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Rosneft's Sakhalin lawsuit exposes risks of Russia deals

Local giant cries foul over US-Japan-led oil and gas project

The Sakhalin-1 oil and gas development on Sakhalin Island in Russia's Far East region.   © Reuters

MOSCOW -- Rosneft, Russia's biggest oil company, has filed a lawsuit against partners in a U.S.- and Japan-led project in what industry watchers see as pushback against American rivals encroaching on the country's reserves. 

The state-run company is looking to recover 89.1 billion rubles ($1.42 billion) for "unjust enrichment" that five parties, which include U.S.-based Exxon Mobil, allegedly gained from the Sakhalin-1 oil and gas project in Russia's Far East, court documents show.

Details are scarce, but Rosneft likely suspects that the project was taking crude oil from a neighboring block that it controls, according to a source at a Japanese trading company. "The sudden accusation is absurd," said an employee at another trading house, highlighting the difficulty of doing business in Russia.

Located on an island north of Japan, Sakhalin-1 is a rare major energy development on Russian soil where foreign energy groups have taken the lead. Exxon owns a 30% stake, while Japan public-private venture Sodeco holds another 30%. Rosneft owns 20% through a subsidiary, and India's ONGC controls the other 20%. The case is unusual in that Rosneft is suing two of its own subsidiaries.

This is not the first dispute over Sakhalin-1 involving Exxon. The U.S. oil major took the Russian government to international arbitration court over taxation of the project. The case was settled in 2017, and experts quoted by Russian media suggested the latest lawsuit would end in a similar way. 

The Japanese government, which is involved in Sakhalin-1 through Sodeco, had little comment on the lawsuit.

"Sakhalin-1 is a very important project for Japan," Hiroshige Seko, minister of economy, trade and industry, told reporters on Tuesday, adding that Tokyo was still gathering facts on the matter.

Back in 2006, Japanese trading companies and Royal Dutch Shell were pressured to cede control of Sakhalin-2, a a separate oil and gas project on the island, to Russian state-owned energy group Gazprom.

Resource-rich Russia has engaged in energy diplomacy with Europe and other neighbors through projects like the Gazprom-run Nord Stream 2 natural gas pipeline. Germany's imports of Russian gas recently drew criticism from U.S. President Donald Trump, who said they make Berlin "totally controlled" by Moscow.

Russian President Vladimir Putin says there are no ulterior political motives to the project. Trump, meanwhile, is eager to boost exports of U.S. shale gas.

Rosneft CEO Igor Sechin is considered a powerful figure close to Putin. He is believed to have been behind the arrest of Alexei Ulyukayev, the former economic development minister who had opposed Rosneft's acquisition of a chunk of Russian oil company Bashneft.

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