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Production at Russia's Sakhalin 1 project remains suspended: Rosneft


Rosneft not aware of any decisions to transfer project operatorship

Operations hit by Western sanctions following Ukraine invasion

  • Author
  • Rosemary Griffin
  • Editor
  • Jonathan Loades-Carter
  • Commodity
  • Natural Gas Oil Shipping

Rosneft said Aug. 4 that production at the Sakhalin 1 oil and gas project in the Russian Far East has been suspended since May 15 following the introduction of Western sanctions.

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"The Russian government, energy ministry and Sakhalin regional government together with other project shareholders, are making efforts to restore production at the Sakhalin-1 project. Despite this, unfortunately, production activity on the project has not yet been restored," Rosneft said in a statement Aug. 4.

Western sanctions introduced in response to Russia's invasion of Ukraine led companies from sanctioning countries to reduce purchases of Russian commodities and move to exit upstream projects in the country.

In late April ExxonMobil's Russian subsidiary Exxon Neftegas, operator of Sakhalin 1, declared force majeure at the project, citing concerns about contractual obligations and operational standards. On March 1, the company said it would discontinue operations at the project and avoid new investment in Russia.

Rosneft said production gradually fell at the project from April 26, and practically ceased May 15.

In 2021 oil production at the project averaged around 181,571 b/d, according to data released by the Russian energy ministry in early 2022.

ExxonMobil did not immediately respond to a request for comment Aug. 4 on operations at the project and its exit plans.

In a filing with the US Securities and Exchange Commission dated Aug. 3 ExxonMobil said it is currently engaged in transitioning Sakhalin-1 operating activities to another party.

Rosneft said it had not been informed of any decisions on transferring operatorship of Sakhalin 1 from Exxon Neftegas in the Aug. 4 statement.

Rosneft added that the last tanker with oil was shipped from the De Kastri terminal May 6, and stocks at the terminal are currently 95% full and no loading is currently taking place.

ExxonMobil holds a 30% stake in Sakhalin 1. Other partners include Rosneft with 20%, Japan's Sodeco with 30% and India's ONGC Videsh with 20%. Previously the stakeholders received Sokol crude oil, corresponding to their stakes, and sold their equity crude in the market.

Prices for Sokol crude alongside other Russian grades have been trading at major discounts since the invasion began. Platts, part of S&P Global Commodity Insights, assessed Sokol at $77.72/b Aug. 3, compared with a Dated Brent value of $103.48/b. Prior to the invasion Sokol was trading at a discount of less than $3/b to Dated Brent.

In recent years, ExxonMobil has reduced its involvement in Russia. In 2018, it announced its withdrawal from joint ventures set up with Rosneft in 2013 and 2014. This followed the introduction of US and EU sanctions against Russia over its role in the conflict in Ukraine in 2014, and the further expansion and codification of US sanctions in 2017.