Energy giant Exxon Mobil completed its exit from Russia on Monday.

Energy giant Exxon Mobil completed its exit from Russia on Monday, stating that Russian president Vladimir Putin had “expropriated its assets” and “unilaterally terminated” the company’s Sakhalin-1 oil project.

An Exxon spokesperson said, “With two decrees, the Russian government has unilaterally terminated our interests in Sakhalin-1, and the project has been transferred to a Russian operator. We have safely exited Russia following the expropriation.” The spokesperson did not state whether Exxon received any compensation for the assets, but did mention reserving its rights under international law and its production-sharing agreement. The exit could lead to possible legal suits in the future. On 7 October, President Putin seized Exxon shares in the joint venture oil project and transferred them to a government controlled company. This follows his signing of a first decree in August that Exxon said made “a secure and environmentally safe exit from Sakhalin-1 difficult.” 

The company had announced its intention to leave Russia earlier this year after Russia invaded Ukraine in February. The Sakhalin-1 project generated approximately 227,000 barrels a day, had records for the longest wells ever drilled, used icebreakers to maintain exports when the sea freezes over in winter and was, overall, regarded as an engineering marvel when it first began. The departure follows several months of discussion over an orderly transfer of Russia’s 30% stake in the major oil project. Exxon had valued the assets at $4bn, as Sakhalin-1 was the largest oil and gas project in Russia. The Exxon spokesperson said they made “every effort” to engage with the Russian government and other stakeholders. 

In August, Exxon sent a “notice of difference” to Russian authorities after the government blocked Exxon from exiting Sakhalin-1. 700 Russian-based employees are expected to now transfer to Sakhalin-1’s new operator. Partners in the project include Russian company Rosneft, India’s Oil and Natural Gas Corp (ONGC) Videsh and Japanese SODECO. Exxon said it will “closely coordinate” with such partners to ensure the transfer of operations is done in a secure way to avoid spillages or environmental accidents. India’s ONGC intends to take a stake in the new Russian operator managing the project and retain a 20% share in the asset. Japanese Industry Minister Yasutoshi Nishimura said that Japan will decide what to do about the project in Russia's Far East in consultation with its partners as it reviews details of a decree by Moscow.

Whilst the company's departure seems like it was sparked by the Russian invasion of Ukraine, analysis from Reuters shows that Exxon has been phasing out of Russia gradually for years now, reducing its presence in the country since 2014 after Russia annexed the Crimean peninsula and was hit with sanctions. Earlier this year Exxon removed its expatriate workers and closed its lubricant and chemical business in Russia. July saw a reduction of the Sakhalin-1 project by around 10,000 barrels per day, down from 220,000 barrels per day before Russia’s invasion of Ukraine. The company took a $3.4bn after-tax charge for Sakhalin-1, but said the operations represented less than 2% of its total 2021 production and 1% of its operating earnings. Sakhalin-1 generated just enough to provide natural gas and power to Russian cities Khabarovsk and Vladivostok, and therefore its transfer hopes to avoid the risk of shutting down the lights in those cities. 

The fallout from Exxon’s exit indicates business is being heavily influenced by the Russia-Ukraine war, and may signal that other US or European based companies may follow suit as the Russian invasion continues. On 18 October, Ukraine announced that Russia had destroyed almost a third of its power stations over the past week. Russian missiles reportedly struck power generating facilities in various Ukrainian cities, killing several people. Moscow acknowledged targeting energy plants. The hits to energy infrastructure have caused blackouts across the country, according to Ukrainian President Volodymyr Zelenskiy. 

(Sources: Reuters, Bloomberg, CBS News)