FSUOGM: Russia raises stakes in Sakhalin showdown

Russia has raised the stakes in a standoff with Western investors at major oil and gas projects in the Far East, blaming Sakhalin-1 operator ExxonMobil for a collapse in production, and giving Shell and other investors at the Sakhalin-2 project a month to decide whether they want to keep their stakes.

Oil output at Sakhalin-1 has virtually ceased, ExxonMobil’s Russian state partner in the project Rosneft said on August 4, raising the prospect that Russia could seize the fields in order to bring operations back on track. The Sakhalin-2 LNG project was already seized by Russian authorities in late June, and in a decree issued this week, the Russian government announced that foreign shareholders would have a month to decide whether they want to take shares in the newly formed entity to operate the site. 

It is unclear whether the foreign investors will do this. Shell, which holds a 27.5% stake in the project, has stated its intention to withdraw from Russia, but it has not said how quickly it aims to achieve this, and how. The other investors, Japan’s Mitsui and Mitsubishi, with shares of 12.5% and 10% respectively, have not signalled they will exit just yet. The government in Tokyo, conscious that Japan is the main buyer of gas from Sakhalin-2, is fearful that it would lose this supply if it ceded ownership of the project. 

However, Mitsui and Mitsubishi have shaved $1.7bn off the value of their shares in Sakhalin-2, they announced this week.

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