Russian Companies Feel Heat Overseas

Following the withdrawal of Western companies from projects in Russia because of the war in Ukraine, Russian companies may be forced to start their own exodus from projects overseas.

Novatek expects by Oct. 22 to quit a TotalEnergies-led consortium developing offshore Blocks 4 and 9 in Lebanon, a source close to the project confirmed. It has a 20% interest in the consortium, while Total and Italy’s Eni each have 40%.

The expected exit might be part of a trend, although it is not quite clear whether the international sanctions against Russia have been the key factor behind Novatek's decision. The Lebanese project has never been of much strategic significance to the Russian privately owned gas producer.

But there is growing evidence that Russian companies are viewed as toxic partners by Western firms, putting Russian producers' overseas ventures at risk.

Novatek Exits Mediterranean

The Lebanese energy ministry said Novatek is withdrawing due to economic and financial reasons, as well as political risks. Novatek declined to comment.

Political risks might be linked to the fact that Block 9 is located in an area of the Mediterranean Sea disputed by Lebanon and Israel — something that has delayed exploration of the block. Negotiations over the maritime border between Lebanon and Israel are ongoing.

Economic reasons might include poor results from the exploration of Block 4, where drilling started in 2020.

Unsuccessful drilling could also prompt Novatek to withdraw from an Eni-led project offshore Montenegro, also in the Mediterranean, a source said.

Novatek joined the projects in Montenegro in 2016 and in Lebanon in 2018 and saw both as an opportunity to gain international expertise without large expenses, while also strengthening ties with strategic European partners. The overseas upstream business has never been Novatek's top priority, while its strategic focus — LNG expansion in the Russian Arctic — now clearly requires more effort and spending at a time when key partner Total has frozen new investments in the region and main lenders and contractors have also backed out.

Will Others Follow Suit?

Norway's Aker Energy has recently said it decided to delay the submission of a development plan for the Pecan field offshore Ghana for approval by the government, citing concerns over the ability of Lukoil to raise the money it will need to pay for its share of the development work because of the war in Ukraine.

Lukoil, which has 38% in the project, reacted to Aker saying "there are no lawful grounds for such references related to the sanctions restrictions for the project." The Russian major added that "the company and its management are not subject to any sanctions, therefore there are no obstacles in this respect for the joint development of the oilfield."

Sources claim that Ukraine and sanctions have also been used by some participants of the Ghasha gas concession in Abu Dhabi as an excuse for delays with setting up an operating company for the development. Lukoil has 5% in the venture. Other participants include Adnoc (55%), Italy's Eni (25%), Germany's Wintershall Dea (10%) and Austria's OMV (5%).

Lukoil has partnerships with Western companies in various parts of the world, including offshore Mexico, Kazakhstan, Azerbaijan, Cameroon, Nigeria and Congo (Brazzaville).

Russian companies that are under sanctions, including Gazprom and Rosneft, could face a bigger risk. Rosneft holds 30% in the Zohr gas field offshore Egypt, operated by Eni with 50%, while BP and Mubadala Petroleum have 10% each.

Gazprom has already lost a bunch of trading and distribution subsidiaries in Europe, taken over by the German government in April, but it appears to be keeping its non-operating stakes in offshore upstream projects in the North Sea, despite EU accusations of weaponizing gas supplies.

Gazprom’s other overseas projects are in countries that did not join international sanctions against Russia — such as Algeria, Bolivia, Libya, Bangladesh, Vietnam or Uzbekistan — and look safe, although in Bolivia it participates in a Total-operated project.

Western Majors Withdraw

Taking further steps to part with Russia, Total last week signed a final agreement to sell its 49% stake in the Termokarstovoye gas field in West Siberia to Novatek after getting approval from the Kremlin. Novatek will become the sole owner of project operator Terneftegas, which launched the field in 2015 and last year produced 2.6 Bcm of gas.

Exxon Mobil is reportedly preparing a lawsuit against Moscow following President Vladimir Putin's decree signed earlier this month that blocks the US major's exit from the Sakhalin-1 venture on the Russian Pacific shelf.

Meanwhile, Japan's Mitsui has decided to stay in the Sakhalin-2 upstream and LNG venture. Its application to keep a 12.5% stake in the project's new operator has been approved by the Russian government.

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