Exxon Mobil exploring return to Russia's Sakhalin: Here's what we know

After its 2022 exit, Exxon is exploring a return to Russia's Sakhalin-1 project. The firm has been in talks with Russian energy major Rosneft, as Putin signals openness during Alaska summit

American oil major Exxon Mobil is in talks to resume business in Russia, following its messy exit from the country after Moscow invaded Ukraine in February 2022.

 

Exxon has been holding undisclosed talks with Russia’s state energy giant Rosneft centred on rejoining the Sakhalin-1 oil-and-gas project off Moscow’s far-east coast, reported The Wall Street Journal on Tuesday (local time).

 

The reports surfaced shortly after the heads of the two countries met in Alaska recently. Earlier this month, US President Donald Trump met his Russian counterpart Vladimir Putin during the Alaska summit, where both leaders publicly expressed willingness to do more business together.

 

Exxon’s dramatic exit

Exxon was one of the many Western companies to shutter its Russian business in 2022 after Putin allowed Ukraine’s invasion. While sanctions after Russia’s annexation of Crimea in 2014 forced Exxon out of some projects, Sakhalin had survived until 2022.

 

However, Sakhalin-1 had been one of Exxon’s biggest overseas projects since 1995, with Exxon holding 30 per cent alongside Rosneft, and some Japanese and Indian firms who remain there. 

 

While initially reducing output, Exxon tried to sell its stake and wrote down over $4 billion, but Moscow blocked the sale and wiped out Exxon’s stake. At the time, the oil major had accused Moncow of expropriation.

Shifting stance of oil major

While Exxon has already been holding talks with Russian counterparts about stranded assets since its exit, executives are now seeking support from the US government to resume its business in Russia. Exxon Chief Executive Officer Darren Woods discussed the company’s possible return with Trump recently. The requests so far have landed on sympathetic ears, The Wall Street Journal report said.

 

Exxon’s Senior Vice-President Neil Chapman has reportedly led the negotiations on Exxon’s side, with Rosneft CEO Igor Sechin, who is a close ally of Putin.

Why Russia wants Exxon back?

While Russia’s oil industry has kept production high despite scores of Western sanctions, including multiple packages from the US and European Union, the output is likely to decline without the right knowledge and investment. Moreover, Ukrainian drone strikes on refineries and pipelines have been hurting Russia’s fuel supplies.

 

As Exxon aims to recoup at least part of the past losses, the company’s return will help the Russian government stabilise its economy through peace talks and Western investment.

Putin takes the first step

On the same day as the Alaska summit, Putin signed a decree allowing foreign companies to once again own shares in the Russian entity operating Sakhalin since Exxon’s exit. This removed one of the key barriers for the US oil major’s possible return. However, this came with several pre-set conditions by the Russian government:

• Exxon (and other foreign firms) must provide overseas equipment and spare parts critical for Russia’s energy sector
• Companies are expected to advocate for the repeal of Western sanctions that restrict Russia’s economy and energy trade
• Exxon’s comeback will hinge on the specific deal Russia offers, including ownership rights and operational control

Back-channel communications

Exxon had long been invested in Russia, with former CEO Rex Tillerson receiving a Friendship medal from Putin in 2013. According to the WSJ report, Exxon maintained back-channel communications with Rosneft throughout the war.