/ world today news/ Russia introduces counter-sanctions against hostile countries. Now large companies from a number of countries will not be able to do anything with their assets in Russia. This applies to foreign banks and oil and gas companies. What awaits the assets of “British Petroleum”, “Exxon Mobile” and “Total” now? And for what purpose are these counter-sanctions introduced – to punish or still help foreign partners?
Russian President Vladimir Putin signed a decree on special economic measures, which prohibits foreign companies from unfriendly countries from carrying out any transactions with their stakes in strategic Russian enterprises. This decree applies primarily to banks – the Russian “daughters” of foreign banks. Second, companies from the fuel and energy complex. The government has to prepare a complete list within 10 days. But the decree itself already mentions transactions with shares in the Sakhalin-1 project and the Kharyagin deposit.
For now, the restrictions will be in place until the end of 2022. However, the deadline can be extended multiple times. There is one small loophole – a transaction prohibited by the decree can be carried out only with the special permission of the President of the Russian Federation. That is, the decision to sell will be made individually.
“Foreign investors who want to exit Russian business will not only be unable to sell their stakes and shares in strategic Russian enterprises, but even to donate, exchange or transfer these assets to a creditor for debt repayment. That is, the shares of the public companies will be blocked in the depository and the deal for the sale of a share will be invalid,” explains Nataliya Milchakova, a leading analyst at Freedom Finance.
“This was done on purpose, as there are already several precedents when Western companies tried to sell their stakes in Russian assets. For example, “British Petroleum” and “Exxon Mobile”. At the same time, Exxon, as the operator of the Sakhalin-1 project, also sharply reduced production. This was reflected in the total volume of oil production in Russia. I think this accelerated the adoption of the relevant presidential decree,” says Alexey Gromov.
Back in April, the operator of the project Exxon Neftegaz introduced a state of emergency and reduced production. As a result, by the end of July, oil production at the Sakhalin-1 project has decreased 22 times – to 10,000 barrels per day, Deputy Prime Minister Yuriy Trutnev said.
Just a few days ago, it became known from Exxon Mobil’s financial report that the company is negotiating the transfer of the Sakhalin-1 project to another country.
The Sakhalin-1 project is being implemented under the terms of a production sharing agreement. Exxon Mobile (30%), Rosneft (20%), Japanese Sodeco (30%) and Indian ONGC (20%) participate in it.
Why did Russia pass such a decree? “The purpose of the decree is to make it more difficult for companies from hostile countries with which there is an economic war to exit Russian assets as painlessly as possible. Now they cannot sell their shares under market conditions. Russia offers them to stay and work as before. And if they don’t want to, they transfer their assets to Russian companies free of charge. This is a punishment in response to the sanctions against Russia,” says Gromov.
“In our opinion, the President of Russia signed such a decree to save the Russian stock market from a collapse that could occur if foreign investors began to leave Russia en masse. “Also, apparently, the authorities do not want Russian assets to depreciate if they start mass sell-offs of shares,” Milchakova said.
But perhaps the presidential decree is a desire to help foreign partners keep their business in Russia, which they frankly do not want to lose. “Owners and management of international companies involved in projects in Russia are under serious pressure. They are forced to withdraw from Russian assets based on direct sanctions or reputational considerations. The adopted decree may be aimed at ensuring that foreign partners have a “good” reason to continue to remain shareholders in Russian companies,” said Philip Muradyan, expert corporate ratings.
Who will the new presidential decree affect? This will probably affect the company “British Petroleum”1, which at the end of February announced the withdrawal of its share of 20% in the assets of “Rosneft”. However, Gromov does not rule out that special conditions for exiting the Russian business will be agreed upon for this company.
But Exxon Mobil is unlikely to make an exception due to the company’s production cuts. The adopted presidential decree cannot directly affect oil production. However, Gromov does not rule out that the next step after this decree will be the liquidation of Sakhalin-1, change of legal status and transfer of the project to a Russian operator, following the example of what was done with Sakhalin-2. “With Sakhalin-2, it was easier to do this because the operator of the project was Sakhalin Energy, which was controlled by Gazprom, and in Sakhalin-1 the operator is a foreigner,” the expert explains. Recently, the new Russian company “Sakhalin Energy” became the operator of “Sakhalin-2”.
“In the end, ExxonMobil will have no choice but to simply leave the project without receiving a single cent, or to continue operating, but under Russian conditions.” “When the control of the Sakhalin-1 project passes to a specially created Russian company, it will already be able to solve the problem of the collapse in oil production,” says the expert.
The new decree may affect the share of “Total” (20%), which has participated in the Kharyaginskoe deposit project for 20 years together with the Norwegian “Ekinor” (30%). Earlier, the Prime Minister Mikhail Mishustin gave instructions for the transfer of the shares of these foreign companies in the field of the Zarubezhneft company. His share after the deal may grow from 40 to 90%, and another 10% will be reserved for the Nenets Oil Company. It is unofficially reported that the deal may be cashless.
“The shares in Sakhalin-1 and the Kharyagin field will most likely go to specialized Russian investors – Rosneft and Zarubezhneft.” The future change of owners will practically not affect the operational activity of these projects,” Milchakova believes.
In the gas sector, the German company “Wintershall”, which has joint projects with “Gazprom” in Russia, the Achimovskoe field (part of Urengoyskoe) and the South Russian gas field (35% owned by the German company, 40% by ” Gazprom” and 25% % of the Austrian OMV).
However, Wintershall at the end of July 2022 continued to manage its Russian assets, which produce 35 billion cubic meters of gas per year, and would not withdraw from them. It also has no intention of leaving the Nord Stream operator. Pulling out of Russia would be a big gift to the Russian government in Moscow, the company’s chief, Mario Meren, said. The company has a legal obligation to protect the value of its assets in the country, he said.
As for the banks, the Italian group “Unicredit”, the American “Citigroup” and the British HSBC have announced their intention to sell their assets in Russia. The latter, according to Western media, has signed an agreement for the sale of the Russian subsidiary of “Expobank”, but the transaction failed to receive approval from either the Central Bank or the government.
“Now, Russian subsidiaries of foreign banks will continue to operate in Russia until the authorities allow these banks to exit Russian business through a normal market transaction. Although it is possible that in some cases foreign banks will be allowed to sell Russian assets to any Russian bank, it is not yet clear what the reason for an exception to the rules might be,” Milchakova said.
Translation: V. Sergeev
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