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Moscow Seeks to Revive Sakhalin-1 Output

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Rosneft says it is working with the Russian government to try to revive production from the Sakhalin-1 project in Russia's Far East, where oil output had fallen to just over 5,000 barrels per day by July.

State-controlled Rosneft — Russia's biggest oil producer — issued a statement on Thursday which said that since late April, Sakhalin-1 operator Exxon Mobil had "unilaterally ... started a phased stoppage of production."

Rosneft holds a 20% stake in Sakhalin-1, while Exxon holds a 30% stake that it has been seeking to divest after Russia invaded Ukraine earlier this year.

The other shareholders are Japanese consortium Sodeco (30%) and India's ONGC Videsh (20%).

Exxon mentioned its efforts to divest its stake in Sakhalin-1 in a US regulatory filing on Wednesday, but it did not provide much new information about the process.

Rosneft said Thursday that it had no information about Exxon's efforts to transfer its operated stake in the joint venture to another entity.

The Russian oil major said that the last tanker carrying crude oil from Sakhalin-1 left the De-Kastri loading terminal on May. 6 and that the terminal's storage facilities are now 95% full.

Rosneft said that despite the efforts of the Russian government, the Sakhalin regional government and the other shareholders, production has not been revived yet.

Sakhalin-2 Precedent

The nearby Sakhalin-2 project could provide a template for how things will play out at Sakhalin-1.

Following an earlier decree by President Vladimir Putin, a new company called Sakhalin Energy LLC was set up this week to operate Sakhalin-2, which includes an LNG export component.

The new company will take over the assets, licenses and responsibilities of the previous operator Sakhalin Energy Investment Co. Ltd. (SAIC), which was registered in the Bermuda Islands.

Gazprom held a 50% stake in SAIC plus one additional share, while Shell held a stake of 27.5% minus one share. Japan's Mitsui and Mitsubishi owned 12.5% and 10%, respectively.

Gazprom was given a stake of the same size in the new Sakhalin-2 operating company, but the foreign partners will have to formally apply for stakes. If they do not, their interests will be sold to a Russian entity.

Shell has said that it is unlikely to submit an application, but Mitsui and Mitsubishi have indicated that they intend to do so.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact

Topics:
M&A, Ukraine Crisis, Sanctions, Policy and Regulation, Upstream Projects, LNG Projects
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