Oil and gas merger and acquisition activity in Russia dropped to its lowest level in nearly a decade last year, according to Norway-based consultancy Rystad Energy.

Companies from China, India and elsewhere were widely predicted to snap up undervalued assets left behind by the likes of Shell, BP and Wintershall Dea after Western sanctions against Russia led such companies to withdraw from the country, but this has not yet materialised.

In sales terms, Russian oil producers have established alternative seaborne supply routes to India, China and other countries in Asia and the Pacific to avoid international sanctions and restrictions following the launch of the war on Ukraine in February.

Japanese trading houses, such as Mitsui & Co and Mitsubishi Corp, have also retained interests in Russian oil and gas projects that were held before the Ukraine conflict, but the energy industry has not yet seen interest from Asian entities for actively entering into exploration and development projects in the country, or taking over assets left behind.

Russian M&A activity, as a whole was valued at just $109 million in 2022, reaching a low last seen in 2014, when the country annexed the Crimea Peninsula from Ukraine and fostered the breakaway of two eastern regions from the country, the Rystad report showed.

The figure for 2022 relates mainly to the assignment of a stake held by Austria’s OMV in a gas producing venture with Gazprom.

These OMV assets were wrapped up into the acquisition, by Abu Dhabi National Oil Company (Adnoc) of a 24.9% stake in the Austrian player in December 2022 and, as such, did not even count as foreign investment, Rystad said

However, trading volumes in Russian oil and gas resources held up well to sanctions, reaching about 12 billion barrels of oil equivalent, with such high volume explained by the mass exodus of western oil majors.

Conversely, Western oil companies were unable to realise the intrinsic value of assets left in Russia, after countermeasures were taken by the Russian government, resulting in cumulative impairments of more than $40 billion, Rystad said.

The latest example of this was the exit of Germany’s Wintershall Dea, with notification this week of a $5.7 billion charge due to the loss of control over an estimated 2 billion boe of reserves in Russia.

The list of asset-holding companies pulling out of Russia includes BP, TotalEnergies, Shell, ExxonMobil, Equinor and traders such as Vitol and Trafigura.

These companies owned assets that could be valued at nearly $41 billion before Russia’s invasion, Rystad said.

Before the invasion in Ukraine, international companies owned about 10% of total Russian oil and gas resources, Rystad has estimated, with British major BP holding the largest resource, followed by the France’s TotalEnergies and Wintershall Dea.

TotalEnergies continues to hold stakes in Russia’s largest independent gas producer, Novatek, and in two liquefied natural gas projects, Yamal LNG and Arctic LNG 2.

Rystad said that several Asian companies operating in Russia before the military invasion have opted to retain their operations there.

In particular, Japanese and Indian companies reapplied for their respective stakes in the Sakhalin 1 and Sakhalin 2 offshore oil and gas projects in the newly created operators and were granted permission from the Kremlin to rejoin the two developments.

However, investors from these two countries are believed to have rejected offers from Moscow to take new or increase their existing exposure to Russia after the exit of western players.

Mainland Chinese players have also retained their stakes in Russian projects, Rystad added.

Last year, industry sources suggested that Moscow was courting Saudi Aramco to consider taking a 10% stake in Arctic LNG 2, but no deal was confirmed.

No interest in Sakhalin projects

At the end of December, the Kremlin had to cancel its plan to sell Shell’s former 27.5% stake in Sakhalin 2 when no bids from potential investors surfaced by the deadline.

Novatek has given no firm answer to the Kremlin’s proposal that would make the independent the second-largest shareholder in Sakhalin 2 after gas giant Gazprom.

A deadline for finding an investor for the 30% shareholding in Sakhalin 1 — previously in hands of ExxonMobil — is getting nearer and existing foreign shareholders in the project — Japan’s Sodeco and India’s ONGC Videsh — have not indicated that they are ready to increase their stakes.

The long-term nature of the Ukraine conflict and strong government oversight on the transfer of ownership of Russian assets poses a “significant challenge for any M&A activity in Russia”, Rystad said.

Rystad expects the trend of low deal values and high traded resources to continue in 2023 as the Russian government creates new domestic entities to develop assets abandoned by international companies.

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