ONGC eyes stake in Russian entity managing Sakhalin 1, says report

India's Oil and Natural Gas Corp plans to take a stake in the new Russian entity that will manage the Sakhalin 1 project in the far east as it seeks to retain a 20% share in the asset, three sources familiar with the matter said.

Russian President Vladimir Putin earlier this month issued a decree to establish a new operator for the ExxonMobil-led project and authorised the Kremlin to decide whether foreign shareholders could retain stakes in Sakhalin 1.

"ONGC Videsh will protect its share in the project, which means it will take a stake in the new entity," said one of the sources.

ONGC holds a stake in the project through its overseas investment arm ONGC Videsh.

The new Russian entity, managed by Rosneft subsidiary Sakhalinmorneftegaz-shelf, will own investors' rights in Sakhalin 1. Foreign shareholders have one month to decide on retaining stakes in the project.

Exxon has fully exited Russia after Moscow this month "unilaterally terminated" its interests in the Sakhalin-1 oil and gas project.

Output of Sakhalin 1 collapsed after Exxon declared force majeure in April and refused to accept Russian insurance cover for the tankers as western insurers pulled out due to the sanctions, sources said.

Sakhlin 1 was producing 220,000 bpd before Russia launched its so-called "special military operations" in Ukraine.

Operatorship of the project by a Russian entity will lead to smooth functioning of Sakhalin 1 and would ensure shipping of oil, the sources said.

Two Indian refiners could not lift oil cargoes, sold by ONGC Videsh, due to insurance problems.

The Sakhalin 1 project has turned out to be a money spinner for ONGC Videsh, and accounted for about a quarter of its proved reserves of 124.7 million tonnes in the year ended March 31, 2022.

Sources said ONGC would consider taking additional stake in the project if that makes "commercial sense".

The sources declined to be named citing confidentiality and ONGC Videsh did not respond to Reuters' email seeking comments.

Sakhalin Oil and Gas Development Co (SODECO), a consortium of Japanese firms, holds a 30% stake in the project while Russian oil major Rosneft through Sakhalinmorneftegaz-shelf and R N Astra own the remaining 20% share.

While the Indian company is keen to retain its stake in the project, SODECO said it was still gathering information about the decree.

"We are gathering information about the decree and plan to make a decision by Nov. 12 whether or not we will apply for a stake in the new entity after consulting with our stakeholders, including the Japanese industry ministry", a spokesperson at SODECO said on Monday.

(Reporting by Nidhi Verma; Editing by Bernadette Baum)