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Putin Blocks Sales of Energy Assets in Russia

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President Vladimir Putin has signed a decree that prohibits companies from "unfriendly countries" from divesting assets in Russia's financial and energy sectors — at least through the end of this year.

Among other things, the decree temporarily prevents BP from proceeding with plans to sell its 19.75% stake in Russian oil giant Rosneft and Exxon Mobil from disposing of its 30% operated interest in the Sakhalin-1 oil project in Russia's Far East.

Moscow uses the term "unfriendly" to refer to countries that have adopted sanctions against Russia in response to its invasion of Ukraine.

The decree signed on Friday may be extended beyond the end of this year and Putin has the power to grant waivers that would allow sales to proceed.

Most Western oil and gas majors have announced plans to stop new investment in Russia and divest some or all of their assets in the country.

Russia, meanwhile, has tried to limit the exodus of foreign investors and encouraged companies to remain in the country to limit damage to its economy.

Writedowns

Many of the Western oil and gas companies that have announced plans to exit Russia have announced big charges against their earnings to reflect the estimated loss in the value of their assets there since Russia sent its troops into Ukraine in February.

BP, for example, reported an after-tax charge of $24 billion and has said that it is "unable to ascribe probabilities to possible outcomes of any exit process."

Shell has said it plans to quit Russia and has previously announced the sale of its retail fuel and lubricants businesses there to Russian major Lukoil.

Putin's decree does not apply to the Sakhalin-2 oil, gas and LNG project, in which Shell holds a 27.5% stake.

Russia has told Shell and the other foreign partners — Japan's Mitsui (12.5%) and Mitsubishi (10%) — that they must apply for stakes in a newly created operating company Sakhalin Energy LLC if they want to retain their interests.

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

Putin's decree does apply to the Kharyaga production-sharing agreement, where France's Total and Norway's Equinor have previously reported the transfer of their stakes (20% and 30%, respectively) to operator Zarubezhneft.

But Total has said that it plans to retain its LNG investments in Russia.

The ban on divestments in the energy sector also extends to producers of equipment for the oil and gas industry and companies that maintain and service such equipment.

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

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