Russia offers OVL dividend, not equity oil, for Sakhalin-1 stake

Following Russia’s invasion of Ukraine, Moscow seized the Sakhalin-1 asset through a presidential decree, resulting in ExxonMobil, the operator of the asset, exiting Russia. ExxonMobil owned a 30% stake in the asset that was valued at over $4 billion.

While ONGC Videsh has regained its stake in Sakhalin-1, its Russian partner is now offering dividends instead of equity oil. India, the world’s third-largest oil importer, is pushing for equity oil from Russia as sanctions-related difficulties have made it difficult to repatriate funds to India and energy security concerns.

“We want equity oil because we are unable to transfer dividends. After the Presidential decree, they took over the entire asset. Then, they said whoever wants their stake back needs to appeal to the Russian government. Post that, whether ONGC Videsh will get equity oil or dividend has still not been agreed upon. India has been asking for equity oil,” an Indian official said, requesting anonymity.

Rosneft’s proposal to offer dividend payments comes as Indian state-run energy firms face approximately $400 million in dividend payments from Vankorneft and Taas-Yuryakh stuck in Russia, as reported by Mint earlier. Recently, Russian deputy prime minister Denis Manturov discussed investment protection with the Indian government during his visit to the country. Indian state-owned firms, including ONGC Videsh, Bharat Petroresources Ltd, Indian Oil Corp, and Oil India Ltd, have invested $16 billion in Russia to date and earned around $9 billion.

Equity oil holds importance for India, given that the Opec-plus grouping recently announced yet another round of production cut, leading to a spike in oil prices. In such a scenario, having equity oil helps India navigate the uncertain energy markets.

A Rosneft spokesperson, in a detailed emailed response, said, “Since 26 April 2022, the former operator of the project, Exxon Neftegaz Ltd, began unilaterally, without consulting with the other participants, to gradually reduce production, and in May of last year, stopped the work of the project completely. In fact, the project was completely shut down, and more than 300 people of operational staff left their workplaces. At the same time, there was no reaction from Japanese and Indian participants of the project to the operator’s actions.”

Japan’s Sakhalin Oil and Gas Development Co. held 30% in the project, with Rosneft units holding the remaining 20%.

“In early October, in accordance with the presidential decree, a new Russian legal entity was created to manage the asset and resume full-scale operations in accordance with Russian law. At the same time, the opportunity was preserved for all existing shareholders to participate in the new project in proportion to their pre-existing interests in the Sakhalin-1 project. The only condition for continued participation was the formation of a liquidation fund for the project in the Russian Federation, previously organized by Exxon in Great Britain. The Indian partners have not fulfilled this condition for the time being,” the Rosneft spokesperson said.

In the 11 months to 28 February, Indian imports of Russian oil rose to $27 billion, second only to imports from Iraq, Mint reported on Friday, citing data from the Union ministry of commerce and industry.

“Due to the restrictions contained in ONGC’s charter, which does not allow it to carry out trading operations, and at ONGC’s request, the Indian partners of the project were given the opportunity to purchase all its products on the only condition – registration of the buyer in a jurisdiction that does not apply illegal sanctions against the Russian Federation,” the Rosneft spokesperson said.

Queries emailed to the spokespeople for the Russian embassy in Delhi, India’s ministries of external affairs, petroleum and natural gas, and ONGC Videsh on 17 April remained unanswered.

“Collectively in projects with the participation of Rosneft, Indian companies have earned about $9 billion, which demonstrates the high efficiency and profitability of joint work. At the same time, Rosneft strictly pays dividends to its shareholders into accounts in foreign banks indicated by the partners, and there are no debts on dividends,” the Rosneft spokesperson said.