IOCs Face Difficult Choices Over Russia Exit

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Criticism of TotalEnergies for not being hard enough on Russia has forced the French major to announce "the gradual suspension" of its activities in Russia along with a decision not to enter into new contracts to buy Russian crude oil and oil products.

Total has term contracts for lifting Russian crude and products lasting until the end of 2022 at the latest. After that, the contracts would not be renewed, Total said in its statement.

The company stopped all spot market trading in Russian oil, products, natural gas and LNG from Feb. 25, the day after the invasion of Ukraine.

Total has joined other international oil companies (IOCs) that outlined a tougher stance, including plans to quit all their Russian assets and withdraw from the country completely. Total's line is still different: It will keep its Russian assets on the grounds that European sanctions and Russian laws make it impossible to find non-Russian buyers for its minority interests in the projects.

"Abandoning these interests without consideration would enrich Russian investors, in contradiction with the sanctions' purpose," Total said.

Total's assets include 19.4% in Russia's top independent gas producer Novatek, 20% in Yamal LNG, 10% in Arctic LNG 2, 49% in TerNefteGaz and 20% in the Kharyaga production-sharing agreement project (PSA). These companies have their own employees and are managed autonomously and there are only three seconded expatriates in Russia now, Total said.

No Hurry

Even those IOCs that have said they would withdraw from Russia totally — including BP and Shell — are not moving fast.

According to sources close to Rosneft, BP, which holds 19.75% in the Russian major, has not initiated any withdrawal procedures so far.

"BP remains a shareholder in Rosneft and continues to interact with its Russian partners within the framework of the acting shareholder agreement," a source said.

In addition to the Rosneft stake, BP has interests in three joint ventures with Rosneft: 20% in Taas-Yurakh Neftegasdobycha, 49% in Kharampurneftegas and 49% in Yermak Neftegas.

In a move that BP failed to explain, its subsidiary, BP Russian Investments, notified Rosneft on Mar. 11 about the removal of its previously nominated member to the Kharampurneftegas board of directors, Stephen Raymer. But BP replaced him with another nominee, Afgan Huseynov, a citizen of Azerbaijan.

BP only said to Energy Intelligence that it is pursuing the withdrawal from Rosneft and "will also exit our other businesses with Rosneft in Russia — this includes the three joint ventures."

The UK major reiterated that BP's current and former CEOs, Bernard Looney and Bob Dudley, resigned from the Rosneft board "with immediate effect from Feb. 27." However, both are still named as Rosneft's directors on the Russian company's website.

Citing Safety

Shell said it would withdraw from Russia completely as well.

In a written response to Energy Intelligence this week Shell said that it "is in contact with the Russian partners in Gazprom and Gazprom Neft to ensure orderly withdrawal from the joint ventures." The international major added that "the plan for further actions is being developed" with the key priority in the process being the "safety of our people and operations, preserving jobs and complying with applicable legislative norms and existing obligations."

On Mar. 11. Shell placed on its Russian website a statement by Shell Neft General Manager Sergei Starodubtsev saying that the affiliate "continues its operational activities in Russia despite logistics problems." It added that the company "supports financing, lubricants productions, the work of its retail fueling stations and fulfills all its obligations to suppliers and customers" while "salaries are being paid to the employees."

Shell has a network of more than 350 retail fuel stations in Russia and a lubricants plant in Torzhok, which lies some 200 kilometers north of Moscow.

Shell said earlier that it would "shut our service stations, aviation fuels and lubricants operations in Russia."

Different Options

Analysts say there are impressions that IOCs are looking for ways of keeping their business in Russia in some form.

Whether Russian affiliates could become a solution is unknown, but just for comparison, the Russian branch of Austria's Raiffeisen Bank International (RBI) said it would keep operations in Russia even if RBI decided to pull out of its capital.

IOCs have been joined by Western services giants this week in announcing intentions to exit Russia or halt new projects in the country.

But services companies have been very careful in their statements as well. Halliburton and Germany’s Linde said they are suspending future business and winding down operations, while Schlumberger, Baker Hughes, Weatherford and KCA Deutag are halting new investments and technology deployment.

But there are those that stay. Japanese Mitsui and Mitsubishi will keep their interests in the Sakhalin-2 PSA on Russia's Pacific shelf, in which they hold a combined 22.5%. Shell plans to exit its 27.5% minus one share in the project.

Japan's Sodeco consortium is still to decide on its 30% in the Sakhalin-1 PSA, which is to be abandoned by operator Exxon Mobil.

Sanctions, Corporate Strategy , Majors
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