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Exxon declares force majeure on Russian Sakhalin-1 operations

Exxon declares force majeure on Russian Sakhalin-1 operations
Exxon declares force majeure on Russian Sakhalin-1 operations   -   Copyright  Thomson Reuters 2022
By Reuters

By Florence Tan and Sabrina Valle

– Exxon Mobil Corp said on Wednesday that its Russian unit Exxon Neftegas Ltd has declared force majeure for its Sakhalin-1 operations, where it has become increasingly difficult to ship crude due to sanctions on Russia.

The Sakhalin-1 project produces Russian Sokol crude oil off the coast of Sakhalin Island in the Russian Far East, exporting about 273,000 barrels per day, mainly to South Korea, and to other destinations including Japan, Australia, Thailand and the United States.

Exxon said on March 1 it would exit about $4 billion in assets and discontinue all its Russia operations, including Sakhalin 1, following Moscow’s invasion of Ukraine on Feb. 24.

The oil producer is taking steps to exit Sakhalin 1, which includes addressing the contractual and commercial obligations, Exxon spokesperson Julie King said in a written response.

“As operator of Sakhalin 1, we have an obligation to ensure the safety of people, protection of the environment and integrity of operations,” King said.

Exxon has also significantly phased down its chemical and lubricant businesses in Russia, and have suspended sales of all chemical and lubricant products into Russia and Belarus.

Project stakeholders, which also include Japan’s Sakhalin Oil and Gas Development consortium and India’s Oil and Natural Gas Corp, are having difficulty chartering tankers to ship oil out of a region that generally needs ice vessels to navigate the journey.

That is because of growing concerns from shippers over reputation risk and the increasing difficulty for Russian assets to find insurance coverage.

“As a result, Exxon Neftegas Ltd has curtailed crude oil production,” the spokesperson said.

The latest tanker to load at Russia’s De Kastri port this week was Aframax tanker Captain Kostichev, according to data on Refinitiv Eikon. The vessel is currently located off De Kastri port.

Japan’s Sakhalin consortium, which owns a 30% stake in the project, declined comment, citing confidentiality agreements with Exxon.

(This story corrects to February in paragraph 3)