Germany’s Wintershall Dea has announced a landmark decision to fully exit its Russian operations, with the move involving the loss of half of the company’s production.
The company’s supervisory board approved a plan to exit the Russian operations “in an orderly manner complying with all applicable laws and regulations”, with chief executive Mario Mehren citing two major reasons behind the decison, which follows the exit of other large Western corporations last year.
“Russia’s war of aggression in Ukraine is incompatible with our values and has destroyed co-operation between Russia and Europe,” said Mehren.
“Continuing to operate in Russia is not tenable".
“Limitations imposed by the Russian government on operations of Western companies and external interferences in our joint venture operations, made it impossible for Wintershall Dea to operate in Russia as before and resulted in an economic expropriation of its joint ventures (with Russian gas giant Gazprom),” he added.
Wintershall Dea said it will separate its Russian business segment from its financial reporting and will record a one-off, non-cash charge of €5.3 billion ($5.7 billion) in its upcoming fourth quarter 2022 financial results in relation to the split, together with other Russia-related impairments.
However, following the split of the Russian segment, “significant financial flexibility” will be maintained, the company said.
In March 2022, Wintershall Dea wrote off €1 billion of its investment in the Gazprom-owned Nord Stream 2 subsea gas pipeline project, which aimed to carry Russian gas across the Baltic Sea to Germany, following international sanctions imposed by Western nations in response to Russia’s invasion of Ukraine the previous month.
According to Wintershall Dea’s latest financial report, its Russian gas ventures accounted for the production of 320,000 barrels of oil equivalent per day out of the company’s total output of 635,000 boepd in the first nine months of 2022.
Wintershall Dea’s most valuable holding in Russia is its 35% stake in the Severneftegazprom joint venture operating the South Russkoye gas field in West Siberia, which holds estimated reserves of more than 1 trillion cubic metres of gas.
Its partners in Severneftegazprom are Gazprom and Austria’s OMV, which hold stakes of 40% and 25%, respectively.
In 2009, Severneftegazprom reported that South Russkoye reached an annual plateau production of 25 billion cubic metres from shallow formations and later proceeded to tapping into deeper Turon formations to maintain the plateau.
Wintershall Dea’s two other producing ventures with Gazprom are Achimgaz and Achim Development, which develop high-pressure deep Achimov gas formations at West Siberia’s Urengoy field, where Gazprom has been producing shallow gas since the 1960s.
Changes to Russian legislation introduced last year in response to Western sanctions made it impossible for these ventures to repatriate earnings to their foreign shareholders, Wintershall Dea said earlier.
The government also imposed additional restrictions on the three ventures at the end of December.
The approved regulations cancelled long-term gas sales agreements between the ventures and Gazprom, and introduced fixed price ceilings of between $33 and $35 per thousand cubic metres of gas for the ventures when selling their output to the Russian company.
OMV had earlier expressed its concerns about the price ceiling for South Russkoye, but said on Wednesday that it has not yet made a final decision on its Russian assets, according to Reuters.
Earlier this month, Russian President Vladimir Putin took further action against the remaining Western companies in the country, signing a decree that imposes new restrictions on foreign shareholders in Russian ventures.
Under the new restrictions, Russian partners in these ventures may ignore votes cast by foreign companies based in countries that participate in sanctions against Russia and its corporations.
The restrictions also say that Russian ventures can discard the opinions and voting of board members and directors from Western countries.