Russian authorities have established a new operator for the foreign-led Sakhalin 1 offshore oil and gas development in the country’s far east after Prime Minister Mikhail Mishustin signed a resolution on the issue last week.
The new operator — also named Sakhalin 1 — has been incorporated in Sakhalin Island’s capital of Yuzhno-Sakhalinsk as a limited liability company with a foundation capital of just 10,000 rubles ($160).
Russian President Vladimir Putin issued a decree earlier this month instructing authorities to disband operator Exxon Neftegaz — a regional subsidiary of US supermajor ExxonMobil — and transfer the project and all of its assets and equipment to a new operator in response to growing pressure to resume production from the development.
Production from Sakhalin 1 halted in May, when Exxon Neftegaz declared force majeure at the project in response to international sanctions imposed on Russia following its invasion of Ukraine in February.
Under Mishustin’s resolution, Exxon Neftegaz will now have two weeks to transfer its assets, financial obligations, personnel and existing contracts to the new operator.
The assets include the Arkutun-Dagi, Chayvo and Odoptu offshore fields and supporting infrastructure.
The other former foreign shareholders in the project — Japan’s Sodeco consortium and India’s ONGC Videsh — also have to apply to the Russian government to regain their shareholdings in the project.
Mishustin has also ordered the current production sharing agreement — signed with the project’s consortium in 1995 — to be transferred to the new operator.
He has also granted the new operator an exception from Russian Subsurface Law, allowing it to export gas independently and not via state controlled gas giant Gazprom or its subsidiaries.
Before ExxonMobil announced its intention to leave the project and sell its shareholding to another party, Exxon Neftegaz was planning to build a liquefied natural gas plant for their scheme on the Russian mainland, with the aim of exporting an estimated 6.2 million tonnes per annum of LNG to international markets.
Almost all of Sakhalin 1’s oil production is shipped to international markets via the De-Kastri terminal, located in the Khabarovsk region on the Russian mainland, which is linked to Sakhalin 1 via a dedicated pipeline.
Regional authorities have repeatedly criticised Exxon Neftegaz for the halt in production, and in September obtained an injunction from a Sakhalin court to freeze the company’s assets.
Reports on Sakhalin have suggested that the oil and gas production at Sakhalin 1 has to be restarted before the upcoming winter to avoid potential damage to idle pipeline infrastructure.
ExxonMobil has not commented on the establishment of the new Sakhalin 1 operator and its implications, however, the US supermajor was reported earlier to be considering starting arbitration against the Russian government after Putin blocked the company’s ability to sell its shareholding the project to an unidentified third party.
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