Insurance plan

Russian oil exports plummet after Exxon rejects Putin’s ship insurance plan

By Nidhi Verma (Reuters) Oil production at Russia’s giant Exxon-led Sakhalin-1 Pacific project has plummeted following the U.S. major’s refusal to accept local insurance for tankers after Western insurers withdrew due to sanctions, several industry sources told Reuters.

Western insurers have withdrawn cover from tankers operated by Sovcomflot, Russia’s largest shipping group, which was sanctioned following Moscow’s invasion of Ukraine.

“Exxon refused to take the tankers from Sovcomflot,” an industry source said. Some shipments destined to supply Indian refiners were also affected because Exxon did not recognize the alternative cover Sovcomflot had taken out with Russian insurers, the sources said.

Sovcomflot and Exxon did not immediately respond to requests for comment.

The developments came as the European Union is set to impose a ban on Russian tanker insurance and shows the major impact ship insurance and reinsurance guarantees can have on operations.

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Russian oil champion Rosneft, a partner in the Sakhalin-1 project, blamed Exxon for the drop in production, saying that since mid-May the project had produced virtually no oil.

Exxon’s Russian unit, Exxon Neftegas Ltd, cited difficulties in chartering tankers due to the sanctions.

Russian newspaper Kommersant was first to report on Monday that Sakhalin-1 production had collapsed following Exxon’s refusal to work with Sovcomflot.

Oil production from the Sakhalin-1 project fell to just 10,000 barrels per day (bpd) earlier this year, from 220,000 bpd before Russia invaded Ukraine on February 24.

Russian President Vladimir Putin signed a decree earlier this month establishing a new operator for Sakhalin-1 to be managed by Rosneft subsidiary Sakhalinmorneftegaz-Shelf.

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The decision gives the Russian government the power to decide whether foreign shareholders can retain stakes in the project, giving them one month to express interest or lose their stakes.

Rosneft has a 20% stake in Sakhalin-1, ONGC Videsh, the overseas investment arm of Indian state-owned ONGC, has a 20% stake in the project, and Japanese oil producer SODECO , supported by the State, the remaining 30%.

In August, Exxon said it was in the process of transferring its 30% stake in the oil and gas project “to another party”, without naming it.

(Reporting by Nidhi Verma and Sabrina Valle; Editing by Alex Richardson, Reuters)