OVL retakes 20% stake in Sakhalin-1 oil, gas fields

Oil rig and support vessel on offshore area near Sakhalin island. File
| Photo Credit: Getty Images

ONGC Videsh Limited, the overseas arm of state-owned Oil and Natural Gas Corporation (ONGC), has re-taken a 20% stake in the Sakhalin-1 oil and gas fields in the far east region of Russia, an official said on Monday.

Russian President Vladimir Putin in October last year disbanded Exxon Neftegaz – a regional subsidiary of U.S. super major ExxonMobil – as operator of the Sakhalin-1 and transferred the project and all of its assets and equipment to a new operator.

The other former foreign shareholders in the project – Japan’s Sodeco consortium and ONGC Videsh – were asked to apply to the Russian government to regain their shareholdings in the project.

OVL applied and has been given the same shareholding as it had previously, the official said.

Production from Sakhalin-1 stopped in April 2022 after Exxon Neftegaz declared force majeure at the project in response to international sanctions imposed on Russia following its invasion of Ukraine.

Moscow assigned the Sakhalin-1 project and operatorship to a regional subsidiary of Russian oil producer Rosneft. Russia then asked foreign shareholders in the project – ExxonMobil, Sodeco and ONGC Videsh – to apply to reinstate their shareholdings in the project before mid-November.

The Sodeco consortium too has retained its stake but there is no clarity on what will happen to ExxonMobil’s stake.

ExxonMobil had previously stated that it had fully exited Sakhalin-1 after the confiscation of assets and has no plans to operate the project.

Sakhalin-1 was producing 2,20,000 barrels per day of oil before the Ukraine war. Of this, OVL’s share was 44,000 bpd or 2.2 million tonne per annum. However, western sanctions following the Russia-Ukraine war led to constraints in evacuating oil.

Production resumed in November and has reached 1,40,000-1,50,000 bpd, the official said adding the output is likely to restore to original levels by March end.

Sakhalin-1 is a large oil and gas field in far-east offshore Russia, spread over 1,140 square kilometers, which includes three offshore fields namely Chayvo, Odoptu and ArkutunDagi. OVL acquired 20% stake in the project in July 2001.

Exxon Neftegas Limited (ENL) and Sodeco held a 30% stake each. The remaining 20% is held by Russia’s Rosneft through its subsidiaries SMNG (11.5%) and RN Astra (8.5%).

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.

On October 7, 2022, the Russian President issued a decree, consequent to which the rights and obligations of the consortium under the Sakhalin-1 production sharing agreement (PSA) was transferred to a new company, Sakhalin-1 Limited Liability Company.

This new company has OVL and Rosneft with 20% stake each and Sodeco with another 30%, the official said adding Russia hasn’t decided what it will do with the 20% of ExxonMobil.

The partners currently are discussing a joint operatorship model for the fields.