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Exodus

Putin Sets Rules for Foreign Investors

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President Vladimir Putin has made it clear that Moscow will not expropriate assets held by foreign investors from "unfriendly" countries in response to their planned exodus and the freeze of Russian assets abroad. At the same time, Russia would protect its national interests by preventing any transactions with strategic companies and projects.

Last week, Putin signed a decree "on the implementation of special economic measures in the financial and fuel and energy sectors in connection to unfriendly actions of some foreign states and international organizations." The decree prohibits companies from "unfriendly countries" — or countries that imposed sanctions against Russia following the invasion of Ukraine — from divesting their assets at least until the end of 2022, or unless they get special permission from the Russian president.

Russian analysts say that Moscow's stance contrasts sharply with the appropriation of Russian assets abroad and leaves the door open for foreign companies to stay, if they follow certain rules. On the other hand, the decree clearly prioritizes national interests and points at the strategic assets that Moscow will protect.

What's on the List?

Putin's decree starts with companies referred to as strategic under Russia's legislation. State-controlled oil champion Rosneft, gas giant Gazprom, state-run explorer Zarubezhneft and oil pipeline monopoly Transneft are all deemed strategic. BP, which has a 19.75% stake in Rosneft and which reported an after-tax charge of $24 billion, is clearly in the spotlight as it has still failed to find a way to exit Russia.

The decree also bans any transactions with stakes in the Sakhalin-1 and Kharyaga production sharing agreements (PSAs). Exxon Mobil, which holds a 30% stake in Sakhalin-1 alongside Japanese consortium Sodeco (30%) and India's ONGC Videsh (20%), said recently that it is continuing efforts to divest its stake, but provided no further details. Moscow blames Exxon for running production down at Sakhalin-1 and seems to be losing patience with the US supermajor. In Kharyaga, TotalEnergies and Equinor earlier said they transferred their stakes of 20% and 30%, respectively, to operator Zarubezhneft.

Moscow has offered a way out for PSA participants. The current decree doesn't include the Sakhalin-2 PSA, for which a new operator called Sakhalin Energy LLC was recently established. This could be a signal to the Sakhalin-1 and Kharyaga foreign stakeholders on how things will play out — a Russian-registered company might be established and foreign partners will have to apply formally for stakes. Japanese companies already said they want to retain their stakes in both the Sakhalin-1 and Sakhalin-2 projects, while Shell, which has a 27.5% interest in Sakhalin-2, is unlikely to apply for a stake.

Strategic Asset Ban

Putin also banned the sale of stakes in Russian upstream developments holding over 20 million metric tons (146.4 million bbl) of crude oil or 20 billion cubic meters of natural gas in recoverable reserves. BP, Shell, Total and Equinor all had stakes in Russian upstream assets falling under this category and the move should protect those assets as well, at least until appropriate companies would be found to replace the Western majors. Until then, the licenses for those fields would be transferred to Russia-registered companies.

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. The ban also affects refineries.

Many of the Western oil and gas companies that have announced plans to exit Russia have reported big charges against their earnings to reflect the estimated loss in the value of their assets in the country.

The Western majors haven't made much comment on the decree signed by Putin. Energy Intelligence suggests the document is being studied by foreign companies. So far, reports suggest that the decree has paused a deal under which Russian oil producer Lukoil in partnership with Gazprombank-Frezia was supposed to purchase Italian utility Enel's assets in Russia as well as blocking the sale of Finnish company Fortum's interests.

Siemens Energy said this week that it aims to complete the restructuring of its business activities in Russia by October. The restructuring process placed a charge on the financial results of Siemens Energy’s Gas and Power division of €200 million ($204 million) in the third quarter of fiscal year 2022 that ended Jun. 30, the company said.

Foreign shareholders are not withdrawing from Gazprom’s Nord Stream gas export pipeline to Europe but are revising the value of their stakes. Germany’s E.On on Aug. 10 said it cut the value of its 15.5% stake by around €700 million, or 58%, from €1.2 billion, citing “heightened uncertainty” amid the war in Ukraine. Gasunie of the Netherlands in late July said it cut the value of its 9% stake by 53% to €240 million.

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

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