Barrage of energy pullouts hit Russian investment prospects

A growing number of global energy companies have announced in the past week they will pull out of Russia over Moscow’s invasion of Ukraine, even as Western sanctions tightened the noose on Kremlin and Russian businesses.

US oil giant ExxonMobil said on Tuesday it will begin a phased withdrawal from Russia's Sakhalin offshore oilfield that it has operated since 1995, and condemned Russia’s military action that is said “violates the territorial integrity of Ukraine and endangers its people”.

ExxonMobil, which operates the Sakhalin-1 project on behalf of an international consortium of Japanese, Indian and Russian companies, said it had an obligation to ensure the safety of people, protection of the environment and integrity of operations there. The multi-billion dollar joint venture at Sakhalin-1 features Russian state-owned company Rosneft as a key partner. The decision also puts the fate of a proposed multi-billion dollar liquefied natural gas (LNG) facility at Sakhalin in doubt.

Shell announced on Monday that it will cut ties with the Russian state-owned energy company Gazprom. The decision follows a similar move from BP, which on Sunday said it will sell its shares in Russian-state firm Rosneft.

The twin decisions by two British energy giants was supported by a wide section of the industry.

"Right decision by the Board of Shell to exit its Russian ventures," Adam Matthews, chief responsible investment officer for the Church of England Pensions Board, which invests in Shell, said in a LinkedIn post. "Following BP's decision, the focus is on those that have yet to take such a step," he said.

Shell said it will also end its investment in the Nord Stream 2 gas pipeline and sell its 27.5 percent stake in the Sakhalin-II liquefied natural gas facility and its 50 percent stakes in two Siberian oil ventures. The company said the projects were worth about $3 billion at the end of 2021, and it expects exiting Russia will lead to impairment charges.

"Wherever you operate, you are potentially exposed if you're an international business to the sanctions regime of multiple different countries," Marcus Thompson, a London-based partner at Kirkland & Ellis, told Reuters. We are likely to be in this environment of a very complicated, multipronged, multifaceted sanctions regime for months if not years," he added.

Russia's biggest foreign investor, bp, announced over the weekend it was quitting its 20 percent stake in Rosneft at a cost of up to $25 billion, cutting the British firm's oil and gas reserves in half.

Equinor, the energy firm majority owned by the Norwegian state, also said it would start divesting its joint ventures in Russia.

The barrage of announcements has signaled a toughening stand of corporate giants in Russia, and the fact that most energy companies no longer see operations there as a safe investment.