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IOCs' Russian Assets Face Uncertain Future

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The fate of Russian assets that international oil and gas companies decided to quit in response to the war in Ukraine, is still up in the air. There is a lack of clarity from both sides: international oil companies (IOCs) stay tight-lipped on sizing up potential buyers, while Moscow is dragging its feet with the adoption of legislation on the nationalization of assets abandoned by foreigners.

Russia's state Duma, or lower house of the Russian parliament, could approve a draft law on the external management of companies quit by foreigners, by the end of this month but only in a first reading.

The document will then be amended to make its final shape meet the interests of the state, business and employees, according to Russian officials.

The cautious approach to the issue could also be down to an unwillingness to put at risk Russian companies' assets in Europe, including refineries owned by Rosneft, Lukoil and Gazprom Neft. However, there is a growing understanding on both sides that Russian companies may lose those assets.

Different Treatment

The draft law under discussion envisages the introduction of external management in companies where foreigners own more than 25%, on a court ruling. Exxon Mobil's stake in Sakhalin-1, Shell's Sakhalin-2 holding and its joint ventures with Gazprom Neft, as well as BP's stakes in ventures with Rosneft, fall under this category.

A differentiated approach is proposed on the basis of dividing foreign owners into three groups. The groups would include those owners who decided to continue operations in Russia, those who would like to stay but face difficulties caused by sanctions and those who just decided to shut the door after them.

How Western oil and gas companies would be treated is unknown. Some say that BP is viewed as belonging to the third group, while TotalEnergies could be either in the first or second category, although its status could be changing.

Indeed, having so far refrained from announcing plans to exit, Total CEO Patrick Pouyanne said last week that the outlook for the company's assets in Russia, including its stakes in the country's biggest independent gas producer Novatek and the Yamal LNG facility, could change.

Putting Up With Losses

Total has already announced a $4.1 billion write-down related to its stake in the unfinished Arctic LNG 2 plant, after the EU implemented sanctions that limit the transfer of LNG technology to Russia. The international major also plans to mothball its Russian lubricants business due to a lack of additives.

Impairment losses related to the Russian assets is common practice. BP wrote off the entire value of its 19.75% interest in Rosneft and its joint ventures with the Russian state-controlled major. This resulted in a total non-cash hit to BP earnings in the first three months of the year of some $24 billion.

BP refused to say whether it would be able to recover some of its Russian investments of $15 billion, as well as to comment on talks with potential buyers.

BP is continuing to pay some 200 staff in Russia while it considers options to reassign them to other parts of the organization.

Shell and Exxon have already started demobilizing seconded employees from Russia.

There have been press reports that Indian and Chinese companies could be interested in the Russia assets, including the stakes Exxon and Shell are abandoning in the Sakhalin-1 and -2 projects. Bloomberg reported that Germany's BASF was considering offloading Wintershall's Russian assets to its partner LetterOne, owned by Russian businessman Mikhail Fridman.

Selling to foreign candidates would be the best option for IOCs as dealing with Russian buyers would be complicated by a lot of factors, including currency controls and limitations on money outflows.

Topics:
Sanctions, Earnings, Majors
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