ExxonMobil to discontinue Sakhalin-1 operations, cease new Russian investments

ExxonMobil said late March 1 it would discontinue operations at its large Sakhalin-1 oil and gas development offshore of Russia, following in the footsteps of BP, Shell and Equinor as more Western energy companies seek to withdraw from their Russian investments amid the Ukraine invasion.

ExxonMobil said it is "beginning the process to discontinue operations and developing steps to exit the Sakhalin-1 venture", while also avoiding new investments in Russia. The flagship offshore development project by Russia's Sakhalin Island, which is just north of Japan, dates back to 1996 with three oil fields.

ExxonMobil has in recent years reduced its involvement in Russia. In 2018, the US major said it was withdrawing from joint ventures set up with Rosneft in 2013 and 2014 following the introduction of US and EU sanctions against Russia over its role in the conflict in Ukraine's Crimea in 2014, and the further expansion and codification of US sanctions in 2017.

"ExxonMobil supports the people of Ukraine as they seek to defend their freedom and determine their own future as a nation," the company said in a statement. "We deplore Russia's military action that violates the territorial integrity of Ukraine and endangers its people."

ExxonMobil noted that it is fully complying with all sanctions against Russia.

ExxonMobil owns a 30% stake in Sakhalin-1 with other owners from Japan, India and Russia.

Assessing impact

The Japanese energy industry was closely watching whether ExxonMobil would pull out of Sakhalin-1, in which Japan's Sakhalin Oil and Gas Development Co., or SODECO, has a 30% stake, following Shell's Feb. 28 announced exit from the Sakhalin-2 crude oil and LNG project.

Japanese stakeholders in SODECO said they were verifying details and assessing the impact of ExxonMobil's announcement of starting the process to discontinue operations and taking steps to exit the Sakhalin-1 venture.

Japan's Ministry of Economy, Trade and Industry has a 50% stake in SODECO, while Japan Petroleum Exploration holds a 15.285% interest, Itochu 14.456%, Marubeni 12.349%, INPEX 6.08% and Itochu Oil Exploration 1.83%.

The stakeholders receive Sokol crude oil from the Sakhalin-1 venture, corresponding to their stakes, and sell their equity crude in the market, according to a Japanese stakeholder.

A Japanese industry source familiar with Russia's oil and LNG projects said March 1 that Japanese stakeholders' participation in Russian projects would come under greater pressure if ExxonMobil were to follow Shell's Sakhalin move, and noted an increasingly difficult business environment in Russia due to economic and financial sanctions.

More than half of the 9.6 million mt/year LNG production capacity at the Sakhalin 2 project is committed to Japanese offtakers, and Sakhalin 2 LNG accounts for almost all of Japan's LNG imports from Russia. Japan's Mitsui (12.5%) and Mitsubishi (10%) also hold stakes in the project via the Sakhalin Energy joint venture.

Announced moves

After Russia launched a widespread invasion over the weekend, the US, EU and Japan imposed another round of sanctions on Russia, removing some of Russia's biggest financial institutions from the SWIFT international payment system and targeting Russia's central bank.

Shell, BP and Equinor have all voiced plans to exit Russia, with BP divesting its stake from Rosneft and Shell quitting the flagship Sakhalin-2 crude oil and LNG plant jointly managed with Gazprom

BP was a first mover, saying Feb. 27 it will "exit" its near 20% stake in Russia's largest oil producer, Rosneft. Then Shell said Feb. 28 it is breaking off its partnerships with Russian energy giant Gazprom, including the Sakhalin-2, and ending its involvement in the now-halted Nord Stream 2 pipeline project.

However, TotalEnergies said March 1 it is remaining committed to its Russian investments for now. TotalEnergies said it would stop new spending on Russian projects, but the French energy company stopped short of divesting its current stakes.