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Ukraine war

Putin orders Russia to seize Exxon-led Sakhalin-1 oil and gas project

Japanese and Indian investors are partners in the energy venture

Exxon Mobil has announced it is exiting the Sakhalin 1 oil project. (Exxon Neftegas via Kyodo)

MOSCOW/HOUSTON (Reuters) -- Russian President Vladimir Putin has signed a decree, published on Friday, to set up a new operator for the Sakhalin-1 oil and gas project, following similar steps to seize other oil and gas projects with foreign participation.

Exxon Mobil, with a 30% stake, was the operator of Sakhalin-1, a development in Russia's Far East. The largest U.S. producer has been trying to exit Russia operations since March, days after Moscow's invasion of Ukraine. Exxon declined to comment on Friday's decree.

In April, Exxon took a $4.6 billion impairment charge for exiting its Russian activities, leaving Sakhalin-1 operation open for a takeover from a partner. It also proceeded to reduce oil and gas production volumes and remove personnel from the country.

In August, Putin issued Presidential Decree 520, which Exxon said impedes the company to conclude the exit safely. The producer then escalated the dispute and issued a note of difference that could ultimately end up in an arbitration process.

Exxon's head of upstream operations said on Tuesday it was still working with its partners on its exit. A transfer of operation to a partner would be a positive outcome for Exxon.

The Russian company Rosneft is a partner in the project along with ONGC Videsh, the overseas investment arm of India's ONGC, and Japan's SODECO.

The decree said the Russian government was setting up a new Russian limited liability company, which would own the investors' rights, including the operator's rights of Exxon Neftegaz.

It said the foreign partners should apply to the government within a month after the new company is set up, to notify it of their agreement to take up shares in the new entity in accordance with their stakes in the previous company.

Rosneft subsidiary Sakhalinmorneftegaz-Shelf is appointed as the manager of the new company.

Oil production at the Sakhalin-1 project fell to just 10,000 barrels per day from 220,000 bpd after sanctions were imposed on Moscow by Western powers over its military campaign in Ukraine.

Putin also signed a decree in July seizing full control of Sakhalin-2, another gas and oil project in the Russian Far East created on the basis of a production-sharing agreement signed in 1990s.

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