Analysis-As Russia avoids energy sanctions, oil majors flee but TotalEnergies stays
By Shadia Nasralla, Benjamin Mallet and Michel Rose
LONDON (Reuters) – France’s TotalEnergies is looking like a loner as it clings to its Russian investments amid a mass exodus of Western oil majors from the country following its invasion of Ukraine, even though no sanctions have forced such investments.
“For existing assets, the company says it will abide by EU sanctions regardless of the consequences. But for now, there are no energy sanctions,” a source told reflection within TotalEnergies.
TotalEnergies has a forward-looking position in Russia, heavily focused on liquefied natural gas (LNG), with stakes in the $21 billion Arctic LNG 2 project to be built, as well as the Yamal production operation. LNG.
As the world tries to cut carbon emissions, oil majors are betting on LNG to replace dirtier coal and oil. TotalEnergies first took a stake in Russian gas producer Novatek in 2011 for $4 billion and gradually increased its stake to just under 20% by 2018.
“The company cannot divest assets overnight unless sanctions force it to do so. It takes time to think things through,” the source said.
The French government declined to comment on specific companies and Russia. French President Emmanuel Macron, who convened members of a Franco-Russian forum on Tuesday, did not urge TotalEnergies or French companies to leave Russia, two participants told Reuters. Among those present was Patrick Pouyanne, CEO of TotalEnergies.
In contrast, the UK government immediately applauded Shell and BP’s decision to leave Russia. CEO Bernard Looney told employees that BP “could not reasonably continue in Russia given the conflict in Ukraine,” according to a company source.
Billions of dollars in impending writedowns are piling up for companies that have said they will pull out of their Russian assets: BP, Shell, Equinor and Exxon Mobil. For now, there are few potential buyers for the stakes and operations they leave in Russia.
Share prices of companies that left Russia have outperformed TotalEnergies in recent days.
Chart – TotalEnergies shares underperforming peers: https://fingfx.thomsonreuters.com/gfx/ce/xmpjoebwlvr/Pasted%20image%201646312060659.png
“We believe a potential exit from TTE is much more complicated than for its peers,” said RBC equity analyst Biraj Borkhataria.
Wednesday. “We consider Russia to be strategically important for TTE, especially for its LNG business.”
TotalEnergies aims to satisfy 10% of global LNG markets by 2025 with 50 million tons per year. Russia accounts for 6 million tonnes of Yamal and an additional 4 million tonnes of Arctic LNG 2 once operational, according to RBC.
Reuters could not verify the total returns on investments in Russia from the oil majors, which do not regularly publish asset- and country-specific financial data. Yet it was clear that BP, for example, had already made its investments.
When former US President Donald Trump imposed sanctions on Iran, TotalEnergies also maintained its investment in a major gas field, only abandoning it after failing to secure a sanctions waiver from Washington in 2018.
At the time, media reported that Pouyanne told Trump that continued investment could help democratic progress in Iran.
In 2021, TotalEnergies cash flow from Russia amounted to $1.5 billion. He declined to give further details on his Russian investments and cash flow from previous years.
Meanwhile, BP faces a writedown of up to $25 billion for ditching Russia and losing Rosneft’s annual dividends that have fluctuated between about $300 million and $780 million, according to its quarterly results.
But the cash flow it has received from Russia over the years could ease some of that pain.
In 2003, BP and Russian investors created TNK-BP in which BP invested $8 billion. Over the next 10 years, BP received about $19 billion in dividends.
In 2013, Rosneft bought BP’s stake in TNK-BP for about $12 billion in cash and shares of Rosneft which earned BP dividends of over $4 billion.
Shell, which was an early partner in Russia’s first LNG plant, Sakhalin II, sold half of its 55% stake to Gazprom in 2007 for $4.1 billion, two years before the launch. project department.
Its 2021 net profits from Sakhalin II and its Salym oilfields, which began full production in 2006, were $700 million, he said. Tax reports showed Russia’s cumulative revenue was around $384 million in 2020, $455 million in 2019 and a loss of $16 million in 2018.
Pointing to writedowns from its exit from Russia, Shell said it had about $3 billion in non-current assets. A Shell spokesperson declined to give further details.
As for Exxon Mobil, closing the door on its $4 billion in assets in Russia and triggering what could become a writedown, it has benefited from the exploitation of large offshore oil and gas fields near the island of Sakhalin since 2005.
Exxon did not break down its investments in Russia and declined to comment on a possible write-down. But chief financial officer Kathryn Mikells said on Wednesday exiting her Russian oil and gas operations would shave 1-2% off profits.
“All will have difficulty repatriating future revenues from Russia. The difference between them is that TotalEnergies can argue that they have less direct ties to the government because Novatek is a private company. The question is how long this argument can hold,” Giacomo said. Romeo, Jefferies equity analyst.
“In terms of recoverability of investments, direct stakes in LNG assets such as Sakhalin, Yamal and Arctic LNG are different from stakes in companies such as Rosneft and Novatek. Chinese or Indian investors might be interested in stakes in assets LNG, if the price is low enough and there are enough uncontracted volumes.”
(Additional reporting by Ron Bousso, Sabrina Valle, writing by Shadia Nasralla; Editing by David Gregorio)