Equinor withdrew from the Kharyaga PSA

Norway’s Equinor confirmed on September 2 that it had completely withdrawn from the project to develop the Kharyaga oil field in the Nenets Autonomous Okrug, the company said in a statement. The company owned a 30% stake.

“After leaving Kharyaga, Equinor has no assets or projects left in Russia,” the company stressed.

The Kharyaginskoye field is being developed as part of the project on the basis of Production Sharing Agreements (PSAs). Such an agreement on Kharyaga entered into force in January 1999 for a period of 20 years with the right to extend for another 13 years. In July 2018, the Russian government extended the Kharyaga PSA until the end of 2031. The project produces 1.45 million tons of oil per year, and the cumulative production since 1999 is more than 20 million tons.

Until mid-2016, the project operator was the French TotalEnergies. In August 2016, the company transferred the functions of the operator and 20% in the project to the Russian state company Zarubezhneft. Since then, the share of Zarubezhneft has grown to 40%, the share of TotalEnergies has decreased to 20%, Equinor has 30%, and the Nenets Oil Company has 10%.

On February 28, Equinor announced its decision to stop new investments in Russia and exit its Russian assets. At the end of May, Equinor announced the signing of an agreement to withdraw from the Kharyaga PSA and announced the withdrawal from four joint ventures with Rosneft. As a result, in the first quarter of 2022, the company wrote off Russian assets in the amount of $1.08 billion, Equinor reports. The company participated in the AngaraNeft and SevKomNeftegaz projects and in the project to develop Domanik deposits in the Samara Region.

On July 6, TotalEnergies announced the transfer of its 20% stake in the Kharyaga PSA to Zarubezhneft. The amount of the transaction was not specified. Already on July 25, Prime Minister Mikhail Mishustin signed an order to transfer the shares of Equinor and TotalEnergies to Zarubezhneft. As a result, the share of the Russian state-owned company in the project will grow to 90%.

After the start of the NWO in Ukraine, foreign oil and gas companies from unfriendly countries, against the backdrop of sanctions, announced their withdrawal from projects in Russia. This also applies to PSA projects. In early August, the American ExxonMobil announced that it was in the process of transferring the functions of the operator of the Sakhalin-1 project and a 30% stake in another company. On September 1, Anglo-Dutch Shell announced that it would not be involved in the project’s new operator “Sakhalin-2”, where before that she owned 27.5% minus 1 share. Since August 19, the Russian Sakhalin Energy LLC has become the operator of the project. Foreign companies that want to keep their stake in the project must notify the Russian government before September 5.

Equinor had to withdraw from an important Russian project after the imposition of sanctions by the European Union, explained Alexander Frolov, deputy director general of the National Energy Institute. The company’s decision was also influenced by the fact that the image costs of maintaining Russian assets would exceed the losses from their sale, adds Igor Yushkov, a leading analyst at the National Energy Security Fund. Frolov noted that in this way Equinor cut off an important strategic direction of development, due to which it would be possible to compensate for the lack of growth in other areas, in particular, in her native Norway.

Yushkov drew attention to the fact that the conditions under which Equinor transferred its stake to Zarubezhneft are unknown. If the company managed to withdraw from the project before signing the presidential decree, which introduces a permissive procedure for foreigners to withdraw from projects in the fuel and energy complex, it could receive some money for its share, if after that it could transfer its share to Zarubezhneft for 1 ruble, the analyst explained .

Analysts believe that new PSA projects will not be developed in Russia. Yushkov explained that the Russian authorities consider this format forced and applicable only in third world countries. Frolov called PSA projects a legacy of the 1990s that has become obsolete. He noted that since the 2000s in Russia, a different system of interaction with foreign investors was built. Now Russian companies have money and technologies that allow them to produce hydrocarbons almost everywhere, so they want to receive new technologies and end markets from foreign investors, Frolov added.