their holdings to a new operator. Read more

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Reuters reporting; Additional reporting by Yoshifumi Takemoto, Yuka Obayashi in Tokyo, editing by Cynthia Osterman and Clarence Fernandez

Our standards: The Thomson Reuters Trust Principles.

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