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

Russian President Vladimir Putin signed Friday a decree that established a new operator to manage the Sakhalin-1 Exxon Mobil Corp. oil and gas project in Russia’s the Far East.

Putin’s decision to affect Exxon’s largest Russian investment mimics a strategy he used in order to seize other energy properties.

This decree grants the Russian government the authority to determine whether foreign shareholders may retain their stakes in the project.

Exxon has a 30% stake in Sakhalin-1. It is partnered with Russian company Rosneft, India’s ONGC Videsh (ONVI.NS) and Japan’s SODECO.

The estimated oil reserves for the project are 2.3 billion barrels (307 million tonnes) and 17.1 trillion cubic feet (485.5 billion cubic meters) of natural gas. Since the project began, more than 885.3 million barrels (118.2 million tons) have been exported in oil and condensate. 939 billion cubic feet (over 27,5 billion cubic meters) of natural gas delivered to Russian Far East customers.

Russia’s government and Exxon clashed. The oil producer threatened to sue for international arbitration.

Exxon paid $4.6 billion in impairment charges in April for Russian activities. It stated that it was working with partners on Sakhalin-1’s transfer. It also decreased energy production and sent its staff abroad.

Exxon claimed that Putin’s August decree made it difficult to secure Sakhalin-1 and make it environmentally safe. A “note of Difference” was issued by the U.S. producer, which is a legal step before arbitration.

Friday’s decree said the Russian government was establishing a company managed by Rosneft subsidiary Sakhalinmorneftegaz-shelf that will own investors’ rights in Sakhalin-1.

The decree stated that foreign partners would have one month to request shares from the Russian government after creating the new company.

Putin used a like strategy in a July directive to take full control of Sakhalin-2. This is another oil and gas project in the Russian Far East.

Russia approved the applications of two Japanese trading houses to transfer their stakes to a new operator.

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