For Western energy giants, fleeing Russia has become the longest farewell

For Western energy giants, fleeing Russia has become the longest farewell
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Shell has had ties to Russia since 1912 after buying the Rothschild family shares there. More recently, its partnership with Russia’s state-owned gas giant Gazprom has helped the company gain access to vast gas reserves in Russia’s Far East.

She also stayed after she had to relinquish control of the $22 billion [£19bn] Sakhalin-2 gas plant to Russia in 2006 after months of pressure from the Kremlin.

Shell CEO Ben van Beurden met with Putin in April 2014 shortly after Russia’s annexation of Crimea to tell him the project was to be expanded. Equinor, on the other hand, entered Russia in the 1990s and struck a major exploration deal with Rosneft a decade ago, as the two Arctic powers forged closer ties.

At the start of the war, foreign companies covered about 11 percent of Russia’s oil and gas production, according to James Henderson of the Oxford Institute for Energy Studies. The largest were BP, TotalEnergies, Wintershall Dea, Shell and India’s Oil and Natural Gas Corporation.

Many hoped that energy ties with Russia would help avoid tensions with the West over mutual interests. That turned out to be a miscalculation.

Breaking these bonds is not easy. Russia imposed a temporary ban on foreign investors selling assets early in the war and last month banned investors from sanctions-backed countries from selling assets, including oil and gas exploration projects, until the end of the year.

The decree came days after US oil giant Exxon Mobil announced it would sell its stake in the Sakhalin-1 oil and gas project in the Far East to an unnamed buyer. Exxon has since taken steps to sue Russia unless it allows it to leave. The rules add to problems finding buyers and advisors as Russia’s pariah status grows.

“I think the climate couldn’t be worse to get out,” says a senior industry source. “That is now in the hands of geopolitics.”

Another says: “I guess going back to the Russian state is the only way out. I don’t see anyone buying Russian assets right now.”

That’s the path taken by Equinor, which transferred its key assets back to Russian sovereign partner Rosneft in May. According to Reuters, Rosneft paid just one euro despite renouncing Norway’s approximately $1 billion worth of investment pledges.

Equinor completed its exit in September by exiting the Kharyaga field it held with other partners. The company decided three days after the invasion that its involvement in Russia was “unsustainable,” a spokesman said.

“We immediately assembled a project team to implement the exit,” he adds. “It was important to act very quickly. Maintaining good relationships with the relevant authorities over time has also been valuable to continuously ensure we are transparent and comply with all sanctions.”

Halliburton, the US oilfield services giant, also exited and spun off its Russian operations to a team of former Halliburton employees.

Shell’s entanglement is more complex, although it has made great strides in breaking free. Van Beurden announced plans to exit in February, deploring the “senseless act of military aggression”.

Discussions with Indian and Chinese buyers for its stake in the Sakhalin-2 gas plant in the Far East are said to have taken place earlier this year. But Russia then took full control of the project, forcing partners to apply for permits if they wanted to stay. Shell refused and walked away.

The Moscow-listed Novatek has been touted as a possible replacement. Shell sold its 411 retail gas stations in Russia to private Russian oil giant Lukoil in May without disclosing the value. It has left the board of Salym, a joint oil development company with Gazprom Neft, but is still working on options for its stake as its shareholder rights are restricted by Russia. It returned another joint venture to Gazprom Neft.

Some have taken a more differentiated stance. TotalEnergies boss Patrick Pouyanne argued in March that an exit would mean handing over assets to Russia. “For me, it’s a matter of accountability and the responsibility of offshore stakeholders,” he said.

Under pressure from critics, the company announced in March that it would “gradually discontinue its activities in Russia”.

It has since sold its stake in the Kharyaga oil project to Russian state partner Zarubezhneft and its 49 percent stake in Siberian gas field operator Terneftegaz to Novatek on “commercial terms” and with Russian state approval. As of August, it still holds minority stakes in a number of Russian non-state companies: Novatek, Yamal LNG and Arctic LNG 2.

BP’s efforts are less advanced than its competitor Shell. It has written off its Russian assets, suffered $25 billion in damage, and no longer shows the Rosneft stake in its accounts.

However, its previous failure to divest has been picked up by Russia, with Rosneft CEO Igor Sechin highlighting BP’s claim to dividends and claiming in June its actions show “a desire to remain an active participant”.

The company says it’s “carrying on[s] to seek his exit from Russia. Looney has a long way to go.

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