Exxon to Shut Down Oil Production in Russia After Ukraine Attack

The U.S. oil giant said Tuesday that it is preparing to shut down production from the massive Sakhalin Island development in Russia’s Far East.

Exxon

XOM 0.96%

owns a 30% stake in the project, alongside Russian state-controlled oil producer

Rosneft,

Japan’s Sodeco and India’s ONGC Videsh. The company said it is taking steps to exit from the consortium.

Exxon is also developing plans for expatriate staff in Russia to leave the country, if the employees wish to do so, according to a person familiar with the plans. The majority of Exxon’s roughly 1,000-person workforce in Russia is made up of Russian citizens.

“Exxon Mobil supports the people of Ukraine as they seek to defend their freedom and determine their own future as a nation,” the company said. “We deplore Russia’s military action that violates the territorial integrity of Ukraine and endangers its people.”

The announcement follows similar moves by European peers

BP

PLC and

Shell

PLC, which said in recent days that they would exit investments in Russia. Western companies have moved swiftly to distance themselves from Russia, vowing to yield assets in support of Ukraine and to buttress broad punitive measures against Russia by the U.S., U.K. and European Union.

Pulling out of Sakhalin will be difficult for Exxon. The Texas company operates the development, meaning it is responsible for keeping production flowing and other essential functions. It may have to leave critical staff in place to ensure the project is safely shut down. Selling its stake could also be challenging as the market for Russian assets has quickly shrunk.

Exxon has pulled back from Russia over the past decade following previous rounds of sanctions. It previously said it has withdrawn from 10 joint ventures with Russian entities that were covered by U.S. sanctions and wrote-down some of those assets. Exxon has said that it is fully compliant with U.S. sanctions.

Sakhalin was unaffected by previous sanctions, and Exxon has continued to invest in expanding it. Over the past two decades, the Sakhalin consortium has exported more than 1 billion barrels of oil and about 1 billion cubic feet of natural gas from the development, one of the largest-ever foreign investments in Russia.

The consortium signed a production-sharing agreement with the Russian government in 1996 and production began flowing in 2005. Production from Sakhalin has declined as the asset has aged and currently represents about 3% of Exxon’s overall oil production. Exxon and Rosneft have been working to develop the asset’s remaining natural-gas reserves in a large liquefied natural project that could be operational by 2027.

Political pressure on big energy companies to cease or pull out of Russian operations mounted quickly after Russian President

Vladimir Putin’s

invasion of Ukraine last week. What is less clear is how the companies will go about unloading the holdings and partnerships during wartime, with buyers of Russian assets scarce and many wealthy Russian individuals and entities themselves cut off by sanctions and banking controls.

Some energy-company insiders have discussed ringfencing assets marked for divestiture in new legal entities that would essentially cordon them off, rather than risk their falling back into Russian hands, said one executive briefed on the discussions. It isn’t clear how such a move would affect active projects on Russian soil, or Russian-company stakes.

Russia’s attack on Ukraine helped push the price of oil to over $100 a barrel for the first time since 2014. Here’s how rising oil costs could further boost inflation across the U.S. economy. Photo illustration: Todd Johnson

Evidence of the pressure surfaced publicly last Friday night in London with disclosures of a meeting that afternoon between a top U.K. official and BP’s chief executive. Two days later on Sunday, BP said it would exit its nearly 20% stake in Rosneft, a move likely to hit BP with billions of dollars in losses. BP’s current and former CEOs also left the Rosneft board, and BP ditched several Russian joint ventures.

On Monday, Shell—also based in London—said it would exit its joint ventures with Russian energy giant

Gazprom PJSC

and end its involvement with the Nord Stream 2 natural-gas pipeline project, which it helped finance. Also Monday, Norwegian energy group

Equinor AS

A said it would halt new investments into Russia and start exiting from Russian joint ventures.

On Tuesday,

TotalEnergies

said it would cease providing capital to new Russian projects—stopping short of saying it would exit the country. It has significant stakes in liquefied natural gas operations, including with Russian producer

Novatek.

French Finance Minister

Bruno Le Maire

said he planned to discuss TotalEnergies’s presence in Russia with the company’s chief executive, adding that he now felt there was a “problem of principle in working with any political or economic personality close to Russian leadership.”

Chevron Corp.

has a smaller presence in Russia, mostly through its 15% stake in a consortium that operates a pipeline that transports oil from a Chevron project in Kazakhstan to tanker-loading facilities on the Russian coast of the Black Sea. The U.S. company isn’t currently planning to exit that investment.

Chevron CEO

Mike Wirth

said the pipeline only transports small amounts of Russian oil. He said he expects the pipeline to continue operating but that Chevron is dealing with issues related to shipping, insurance and letters of credit for counterparties seeking to buy the oil from the terminal in Russia.

Write to Christopher M. Matthews at [email protected] and Jenny Strasburg at [email protected]

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