Exxon Threatens To Sue Russia Over Blocked Withdrawal From Oil Project

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Jack McEvoy Energy & Environment Reporter
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Exxon Mobil is attempting to take legal action against the Russian government after it blocked the American oil and gas company’s attempts to withdraw from an energy project located in Russia’s far east, The Wall Street Journal reported.

The Texas-based energy giant told state officials that the company would sue the Russian government in an international arbitration court if it was not allowed to withdraw from the Sakhalin-1 oil and gas project, in which Exxon holds a 30% stake, the WSJ reported, citing sources familiar with the matter. The firm recently sent the Russian government a notice of difference, a common stipulation in commercial contracts that seeks to resolve conflicts before litigation, an Exxon spokesperson told the Daily Caller News Foundation. (RELATED: ‘Swimming In Cash’: Russia’s Oil Industry Is Booming Despite Sanctions)

“We have provided a notice of difference to the Russian Federal Government regarding the decree, which inhibits our rights and impedes our ability to exit operations safely,” the spokesperson said.

Exxon is already taking steps to file a lawsuit outside of Russia as it does not expect the matter to be resolved by the deadline stipulated by the notice of difference, people familiar with the situation told the WSJ. However, a lawsuit could take years to resolve in an international court and Russia could choose to ignore legal rulings.

Exxon began working on exiting Russia following the invasion of Ukraine in late February and lost $3.4 billion following its initial exit in the first quarter of 2022.

“We announced in March our plans to exit the venture, and we continue to take the necessary steps to do so,” the spokesperson said. “Exiting is a complex process, and as the operator, we must protect the safety of employees, the environment, and the operation.”

A picture shows the logo of US oil and gas giant ExxonMobil during the World Gas Conference exhibition in Paris on June 2, 2015. AFP PHOTO / ERIC PIERMONT

Exxon is currently unable to withdraw from the project because of a decree signed by Russian President Vladimir Putin on Aug. 5  which prevents Western firms from selling their stake in strategic enterprises like energy and banking, according to the WSJ. The company previously stated that it was attempting to transfer its participation in the Sakhalin-1 project to another entity before Putin’s decree went into action.

Exxon needs to find an entity that is capable of both operating and buying its stake in Sakhalin-1 to successfully exit the project.

Russian oil and gas operations have been boosted by Western technical expertise and the country’s energy production could fall without such help, according to the WSJ. Moreover, Western sanctions have made it harder for Russian energy firms to get the necessary equipment to conduct operations.

Russian state-controlled oil company Rosneft, Exxon’s partner in the energy project, said that the conflict is a result of Exxon’s decision to reduce production which is causing Rosneft to lose money and could be resolved should Exxon continue operations, according to the WSJ.

“The return to normal production activities of the Sakhalin-1 project could create the necessary conditions for resolving all contentious issues,” a Rosneft representative told the WSJ.

The Russian Embassy in Washington, D.C., did not immediately respond to the Daily Caller News Foundation’s request for comment.

This story has been updated with comment from ExxonMobil.

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