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

MOSCOW/HOUSTON, Oct 7 (Reuters) – Russian President Vladimir Putin signed a decree on Friday establishing a new operator for the Exxon Mobil Corp ( XOM.N )-led Sakhalin-1 oil and gas project in Russia’s Far East.

Putin̵[ads1]7;s move, which affects Exxon’s largest investment in Russia, mimics a strategy he used to seize control of other energy properties in the country.

The decree empowers the Russian government to decide whether foreign shareholders can retain shares in the project.

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Exxon has a 30% operating stake in Sakhalin-1, with Russian company Rosneft ( ROSN.MM ), India’s ONGC Videsh ( ONVI.NS ) and Japan’s SODECO as partners.

Oil production at the Sakhalin-1 project fell to just 10,000 barrels per day (bpd) in July from 220,000 bpd before Russia invaded Ukraine.


Exxon has been trying to exit its Russia operations and transfer its role in Sakhalin-1 to a partner since March, following international sanctions imposed on Moscow.

Russia’s government and Exxon have clashed, and the oil producer has threatened to take the matter to international arbitration.

Exxon declined to comment on Friday’s decree.

Japan’s SODECO was not immediately available for comment, but an industry ministry official, which owns a 50% stake in the firm, said it was gathering information and talking to partners. Japan has stopped buying crude oil from Russia since June. read more

Exxon took a $4.6 billion write-down in April on its Russian operations and said it was working with partners to transition Sakhalin-1’s operations. It also reduced energy production and moved employees out of the country.

In August, Putin issued a decree that Exxon said made a safe and environmentally safe exit from Sakhalin-1 difficult. The US manufacturer then issued a “note of difference”, a legal step before arbitration.

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

Foreign partners will have one month after the new company is established to ask the Russian government for shares in the new entity, the decree said.

Putin used a similar strategy in a July decree to take full control of Sakhalin-2, another gas and oil project in the Russian Far East, with Shell ( SHEL.L ) and Japanese companies Mitsui & Co ( 8031.T ) and Mitsubishi corp. as partners.

Russia has approved applications from the two Japanese trading houses that want to transfer their holdings to a new operator. read more

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Reporting by Reuters; Additional reporting by Yoshifumi Takemoto, Yuka Obayashi in Tokyo, Editing by Cynthia Osterman and Clarence Fernandez

Our standards: Thomson Reuters Trust Principles.

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