Putin signs decree to set up new operator for Sakhalin-1

The Yomiuri Shimbun

17:12 JST, October 8, 2022

Russian President Vladimir Putin signed on Friday a presidential decree transferring rights for the Sakhalin-1 oil and gas project off Sakhalin in the Russian Far East, according to an announcement by the Russian presidential office.

Sakhalin-1 is an energy development project off the coast of Sakhalin in which the Japanese government and companies such as Itochu Corp. and Marubeni Corp. have invested.

The transfer of the Sakhalin-1 operator to a new company follows similar measures taken by Moscow over Sakhalin-2, in which Japanese firms Mitsui & Co. and Mitsubishi Corp. have invested.

Tokyo must decide whether or not to continue with the project.

According to the presidential decree, all rights held by currently participating companies will be transferred to the new company that will operate Sakhalin-1.

Russia’s state-owned oil giant Rosneft will retain a 20% total stake in the new operator, in keeping with the company’s current share in the project. The remaining 80% held by foreign investors will be temporarily held by the new company, it said.

The foreign investors are to inform the Russian government within one month of the establishment of the new company whether or not they will continue to invest in the project.

Should they not wish to invest, their shares will be sold to a Russian corporation within four months.

U.S. oil giant Exxon Mobil owns 30% of Sakhalin-1. The Sakhalin Oil & Gas Development Co., formed by Japan’s Economy, Trade and Industry Ministry and trading companies, owns another 30%, while the Oil and Natural Gas Corp. of India owns 20%.

Exxon, which had played a central role in the operation, announced in March that it would pull out after the Russia’s invasion of Ukraine began.

In August, Putin signed a presidential decree prohibiting companies in Japan and other “unfriendly” countries from selling their stakes in the Sakhalin-1 oil project until Dec. 31.

This presidential decree presents the measure as application of additional special measures in connection with the unfriendly actions of some foreign countries.

Russia is believed to be aiming to shake up foreign powers that have invested in the project in retaliation for the sanctions imposed by Japan and the United States against Russia over its invasion of Ukraine.

“For Japan, the importance of Sakhalin-1 in terms of energy security remains unchanged,” an official of the economy ministry said Saturday.

Sakhalin-1 began commercial production of crude oil in 2005, and the export of oil and gas produced in the project began in 2006.

According to leading Russian newspapers such as Kommersant, the governor of Sakhalin said that oil production has decreased, and that natural gas production has been halted since mid-September.