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18 Apr 2023

Global Witness

Russia: Shell says it wrote off assets as losses, but media claims it may receive more than $1 bln. for stake in Sakhalin-II project; incl. co. comments

Shell’s looming billion-dollar blood-money payday, 18 April 2023

Shell claimed it had left Russia for good, and wrote off its Russian assets as losses. Now, the oil giant stands to net more than $1 billion after Novatek, a Russian gas company, bid for Shell’s stake in the Sakhalin-II project, a major oil and  gas development in the Far East.

The war in Ukraine has been more uncomfortable for Shell than most oil companies. There was the ill-fated, opportunistic purchase of a discounted cargo of Russian crude as tanks were bearing down on Kyiv. Shell apologised profusely, gave the profits from the transaction to humanitarian programs in Ukraine, and swore off Russian oil...

On their investments in Russia, including their 27.5% stake in the Sakhalin-II fields, Shell seemed to beat a surer path. To a fanfare of headlines, they announced they would exit Russia – taking what they called ‘decisive action’ by writing down their investments, including Sakhalin-II.

In doing so, they became members of a club of Western oil majors that now includes TotalEnergies, which wrote down its stake in Novatek; BP, which wrote down its stake in Rosneft, and Wintershall, which wrote down its stake in Achimgaz...

But for political reasons, Shell’s investment in Sakhalin-II looked done and dusted, as the Russian government expropriated the project’s assets in June last year. The Kremlin made all companies invested in the Sakhalin projects re-apply to maintain their shareholding. That was a bridge too far for Shell. The company refused, and the business press reported it would walk away from the venture with nothing,.

Now, Russian media are reporting that the Kremlin has approved a bid for Shell’s stake in Sakhalin-II from Novatek for $1.16 billion...

Responding to Global Witness, Shell confirmed that it still holds the stake in Sakhalin-II but didn’t comment on the Novatek bid.  

It’s unclear whether Shell has any agency in this deal. It seems unlikely that they will reject it. But the bid means that for all the headlines proclaiming their exit, for all the talk of impairments and write-downs, Shell may net more than $1 billion from a Russian gas project which they had declared a loss, after more than a year of war crimes in Ukraine, and after the company’s most profitable year in over a century...