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ExxonMobil Counts Cost Of Sakhalin Exit

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US supermajor ExxonMobil has booked an after-tax charge of $3.4 billion as a result of its decision to walk away from its Russian investments, including a 30 percent stake in the Sakhalin 1 offshore oil and gas development project near Sakhalin Island.

The charge weighed heavily on estimated first quarter earnings that came out at $5.5 billion against the $8.9 billion that ExxonMobil reported in the fourth quarter of 2021. The supermajor’s net earnings in the corresponding first quarter of 2021 were $2.7 billion.

Most of the announced charge was reflected in the upstream division of the operations and includes the full after-tax book value of the plant, property, and equipment, with just $100 million reflected in the corporate segment.

ExxonMobil’s Russian subsidiary and Sakhalin 1 operator Exxon Neftegaz has maintained offices in the Sakhalin capital of Yuzhno-Sakhalinsk, as well as in Moscow.

The US company’s share of Sakhalin 1’s oil and gas production was about 65,000 barrels of oil equivalent per day and was contributing about 1 percent of its total annual earnings.

The project’s operations also represented less than 2 percent of company’s total hydrocarbon production in 2021, according to ExxonMobil chief executive Darren Woods.

“As the operator, our priority continues to be the health and safety of our people, and protection of the environment. Of course, we remain in full compliance with all US sanctions and are closely coordinating with the US Administration,” Woods told an earnings call.

Besides running oil and gas production at Sakhalin 1, ExxonMobil is also forfeiting its plans to build a liquefied natural gas plant in the Khabarovsk region near Sakhalin Island in Russia’s far east.

The facility for the Far East LNG project was to have a capacity of 6.2 million tonnes per annum.

Together with Russian partner Rosneft, ExxonMobil was preparing to launch a major bid process for the Far East LNG facility ahead when Russian invaded Ukraine on 24 February.

Some of the ExxonMobil’s loss may be reversed later this year should it be able to sell its Sakhalin 1 shareholding.

Indian newspaper The Economic Times reported that India’s Ministry of Petroleum & Natural Gas has asked state controlled ONGC Videsh to evaluate the possibility of buying ExxonMobil’s Sakhalin 1 interest.

ONGC Videsh already holds a 20 percent shareholding in Sakhalin 1, with Japanese consortium Sodeco holding 30 percent stake and Rosneft 20 percent.

Sakhalkin 1 was the ExxonMobil’s sole major upstream holding in Russia after exiting its offshore exploration partnerships with Rosneft in 2018 to comply with US sanctions imposed on Russia and Rosneft following Russia’s annexation of the Crimea Peninsula from Ukraine in 2014.

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